Annual Report - RNRL - 2008-2009

RELIANCE NATURAL RESOURCES LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Dear Shareowners,

Your Directors have pleasure in presenting the ninth Annual Report together
with the audited statement of accounts of the Company for the year ended
March 31, 2009.

Financial Results:

The performance of the Company for the financial year ended March 31, 2009
is summarised below:

Particulars A B C D

Total Income 47,141.09 92.94 36,730.65 91.55

Gross Profit before depreciation 7,194.22 14.18 9,269.44 23.10

Less: Depreciation 5.99 0.01 694.64 1.73

Profit before tax 7,188.23 14.17 8,574.80 21.37

Less: Provision for
Current tax 170.06 0.34 1,692.56 4.22

Fringe benefit tax 11.54 0.02 11.60 0.03

Deferred tax liability 19.61 0.04 10.77 0.03

Profit after tax 6,987.02 13.77 6,859.87 17.10

Add : Balance of profit brought from 9,554.27 18.84 2,694.40 6.71
previous year

Profit available for appropriation 16,541.29 32.61 9,554.27 23.81

Appropriations - - - -

Balance carried to balance sheet 16,541.29 32.61 9,554.27 23.81

A = Financial Year ended March 31, 2009 - Rs in Lakh
B = Financial Year ended March 31, 2009 - US $ in million*
C = Financial Year ended March 31, 2008 - Rs in Lakh
D = Financial Year ended March 31, 2008 - US $ in million*

* Rs 50.72 = US $ 1 Exchange Rate as on March 31, 2009 (Rs 40.12 = US$ 1 as
on March 31, 2008)

Financial Performance:

During the year under review, your Company recorded a total income of
Rs.471.41 crore, against Rs 367.31 crore in the previous year, an increase
of 28.34 per cent. Net Profit for the financial year ended March 31, 2009
rose to Rs 69.87 crore from Rs 68.60 crore in the previous year.

Dividend:

Your Directors have not recommended any dividend on equity shares for the
year under review.

Management Discussion and Analysis:

Management Discussion and Analysis of financial condition including the
results of operations of the Company for the year under review as required
under clause 49 of the listing agreement with the stock exchanges, is given
as a separate statement in this Annual Report.


Subsidiary Companies:

The Company, as of March 31, 2009 had seven subsidiaries, among which
Reliance Fuel Resources Limited, Reliance Natural Resources (Singapore) Pte
Ltd and Reliance Cementation Private Limited are wholly owned subsidiaries
of the Company. Besides, Reliance Cement Corporation Private Limited,
Reliance Cement Works Private Limited, Reliance Cement and Infra Private
Limited and Reliance Cement Resources Private Limited became wholly owned
subsidiaries of Reliance Cementation Private Limited, a subsidiary of the
Company, during the year under review and in terms of Section 4(1) (c) of
the Companies Act, 1956, these four companies have become subsidiaries of
the Company.

In terms of the approvals granted by the Central Government under Section
212(8) of the Companies Act, 1956, copies of the Balance Sheet, Profit and
Loss Account, Report of the Board of Directors and Auditors of the
subsisting subsidiaries have not been attached with the Balance Sheet of
the Company. However, these documents will be made available upon request
by any member of the Company interested in obtaining the same. As directed
by the Central Government, the financial data of the subsidiaries has been
furnished in the Notes on consolidated financial statements, which forms
part of the Annual Report. The annual accounts of the Company including
that of subsidiaries will be kept for inspection by any member. Further,
pursuant to Accounting Standard - 21 (AS-21) prescribed under the Companies
(Accounting Standard) Rules, 2006, Consolidated Financial Statements
presented by the Company include financial information about its
subsidiaries.

Fixed Deposits:

The Company has not accepted any fixed deposits during the year.

Directors:

At the ensuing Annual General Meeting, Dr Bakul Dholakia retires by
rotation and is eligible for re-appointment. Brief resume of Dr Bakul
Dholakia, the nature of his expertise in specific functional areas, name of
companies in which he holds directorships and the memberships/chairmenship
of committees of the Board, his shareholding, etc., as stipulated under
clause 49 of the listing agreement with the stock exchanges in India, are
provided in the report on Corporate Governance forming part of the Annual
Report.

Directors' Responsibility Statement:

Pursuant to the requirement under Section 217 (2AA) of the Companies Act,
1956 with respect to Directors' Responsibility Statement, it is hereby
confirmed that:

(i) In the preparation of the accounts for the financial year ended March
31, 2009, the applicable accounting standards have been followed and that
there are no material departures from the same;

(ii) The Directors have selected such accounting policies and applied them
consistently and made judgements and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company as at March 31, 2009 and of the profit of the Company for the said
period;

(iii) The Directors have taken proper and sufficient care to the best of
their knowledge and ability for the maintenance of adequate accounting
records in accordance with the provisions of the Companies Act, 1956 for
safeguarding the assets of the Company and for preventing and detecting
fraud and other irregularities; and

(iv) The Directors have prepared the accounts for the financial year ended
March 31, 2009 on a going concern' basis.

The above statements have been noted by the audit committee at its meeting
held on April 22, 2009.

Group:

Pursuant to an intimation from the Promoters, the names of the Promoters
and entities comprising group' as defined under the Monopolies and
Restrictive Trade Practices (MRTP') Act, 1969 are furnished in the Annual
Report for the purpose of the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997.

Consolidated Financial Statements:

The Audited Consolidated Financial Statements, based on the Financial
Statements received from subsidiary companies as approved by their
respective Board of Directors, have been prepared in accordance with the
Accounting Standard - 21 (AS-21) - Consolidated Financial Statements' and
Accounting Standard - 23 (AS-23) -Accounting for Investments in Associates
in Consolidated Financial Statements' notified under Section 211 (3C) of
the Companies Act, 1956 read with the Companies (Accounting Standards)
Rules, 2006, as applicable.

Auditors:

Pathak H D & Associates, Chartered Accountants, Statutory Auditors of the
Company hold office until the conclusion of the ensuing Annual General
Meeting and are eligible for re-appointment. The Company has received a
letter from them to the effect that their appointment, if made, would be
within the prescribed limits under Section 224 (1B) of the Companies Act,
1956, and that they are not disqualified for such appointment within the
meaning of Section 226 of the Companies Act, 1956.

Particulars of Employees:

In terms of the provisions of Section 217 (2A) of the Companies Act, 1956,
read with the Companies (Particulars of Employees) Rules, 1975, the names
and other particulars of employees are set out in the Annexure to the
Directors' report. However, having regard to the provisions of Section 219
(1) (b) (iv) of the Companies Act, 1956, the Annual Report is being sent to
all members of the Company, excluding the aforesaid information. Any member
interested in obtaining such particulars may write to the Company Secretary
at the registered office of the Company.


Energy Conservation, Technology Absorption and Foreign Exchange Earnings
and Outgo:

Information in accordance with the provisions of Section 217(1)(e) of the
Companies Act, 1956, read with the Companies (Disclosures of Particulars in
the Report of Board of Directors) Rules, 1988 regarding conservation of
energy and technology absorption are not given as the Company has not
undertaken any manufacturing activity. During the year under review, the
Company earned Rs 1.61 crore in foreign exchange (previous year Rs 12.92
crore) and utilized foreign exchange worth Rs 235.98 crore (previous year
Rs 85.60 crore).

Corporate Governance:

The Company has adopted the Reliance Anil Dhirubhai Ambani Group -
Corporate Governance Policies and Code of Conduct which has set out the
systems, processes and policies conforming to international standards. As
per clause 49 of the listing agreement, a separate section on Corporate
Governance forms part of the Annual Report. A certificate from the Auditors
of the Company regarding compliance of conditions of Corporate Governance
under clause 49 of the listing agreement is given in Annexure hereto.

Acknowledgements:

Your Directors wish to place on record their appreciation for the continued
support and cooperation of the shareholders, bankers, various regulatory
and government authorities and employees of the Company.

On behalf of the Board of Directors

Mumbai Anil D Ambani
April 23, 2009 Chairman

MANAGEMENT DISCUSSION AND ANALYSIS

Forward Looking Statements:

Statements in this Management Discussion and Analysis of Financial
Condition and Results of Operation of the Company describing the Company's
objectives, expectations or predictions may be forward looking within the
meaning of applicable securities laws and regulations. Forward-looking
statements are based on certain assumptions and expectations of future
events.

The Company cannot guarantee that these assumptions and expectations are
accurate or will be realized. The Company assumes no responsibility to
publicly amend, modify or revise forward-looking statements, on the basis
of any subsequent developments, information or events. Actual results may
differ materially from those expressed in the statement. Important factors
that could influence the Company's operations include cost of fuel, levies
by regulatory authority, changes in government regulations, tax laws,
economic developments within and outside the country and such other
factors.

The financial statements are prepared under historical cost convention, on
accrual basis of accounting, and in accordance with the provisions of the
Companies Act, 1956 (the Act) and comply with the accounting standards
notified under Section 211 (3C) of the Act read with the Companies
(Accounting Standards) rules, 2006. The management of the Company accepts
responsibility for the integrity and objectivity of these financial
statements, as well as for various estimates and judgements used therein.
These estimates and judgements relating to the financial statements have
been made on a prudent and reasonable basis, in order that the financial
statements reflect in a true and fair manner, the state of affairs and
profits for the year.

The following discussions on our financial condition and result of
operations should be read together with our audited consolidated financial
statements and the notes to these statements included in the Annual Report.
Unless otherwise specified or the context otherwise requires, all
references herein to we', us', our', the Company', Reliance', RNRL'
or Reliance Natural Resources' are to Reliance Natural Resources Limited
and / or its subsidiary and associates.

Overall Review:

The availability of quality and reliable power at competitive prices is the
cornerstone of any modern economy, the driving force of industry and
commerce. Critical to the generation of power is an uninterrupted supply of
fuel, be it natural gas, coal or liquid fuels. In order to secure this end
for the power plants of our group companies, the Company is focusing on all
aspects of the energy value chain, including exploration and extraction,
production and processing and transportation and distribution of coal, gas
and liquid fuels.

Industry Snapshots Oil & Gas:

India is on the threshold of achieving a quantum jump in the oil and gas
production in the light of the monetization of the major discoveries.
Simultaneous announcement of the regulations for natural gas pipelines and
city gas distribution by the Petroleum and Natural Gas Regulatory Board
(PNGRB) under the PNGRB Act 2006, is expected to give a thrust to the gas
pipeline transmission and distribution infrastructure in the country. The
upcoming eighth round of New Exploration Licensing Policy (NELP) and fourth
round of Coal Bed Methane (CBM) shows the government's commitment to faster
exploration and monetization of Indias vast natural resources in order to
check the budgeoning oil import bill. India's energy sector and more
specifically the gas segment, is poised to hit a new growth trajectory in
the coming years. This would throw up multiple opportunities, not only
across the gas value chain, but also in a number of end use industries like
power, fertilizer and city gas distribution. RNRL, in its quest to emerge
as a major fuel supply and management company, has set the ball rolling in
a number of business areas across the gas value chain viz., exploration and
production as well as gas transmission and supply.

Opportunities and Challenges:

Gas Value Chain Integration and Gas / Coal and Power Integration are two
major strategies, on which the Company has set its eyes, thereby exploiting
the key business opportunities which the energy industry provides. The
sourcing and securing of primary energy sources is the key to success in
power generation. In this light, our business portfolio focuses on
activities related to Fuel Management, such as the exploration and
production, sourcing and supply of fuel for some of mega power projects of
the Anil Dhirubhai Ambani group of companies.

Natural Gas:

As per the Working Group report of the Ministry of Petroleum and Natural
Gas, the demand for natural gas in the country is slated to increase from
197 million standard cubic meters per day (MMSCMD) in year 2008-09 to 279
MMSCMD in the next 4 years. In the light of the recent discoveries and
emerging gas supply scenario, the unmet demand for gas of the fertilizer
sector would be almost fully met whereas the unmet demand of the gas
starved power sector would be met to an extent of about 50 per cent. The
gas supplies would also provide a renewed thrust to the hitherto stagnant
city gas distribution (CNG and Piped Natural Gas) sector.

Business Review and Outlook:

The Company is in the process of implementing strategies to capitalize on
the huge available opportunities and has put in place a core team of
business and technical experts for these business segments. In the first
three years of operations, the Company has forayed into the oil, gas and
coal sectors and has achieved significant milestones as documented below.

Fields Milestones achieved by RNRL
Exploration &
Production:

Coal Bed Methane * RNRL-led consortium has won 4 of the 10 Blocks
offered through the international competitive bidding
process under CBM-III.

* RNRL-led consortium is now the second largest CBM
player in India in terms of acreage.

* Petroleum Exploration Licence (PEL) has been obtained
for three blocks and the fourth is on the anvil.

* All the exploratory surveys and studies have been
completed and the drilling work is about to commence.

Oil & Gas * Won one Block in Mizoram under the NELP VI round.

* PEL has been obtained. Major pre-seismic surveys have
been completed as per committed work programme. The
aero-magnetic survey is about to commence, followed by
the 2D seismic data acquisition survey.

Natural Gas Business:

Gas Agreements * On January 12, 2006, a Gas Supply Master Agreement
(GSMA) was signed with Reliance Industries Limited
(RIL).

* The agreement is currently sub-judice.

Natural Gas
Pipeline * Reliance Fuel Resources Limited (RFRL), a wholly
owned subsidiary of the Company has submitted an
application to Ministry of Petroleum & Natural Gas
(MoP&NG) and Petroleum and Natural Gas Regulatory Board
(PNGRB) for grant of authorization to lay a gas
pipeline from Kakinada to Dadri in Uttar Pradesh.

* The pipeline will supply gas to the 7,480 MW Power
plant at Dhirubhai Ambani Energy City (DAEC), Dadri.
City Gas
Distribution: * RFRL has also submitted applications to MoP&NG and
PNGRB for grant of authorization for City Gas
Distribution network for Mumbai, Delhi and the National
Capital Region.

Coal Supply * RNRL has entered in to freight contract for
transportation of coal from Korba to Dahanu Thermal
power station.

* RNRL also supplies around five lakh metric tonnes of
imported coal to Dahanu Thermal Power Station.

Exploration & Production:

The Company has ventured into the domestic oil and gas business through its
acquisition of blocks in the bidding rounds initiated by the Government of
India.

Coal Bed Methane:

* The 4 CBM blocks, won by RNRL-led Consortium in CBM III round, cover
acreage of 3,251 sq kms, making it the second largest CBM player in India
in terms of acreage.

* The CBM blocks are located in Madhya Pradesh (one Block), Andhra Pradesh
(one Block) and Rajasthan (two Blocks).

* After signing the contracts for all four blocks with the Government of
India on November 7, 2006, the Company has obtained PEL for three of the
blocks in MP and Rajasthan. PEL is expected to be obtained for the other
block in Andhra Pradesh during the first half of 2009-10.

* The Company-led consortium has completed the EIA, geological and remote
sensing studies in all the four blocks. The core hole drilling and testing
is expected to commence in the first quarter of 2009-10.

Block State A B C
Name

Barmer (4) Rajasthan 1,168 82.00 3.02
Barmer (5) Rajasthan 739 38.00 1.89
Kothagudem A.P. 735 57.20 2.62
Sohagpur M.P. 609 16.72 0.95
Total 3,251 193.92 8.48

A = Acreage (sq kms)
B = Estimated CBM Reserves (BCM)*
C = Plateau Production (MMSCM/D)**

* Estimates by Directorate General of Hydrocarbons
** As estimated by our consultant GCA, Singapore and internal studies

Oil & Gas:

* RNRL-led consortium (RNRL, Reliance Infrastructure Limited, Geopetrol and
NaftoGaz) won one oil and gas block in the state of Mizoram and received
the letter of award on February 12, 2007.

* The Company signed a contract with the Government of India on March 2,
2007 for exploration and production of Oil and Gas block having acreage of
3,619 Sq Kms.

* PEL was notified by the Government of Mizoram on November 20, 2007.

* The Company has completed environmental impact assessment studies,
geochemical studies and geological studies in line with the work
commitment. The Aero-Gravity and Magnetic studies is being taken up as an
additional study to obtain further block data. This will be followed by the
2D Seismic Data Acquisition survey which is expected to commence during
2009-10.

Acreage (sq kms):

Block State A B C D
Name

MZ-ONN-2004/2 Mizoram 3,619 7.52 4.70 1.88

A = Acreage (sq Kms)
B = Total estimated* Peak Production Rate (MMSCMD**) High
C = Total estimated* Peak Production Rate (MMSCMD**) Medium
D = Total estimated* Peak Production Rate (MMSCMD**) Low

* Estimates by DGH
** MMSCMD - Million Standard Cubic Meter per day

Natural Gas Business:

Gas Agreements:

* On January 12, 2006, RIL entered into a GSMA with the Company.

* This Agreement is not in conformity with the scheme of arrangement,
approved by the Bombay High Court on December 9, 2005 ('Scheme'), inter
alia, providing for transfer of Gas Based Energy Undertaking of RIL to the
Company. Consequently, the Company approached the Bombay High Court seeking
implementation of the Scheme and the GSMA. The matter is currently sub-
judice.

Natural Gas Pipeline:

* In May 2006, RFRL, a wholly owned subsidiary of the Company, submitted an
application to MoP&NG for the grant of authorization to lay a gas pipeline
from Kakinada to Dadri. The application was subsequently transferred to
PNGRB in September 2007 which is under review.

* This pipeline would supply gas to the 7,480 MW plant at DAEC, Dadri.

City Gas Distribution:

* The Company plans to establish city gas distribution networks for
distributing piped gas to the consumers of Mumbai, Delhi and the National
Capital Region.

* RFRL had also submitted an application to MoP&NG seeking authorization
for starting city gas distribution businesses in Mumbai and Delhi in May
2006 and in the National Capital Region in August 2006. The applications
were subsequently transferred to PNGRB in September 2007 which is under
review.

Risks and Concerns:

The main asset of the Gas Based Energy Undertaking, required to be vested
in the Company pursuant to the Scheme of Arrangement between RIL and the
Company (Scheme'), is the supply of gas by RIL from its KGD 6 and other
fields. The GSMA as unilaterally finalized by RIL and sough to be thrust
upon the Company does not constitute a bankable gas supply arrangement and
the matter is sub-judice. This has resulted in the Company being unable to
conduct the gas supply operations envisaged under the Scheme. Continued non
availability of a bankable gas supply arrangement may have a material
adverse effect on the business, operations and financial condition of the
Company The Company has entered into the exploration and production
business in which success is determined by the discovery of
hydrocarbons/gas. The Company is planning to enter into other business
operations in future. Any failure by the Company to expand its business
successfully may have a material adverse effect on the Company's business
financial condition and results of operations.

Adequacy of Internal Controls:

The Company has an adequate system of management-supervised internal
controls, which are aimed at achieving efficiency in operations, optimum
utilization of resources, effective monitoring and compliance with all
applicable laws.

The Company ensures adherence to all internal control policies and
procedures. A qualified and independent audit committee of the Board,
comprising the independent directors reviews the adequacy of internal
controls.

Discussion on financial performance with respect to operational
performance:

The total income of the Company for the year ended March 31, 2009 was Rs
471.41 crore. The gross block of assets of the Company as at March 31, 2009
stood at Rs 470.20 crore and the Company's net worth was Rs 1,800 crore The
Company's sales were derived mainly from fuel handling for the Reliance
Anil Dhirubhai Ambani Group companies.

Human Resources:

The Company including its wholly owned subsidiaries have a very highly
experienced and motivated team of 31 professionals as on March 31, 2009.
The Company believes that it will manage to achieve substantial growth with
a lean organization structure. The Company's human resource activities are
focused on building talent to meet future challenges.