OILINDUSTRY OVERVIEW Background After the Indian Independence, the Oil Industry in India was a very small one in size and Oil was produced mainly from Assam and the total amount of Oil production was not more than 250,000tones per year. This small amount of production made the oil experts from different countries predict the future of the oil industry as a dull one and also doubted India's ability to search for new oil reserves. But the Government of India declared the Oil industry in India as the core sector industry under the Industrial Policy Resolution bill in the year 1954, which helped the Oil Industry in India vastly. Oil exploration and production in India is done by companies like NOC or National Oil Corporation, ONGC or Oil and Natural Gas Corporation and OIL who are actually the oil companies in India that are owned by the government. Under the Industrial Policy Rule. The National Oil Corporation during the 1970s used to produce and supply more than 70 percent of the domestic need for the petroleum but
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OILINDUSTRY OVERVIEW
Background
After the Indian Independence, the Oil Industry in India was a very small one in size and
Oil was produced mainly from Assam and the total amount of Oil production was not
more than 250,000tones per year. This small amount of production made the oil experts
from different countries predict the future of the oil industry as a dull one and also
doubted India's ability to search for new oil reserves. But the Government of India
declared the Oil industry in India as the core sector industry under the Industrial Policy
Resolution bill in the year 1954, which helped the Oil Industry in India vastly.
Oil exploration and production in India is done by companies like NOC or National Oil
Corporation, ONGC or Oil and Natural Gas Corporation and OIL who are actually the oil
companies in India that are owned by the government.
Under the Industrial Policy Rule. The National Oil Corporation during the 1970s used to
produce and supply more than 70 percent of the domestic need for the petroleum but by
the end of this amount dropped to near about 35 percent. This was because the demand
on the one hand was increasing at a good rate and the production was declining in a
steady rate. Oil Industry in India during the year 2004-2005 fulfilled most of demand
through importing oil from multiple oil producing countries. The Oil Industry in India
itself produced nearly 35 million metric tons of Oil from the year 2001 to 2005. The
Import that is done by the Oil Industry in India comes mostly from the Middle East Asia.
The Oil that is produced by the Oil Industry in India provides more than 35 percent of
the energy that is primarily consumed by the people of India. This amount is expected to
grow further with both economic and overall growth in terms of production as well as
percentage. The demand for oil is predicted to go higher and higher with every passing
decade and is expected to reach an amount of nearly 250 million metric ton by the year
2024.
COMPANY PROFILE
INTRODUCTION
In order to ensure greater efficiency and smoothed working in the petroleum sector,
Government of India decided to merge the refineries and the distribution activities. The
Indian Refineries and Indian Oil Company were combined to form the giant Indian Oil
Corporation (IOCL) on 1st September 1964, with its registered office at Bombay. In 1967,
the pipeline division of the corporation was merged with the refineries division. Research
&Development of Indian Oil Came into Existence in 1972. In October 1981 Assam Oil
Company was nationalized and has been amalgamated with IOCL as Assam Oil Division
(AOD).
Beginning in 1959 as Indian Oil Company Ltd., Indian Oil Corporation Ltd. Was formed
in 1964 with the merger of Indian Refineries Ltd.(established 1958). Indian Oil and its
bottling plants and lube blending plants amongst others. The countrywide marketing
operations are coordinated by 16 State Offices and over 100 decentralized administrative
offices.
Several l and mark surveys continue to rate Indian Oil as the dominant energy brand in
the country and an enduring symbol for high quality petroleum products and services.
The heritage and iconic association that the brand invokes has been built over four
decades of commitment to uninterrupted supply line of petroleum products to every part
of the country, and unique products that cater not only to the functional requirements but
also the aspiration needs of millions of customers.
Indian Oil has been adjudged India's No. 1 brand by UK-based Brand Finance, an
independent consultancy that deals with valuation of brands. It was also listed as India's
'Most Trusted Brand ‘in the 'Gasoline' category in a Readers' Digest - AC Nielsen survey.
In addition, Indian Oil topped The Hindu Business line's "India's Most Valuable Brands"
list. However, the value of the Indian Oil brand is not just limited to its commercial role
as an energy provider but straddles the entire value chain of gamut of exploration &
production, refining, transportation & marketing, petrochemicals & natural gas and
downstream marketing operations abroad. Indian Oil is a national brand owned by over a
billion Indians and that is a priceless value.
Mathura Refinery
INTRODUCTION ABOUT MATHURA REFINERY:
Mathura Refinery commissioned in 1982, (with a sales turnover of Rs. 11,207 crore and
profits of Rs.1624 crore for fiscal 2007)
presently operates @8.0 MMTPA crude processing level and is meeting the product
demand of North -West region of the country including the National Capital Delhi.
The Refinery processes low sulphur crudes from Bombay High, Nigeria, and high
sulphur crudes from Middle East Countries. The process configuration of the Refinery
employs the state-of-the-art technologies with minimal impact on the environment.
Various steps have been taken by Mathura Refinery to monitor and control the emission
of Sulphur Dioxide. Mathura Refinery is the only refinery in the country to have set up
the concern of community and archeological sites. These Ambient Air Monitoring
Stations were commissioned before commissioning of the Refinery in 1981 and being
continuously operated thereafter.
Mathura Refinery has taken many initiatives to produce more and more clean fuels in
stages in the interest of environment, public health and preservation of national
monuments around. Its noteworthy efforts are stage-wise implementation of various
projects like Catalytic Reforming Unit,
Diesel Hydro-desphurization Unit and Hydro cracker for quality up gradation of
automobile fuels.
The Refinery has full-fledged ETP comprising of physical, chemical and biological
treatment facilities. The treated effluent from the Refinery fully meets the MINAS
(Minimal National Standards), the prescribes effluent discharge standards.
For the protection of the land environment, Mathura Refinery has initiated bio-
degradation of oily sludge through "Oilivorous-S", an oily sludge degrading bacterial
consortium developed by IOC (R&D) in collaboration with Tata Energy
Research Institute.
A beautiful ecological park has been developed in an area of 4.45 acres. During the
recent survey, the experts from the BNHS (Bombay Natural History Society) have
identified 96 species of birds of which 30 migratory ones in the park giving a testimony
of richness of life in the ecosystem.
Mathura Refinery has done extensive tree plantation in and around Refinery. The
Refinery has also taken extra-ordinary initiatives to provide green cover to the
archeological heritage sites especially the Taj Mahal by planting 1,15,000 trees in the Taj
region.
MAJOR FEATURES
Mathura Refinery is the second biggest refinery in India with a capacity of 8.0
MT.
Its main products are Liquefied Petroleum Gas, Naphtha (Fertilizer use), Aviation
Turbine Fuel, Superior Kerosene, Bitumen, Furnace Oil, Heavy Petroleum Stock,
Light Diesel Oil, High Speed Diesel, Motor Spirit, Residual Fuel Oil, Heavy
Petroleum Stock, MS-93 etc.
It is the major supplier for various petroleum products in Northern India.
It is a ISO 14001 and ISO 9001 certified unit of Indian Oil.
Its capacity utilization is more than hundred percent.
Phased dismantling of the Administered Price Mechanism (APM) is one of the
strengths for the corporation as it gives the scope to the organization to compete in
the coming competitive scenario.
Mathura Refinery prepares annual budgets for rural development every year.
OBJECTIVES AND OBLIGATIONS OBJECTIVES
CLEAN REFINERY AND GREEN REFINERY
To ensure and maintain continuous and smooth supplies of petroleum products by
way of crude refining, transportation and marketing activities and to provide
appropriate assistance to the consumer to conserve and use petroleum products
efficiently.
To earn a reasonable rate of interest on investment.
OBLIGATIONS
Towards community
To develop techno-economically viable and environment-friendly products for the
benefit of the people.
To encourage progressive indigenous manufacture of products and materials so as
to substitute imports.
To ensure safety in operations and highest standards of environment protection in
its manufacturing plants and townships by taking suitable and effective measures.
FINANCIAL GOALS
1) To inculcate cost consciousness in user departments.
2) Development of Standard Refining costs at each unit level.
3) Proper implementation of budgetary control and submission of MIS in time.
4) To keep the level of inventories below the level fixed by the Board and outstanding
debts, loans and advances and claims at bare minimum.
5) Ensure payment on due date to various agencies.
6) Monitor capital expenditure to ensure completion within stipulated time and cost.
7) Optimize utilization of working capital.
8) Efficient management of funds.
FUNCTIONS OF THE FINANCE DEPARTMENT
1) Management of the financial resources for meeting the corporation’s programs of
operations and capital expenditure including investment of surplus fund if any.
2) Ensuring uniform financial and accounting policies and procedures, to the extent
possible, in the division.
3) Establish and maintain a system if financial scrutiny and internal checks and render
advice on financial matters, including examining of feasibility studies and detailed
project reports.
4) Establish and maintain an appropriate system of Budgetary Control and
MIS(Management Information System) for different levels of the Management.
5) Carry out periodical / special studies with a view to control costs , reduce
expenditure , economy in administrative expenditure, improve efficiency to
maximize profitability of the corporation.
6) Maintain the financial accounts, cost accounts and other relevant books and records in
accordance with the various statutory and other requirements.
7) Advise on corporate cash planning, credit policy and pricing of the Corporation.
8) Ensuring that the Corporation acts in all financial and accounting matters as per
approved policies of the corporation within the framework of Government policy for
public enterprises.
GUIDING PRINCIPLES FOR FINANCIAL CHECKS AND ACCOUNTING
The Principles for financial checks and accounting to be followed by the Finance
Department and by other departments shall among other things include the following:
1) That there is provision of funds for expenditure in accordance with the approved
budget of the corporation or by re-appropriation under delegated powers.
2) That any expenditure is committed /incurred or any liability involving expenditure is
created only after the proposed expenditure has been sanctioned by general or special
approval of an authority to which the power has been duly delegated in this behalf. If
the sanction is for a limited period, expenditure beyond that period should be admitted
only after obtaining fresh sanction.
3) That all necessary pre – requisites before an expenditure is incurred such as
preparation of estimates, calling of tenders, acceptance of tenders etc. are observed as
per procedures.
4) That the authorities to who power has been delegated to incur expenditure shall be
responsible for control of expenditure against the corresponding sanction.
5) That the payments made for work done, supplies made or services rendered shall be
as per legal obligations and in accordance with the agreements entered into by the
corporation.
SECTION OF FINANCE DEPARTMENT
MISCELLANEOUS SECTION
While the important functions of the department have been dealt with separately in the
earlier chapters, there are several miscellaneous jobs required to be carried out by the
department. The miscellaneous jobs can be broadly divided into following categories: -
Accounting of cash imprest & advance for company;
Passing of bills of miscellaneous nature;
Miscellaneous recoveries from outsiders;
Inter –sectional coordination.
CASH SECTION
Cash section shall be responsible for:
Receipts of cash, cheques and bank drafts
Payment by cash, cheques, demand drafts.
Handling of bank deposits/ withdrawals, custody of cash
and transfer of funds.
Security arrangement for cash handling
Safe custody of valuables & documents
Petty cash Imperst
Maintenance of subsidiary cash credit account & special cash
credit accounts.
PAYROLL SECTION
Appointments for vacancies are made either by recruitment or by departmental
promotion or by deputation from Govt./other Department. Against leave vacancies
officiating appointments are permitted in certain cases. All appointments are made
in accordance with the rules prescribed Manual.
The matter relating to recruitment, promotion, transfer, suspension, are dealt
with by the personal department In each case office order is issued by the
personal department. After observing the prescribe procedure and given the
fixation copies of these office orders are sent to the finance department for the
drawing the pay & allowance incumbents.
Rules for pay and allowances are prescribed by Head Office from time to time. The
eligibility for special types of allowances such as special allowances, shift allowance
etc. is determined by Personnel Department and the intimations are sent to Finance
Department for employees eligible for such allowances.
FUNCTIONS
Function of the Section dealing with Establishment can be broadly classified as follows:
Scrutiny and concurrence of proposals from Personnel Department
Payment of Salaries and Allowances
Advances to employees
Deductions from Pay Bills
Other Welfare Schemes including Gratuity
Personal Claims and other payments
Statutory and Statistical requirements
ACCOUNTING OF ASSETS
For all items of fixed assets such as buildings, plant & machinery, furniture &
fixtures etc. asset register shall be maintained by the Finance Department for
complying the various accounting provisions under the Companies Act and the
Income Tax Act.
Adequate depreciation on the cost of fixed assets shall be charged to the Profit &
Loss Account before ascertaining the profit. The acquisition cost of assets should
include all expenses for bringing the asset into existence. Such cost, therefore,
includes purchase cost, erection cost; supervision cost etc. incurred up to the stage
the asset is ready for commissioning
The Companies Act prescribes the minimum quantum of depreciation which
should be charged to the profits of limited company before such profits are
distributed as dividend, Keeping in view the statutory requirements and the
effective life of the assets, the Board of Directors have prescribed the rates of
depreciation for various categories of assets on straight line method.
The rates of depreciation admissible under the Income Tax Act are based on
written-down value method and are different from the rates adopted by the
Company, for its annual accounts. As such for compliance of the income tax
requirements, details of depreciation at income tax rate are being maintained
separately by Marketing Division, Bombay.
In case any item of asset is discarded, sold or written off, the difference between
the sale price of such asset and the written-down value shall be adjusted in the
books of accounts as loss or gain.
FUNCTIONS
Following are the main functions in respect of accounting of assets:
i) Capitalization of the cost of acquisition of assets.
ii) Accounting of depreciation
iii) Transfers, disposal and discarding of assets
iv) Maintenance of Asset Ledger
v) Arrangement for physical verification of assets.
vi) Preparation of schedules for Balance Sheet.
OIL ACCOUNTING
The Oil Movement and Storage Section in the Refinery is responsible for handling
of receipt, storage and dispatch transactions for crude oil and oil products. The
receipt transactions comprise crude oil supplies and finished products
manufactured and/or procured from outside for blending, if any. Dispatch of
finished products is based on the advice from the Marketing Division.
FUNCTIONS
— Accounting of Crude Oil receipts
— Accounting of Customs Duty on Crude Oil
— Accounting of finished products receipts
— Accounting of dispatch of products
— Excise procedure and accounting
— Material balance and production statistics
PURCHASE FUNCTION
The transactions relating to procurement of materials from the indenting stage to
the payment stage have been divided in various parts whereby each part of the
work is handled by an independent agency till the transaction is completely closed.
This division of work between various agencies operates.
Detailed procedure as prescribed in the Materials Management Manual is to be
followed for all purchases.
The necessity for purchase of the required materials is to be determined solely by
the indenting department and approved by indent approving authority as provided
in Materials Management Manual. The indents are to be raised for the right
quantity and at the right time. The indenting departments are answerable for any
stock outs or over-stocking of the materials.
The Purchases are to be made in accordance with the Tendering Procedure
prescribed in the Materials Management Manual. The objective of the Tendering
Procedure is to ensure that right quality of materials are purchased from
competitive sources and on best available terms and rates, keeping in view the
delivery considerations. lt is also necessary to ensure that no undue advantage
accrues to any particular supplier while finalizing a purchase contract.
FUNCTIONS
The Section dealing with the accounting of purchases is responsible for:
i) Scrutiny and concurrence of purchase proposals;
ii) Deposits and advance payments to suppliers:
iii) Passing of bills for supplies received;
iv) Pricing of Goods Receipt Notes;
v) Accounting of cash purchases made by the Materials Department;
vi) Arrangement for insurance of transit risk;
STORES SECTION
FUNCTIONS
The Section dealing with accounting of stores in the Finance Department shall have
following functions:
i) Passing and accounting of transportation bills;
ii) Accounting of receipts, issues, return and transfer of materials;
iii) Accounting of imported materials for capital works and operations
maintenance:
AUDIT SECTION
TYPES OF AUDIT
There are five different types of audit in the Organization viz:
a) Statutory Audit;
b) Government Audit;
c) Internal Audit;
a. STATUTORY AUDIT
The Statutory Auditors/Branch Auditors (Chartered Accountants) are appointed by the
Company Law Board in consultation with the Comptroller and Auditor General of India
u/s 619(2) of the Companies Act, 1956 for conducting the audit in accordance with the
provisions of the Companies Act. The DFM, In charge of the Main Accounts Section
shall coordinate the Audit work and supply of relevant information/records/ documents as
required by the auditors. With a view to finalize the annual accounts well within the
prescribed time, it is necessary that all such information, documents are provided
expeditiously by the concerned Sections/Departments to the Auditors.
b. GOVERNMENT AUDIT
Normally the Government audit conducts audit of the following three types:—
i) Routine/Phase Audit;
ii) Periodical review;
iii) Balance Sheet audit under Section 619(4) of the Companies Act.
c. INTERNAL AUDIT
The Internal Audit is functioning under the Director (Finance) through the GM(Internal
Audit) at the Chairman's Office. Internal Audit shall examine independently the final
accounts and attached Schedules to the Balance Sheet and Profit & Loss Account
concurrently with finalization of annual accounts.
d. TECHNICAL AUDIT
The Technical Audit Cell has been organized in each of the Units as well as at
Head Office. This cell functions directly under the Head of Technical Services
Department at Unit level and under the GM/DGM at Head Office.
e. TAX AUDIT
Under Section 44 AB of the Income Tax Act, 1961, it is obligatory for every person
carrying on business, if his total sales, turn over or gross receipts, as the case may be,
exceed Rs. 40 lakhs in a year to get certain information/data relevant to Income Tax
assessment audited before the specified date by the Tax Auditors (Clattered Accountants)
and obtain report of the audit in prescribed form.
CAPITAL BUDGETING
INTRODUCTION
Allocation of capital in an efficient manner is very difficult yet very important task for a
firm. It is also important in our daily life as it is important for a firm, because every
citizen wants to invest their savings in a more profitable manner which they can achieve
by having knowledge of Capital Budgeting.
MEANING OF CAPITAL BUDGETING
Capital Budgeting is the process of making investment decisions in capital
expenditure. A capital expenditure may be defined as an expenditure the benefits
of which are expected to be received over period of time exceeding one year.
Capital budgeting is long term planning for making and financing proposed
outlays.
FEATURES
Capital Budgeting decision involves the exchange of current funds for the benefits
to be achieved in future.
The future benefits are expected to be realized over a series of years.
The funds are invested in non-flexible and long term activities.
They are Irreversible decisions.
They have a long-term and significant effect on the profitability of the concern.
CAPITAL BUDGETING PROCESS
The following procedure may be adopted in the process of capital budgeting:
1. Identification of Investment Proposals : The proposal or the idea
about potential investment opportunities may originate from the top management or
any officer of the organization. The departmental head analyses the various proposals
in the light of the corporate strategies and submits the suitable proposals to the Capital
Expenditure Planning Committee.
2. Screening the Proposals : The committee views these proposals from
various angles to ensure that these are in accordance with the corporate strategies and
also do not lead to departmental imbalances.
3. Evaluation of Various Proposals : there many methods which may be
used for this purpose such as Pay Back Period method, Rate of Return method, Net
Present value method, IRR method, etc.
4. Fixing Prioritie s: After evaluating various proposals, the unprofitable or
uneconomic proposals will be rejected. Priorities are given after considering urgency,
risk, profitability, etc involved therein.
5. Final Approval and Preparation of Capital Expenditure
Budget: Proposals meeting the evaluation and other criteria are finally approved to
be included in the Capital Expenditure Budget. The budget lays down the amount of
estimated expenditure to be incurred on fixed assets during the budget period.
6. Implementing Proposal : It is better to assign responsibilities for
complementing the project within the time frame and cost limit so as to avoid
unnecessary delays and cost over runs. Network Techniques such as PERT and CPM
can also be applied to control and monitor the implementation of the projects.
7. Performance Review : The evaluation is made through post completion audit
by way of comparison of actual expenditure on the project with the budgeted one, and
also by comparing the actual return from the investment with the anticipation return.
The unfavorable variances if any should be looked into and the causes of the same be
identified so that corrective action may be taken in future.
CAPITAL BUDGETING TECHNIQUES ARE METHOD
Average Rate of Return is Non-Discounting Method which takes into account the earning
expected from the investment over their whole life. It uses concept of profit (net profit
after tax and depreciation) is used rather than cash inflows.
ARR = Average annual profits
Net investment in the project
PAY BACK PERIOD
It measures the number of years required to recover the original cash outlay invested in a
project.
PBB = Cash Outlays of the Project
Annual Cash Inflows
NET PRESENT VALUE METHOD
This method takes into account the time value of money and attempts to calculate the
return on investments by introducing the factor of time element.
NPV = Present value of (cash inflows – cash outflows) i.e.
NPV = C1 + C2 +………+ Cn - C0
(1+k)1 (1+k)2 (1+k )n
where k is a prevailing rate in the market
INTERNAL RATE OF RETURN METHOD
IRR is also a modern technique that takes into account the time value of money. It is also
known as ‘Trial and Error yield method’. Under this method, the cash flows are
discounted at a suitable rate by hit and trial method, which equates the net present value
so calculated to the amount of investment.
Present value of Cash Inflows = Present value of Cash Outflows i.e.
i.e.
R is a point where
C1 + C2 + …………. = C0
(1+ r )1 (1+r )2
Where r is a yield return rate
PROFITABILITY INDEX METHOD
It is also a time-adjusted method of evaluating the investment proposals. It is a relative
measure while others are absolute measure.
PV = Present Value of Cash Inflows
Initial Cash Outlay
FACTORS INFLUENCING CAPITAL EXPENDITURE DECISIONS
The crucial factor that influences the capital expenditure decisions is the profitability of the proposal. Yet, there are many other factors which have to be taken into consideration while taking a capital expenditure decision. These are:
URGENCY: Sometimes an investment is to-be made due to urgency for the survival of the firm or to avoid heavy losses.
DEGREE OF CERTAINITY: Sometimes, a project with lower profitability may be selected due to constant flow of income as compared to another with an irregular and uncertain flow of income.
INTANGIBLE FACTORS: Sometimes, a capital expenditure has tobe made due to certain emotional and intangible factors such as safety and welfare of workers, prestigious project, social welfare, goodwill of the firm etc.
LEGAL FACTORS: An investment which is required by the provisions of law is solely influenced by this factor and although the project may not be profitable yet the investment to be made.
AVAILABILITY OF FUNDS: A project may not be taken for wants of funds and project with lesser profitability may be sometimes due to lesser pay-back period for want to liquidity.
OBJECTIVES
To serve the national interests in the oil and related sectors in accordance and
consistent with Government policies.
To ensure and maintain continuous and supplies of petroleum products by way of
crude refining, transportation and marketing activities and to provide appropriate
assistance to the consumer conserve and use petroleum products efficiently.
To earn a reasonable rate of interest on investment.
To work towards the achievement of self-sufficiency in the field or foil refinery
by setting up adequate capacity and to build up expertise in laying of crude
oil/petroleum product pipelines
SCOPE OF THE STUDY
Indian Oil commissions India's first MSQ Unit to supply
Euro III Petrol
Ministry of Environment & Forest (MOE&F), Government of India had amended certain
pollution related specification for MS & HSD to reduce the pollution from Petrol/Diesel
Engines vide Gazette notification in May 1996.
Therefore, we are doing Capital Budgeting of MSQ & DHDT units as all refineries will
be required to improve the quality of MS & HSD in the areas of Benzene reduction,
Sulphur reduction, Olefins reduction and AKI improvement and through these units they
can maintain their market.
India’s first Motor Spirit Quality (MSQ) Up-gradation Unit has been commissioned at
Indian Oils Mathura Refinery with the first Isomerization Unit going on stream on 17th
June 2005. With the commissioning of Isomerization Unit, Mathura Refinery has become
the first Refinery in the country to achieve the capability of producing its total petrol of
Euro III specifications. Thus the Mathura Refinery continues to be in the fore front of
supplying environmental friendly petroleum products which gives the Refinery a
competitive advantage and distinct edge over the others in controlling the NCR market.
Mathura Refinery had earlier commissioned the Diesel Hydro-treater Unit for producing
Euro III Grade diesel on 2nd May, 2005. During the implementation of these two
projects, the record of more than 28 million accident free man-hours was also achieved.
Director (Refineries), Indian Oil, ShriJaspal Singh said that the commissioning of Motor
Spirit Quality Up gradation Unit heralds a major step in implementing the latest state-of-
the-art technology aimed at improved environment management in our refineries. Similar
Motor Spirit quality Improvement Unit being set up at Indian Oils Haldia Refinery, West
Bengal is expected to be commissioned shortly while the other unit at Gujarat Refinery,
Vadodara would be commissioned by June 06, added ShriJaspal Singh.
This MS quality up gradation project has been implemented at a cost of approximately Rs
700 crore and the technology was provided by M/s UOP, USA. Euro III equivalent MS
has very low Benzene, olefin and sulphur contents and has a high octane number of 91.
Supply of Euro III equivalent MS shall therefore, improve vehicular emission and
thereby the quality of air for the benefit of all.
USEFULNESS & IMPORTANCE OF THE STUDY
Quality Up-gradation Projects At Mathura
ProjectCostRs.709crore
Expected Commissioning: June 2005
Benefit
The implementation of this project will improve the quality of MS to meet EURO - III
quality norms.
Brief Description
Mathura refinery currently produces two grades of MS - major production conforming to
BIS 2000 quality and part production of low benzene grade. The project is envisaged to
cater to the future requirement of MS conforming to EURO-III equivalent for
NCT/NCR/Taj Trapezium area.
DHDT PROJECTS AT Mathura
Project Cost:Rs1047 crore
Expected commissioning: May 2005
Benefit :
The implementation of this project will improve the quality of Diesel to meet EURO-III
quality norms.
Brief Description
The project is envisaged to cater to the future requirement of Diesel conforming to
EURO-III equivalent for NCT/NCR/Taj Trapezium area to supply not more than 0.035%
wt sulphur HSD.
Indian Oil breaches Rs. 150,000 crore mark in turnover
Grosses First US$ 1 Billion in revenues from new businesses
Product sales cross 50 million tonnes
First company to exceed 10,000 petrol/diesel
stations
Indian Oil Corporation Ltd., India's flagship oil major and the country's largest
commercial enterprise, became the first Indian corporate to breach the Rs. 150,000 crore
(US$ 35 Billion) mark in sales turnover in the year 2007-08, while at the same time
grossing its first US$ 1 billion in revenues through initiatives in new businesses. The
Corporation also posted major milestones in the downstream segment with its product
sales crossing 50 million tonnes and its countrywide network of petrol and diesel stations
(retail outlets) expanding beyond 10,000 during the last fiscal.
Mr. S. Behuria, Chairman, Indian Oil, who saw the year 2007-08 marking Indian Oil’s
big-ticket entry into oil Exploration and Production (E&P) and Petrochemicals, besides
breaking of new ground in overseas ventures and Gas marketing. With competition in the
oil sector reaching an exciting phase during the year, the Corporation underwent
performance-driven transformation, while at the same time consolidating its gains in core
areas of operations, thereby fulfilling the demanding expectations of its wide array of
stakeholders.
FINANCIAL PERFORMANCE
Indian Oil’s Sales Turnover (inclusive of excise duty) for the year 2007-08 reached a new
high at Rs. 150,677 crore, up by 15.72% as compared to Rs. 130,203 crore in the
previous year. However, the Profit After Tax at Rs. 4,891 crore has gone down 30.17% as
compared to Rs. 7,005 crore for the previous year, mainly on account of under-recoveries
in PDS Kerosene/LPG Domestic and short realization in sale of Petrol &Diesel . The
Indian Oil Board, recommended a Final Dividend @ 100% (Rs. 1168.01 crore) for the
year 2007-08. The Company had paid an Interim Dividend of 45% amounting to Rs.
525.61 crore in 2007. With this, the Total Dividend for the year 2007-08 works out to Rs.
1693.62 crore (equivalent to 145%). For the previous fiscal (2006-07), Indian Oil had
paid a total dividend of 210% (Rs. 2,453 crore). For the year 2007-08, the Company's
Earnings Per Share (EPS) stand at Rs. 41.88.
PHYSICAL PERFORMANCE
Indian Oil sold 50.1 million tonnes of petroleum products, including exports, during the
year 2007-08 as against 48.61 million tonnes in the previous year, an increase of 3.1%.
Domestic sales were up by 2.9% to 48.17 million tonnes while exports soared by almost
8% to 1.96 million tonnes.
The Corporation's Gross Refinery Margin (GRM) rose by about a dollar per barrel during
2007-08, at USD 6.2/bbl, as compared to 2006-07. Its seven refineries registered a crude
oil throughput of 36.63 million tonnes with a capacity utilization of 88.6%. The pipelines
network posted a combined throughput of 43.03 million tonnes during the year.
CUSTOMER SERVICE
"Customer Delight" continued to be the key driver of Indian Oil’s marketing operations
in 2007-08. The Corporation commissioned 1,112 petrol/diesel stations (retail outlets or
ROs) during the year. Another 1,000 ROs are being set up in the current financial year.
Indian Oil’s retail forays gained momentum during the year with a series of value-added
"XTRA" initiatives, including branded fuels and services. The Corporation demarcated
its retail business into three broad segments - urban, highway and rural - to clearly
identify and cater to the requirements of its various customer segments. About 460
branded 'XTRACARE' retail outlets were unveiled during the year, primarily in urban
markets. 66 large-format 'Swagat' brand retail outlets were set up for highway motorists.
As a new growth area in retail business, Indian Oil unveiled small-format
“KisanSewaKendra's” for rural markets during the year. About 20 such Kendra’s with
tailor-made offerings and services were set up during 2007-08 and 1,000 more will be
rolled out during the current fiscal.
Availability of Indian Oil’s premium branded XTRAPREMIUM Petrol was extended to
1,562 retail outlets (ROs) and XTRAMILE Diesel to 3,617 ROs.
With the release of 36 lakh new LPG connections during 2007-08, Indane cooking gas
now reaches 42.4 million households in the country, through an all-India network of over
4,600 Indane distributors. During the year, 17 auto gas (LPG) dispensing stations were
set up in metros and major cities, bringing their total to 57.
Indian Oil continued to rule the skies in aviation fuel supply business with a market share
of 65%.
INVESTMENTS FOR GROWTH
Indian Oil nurtures the vision of growing from a US $ 35 billion turnover company today
to US $ 60 billion by the year 2011-12 with well-coordinated strategic plans, including
clear blueprints for US$ 15.5 billion (Rs 70,000 crore) investments.
During the X Plan period (2002-07), Indian Oil has planned capital investments to the
tune of Rs. 24,400 crore. For the year 2007-08, the Corporation's capital expenditure at
Rs. 6,460 crore was 63% more than that of the previous year. Among the major projects
commissioned was the world's largest single-train Kerosene-to-LAB (Linear Alkyl
Benzene) plant at Koyali Refinery in Gujarat at a cost of Rs. 1,202 crore. For production
of green fuels,
REFINING
Indian Oil controls 10 of India's 18 refineries - at Digboi, Guwahati, Barauni Koyali,
Haldia, Mathura, Panipat, Chennai, Narimanam and Bongaigaon - with a current
combined rated capacity of 54.20 million metric tonnes per annum (MMTPA) or one
million barrels per day (bpd).
<Indian Oil accounts for 42% of India's total refining capacity.
PIPELINES
Indian Oil owns and operates India's largest network of cross-country crude oil and
product pipelines of nearly 7,7300 km, with a combined capacity of 56.85 MMTPA.
< Indian Oil owns & operates 69% of India's downstream pipeline throughput capacity.
MARKETING
Indian Oil's countrywide network of over 23,000 retail sales points is backed for supplies
by its extensive, well spread out marketing infrastructure comprising 165 bulk storage
terminals, installations and depots, 95 aviation fuel stations and 87 LPG bottling plants.
Its subsidiary, IBP Co. Ltd, is a stand-alone marketing company with a nationwide retail
network of over 3000 sales points.
< Indian Oil caters to over 56% of India's petroleum consumption.
CAPITALBUDGETING OF MSQ & DHDTPROJECTS
Indian Oil continues to lay emphasis on infrastructure development. Towards this end, a
number of schemes have been initiated with increasing emphasis on project execution in
compressed schedules as per world benchmarking standards. Schemes for improvement
and increased profitability through debottlenecking / modifications / introduction of value
added products are being taken up in addition to grass root facilities. Project systems
have been streamlined in line with ISO standards.
In the Refining business, MS and HSD quality up-gradation projects would be essential
to meet new product specifications applicable from the year 2010. Two projects, viz., MS
(petrol) quality up-gradation and HSD (diesel) quality up-gradation, to meet Bharat stage-
III specifications, are being pursued for implementation. These are major projects with a
combined outlay of about Rs.1800 crore.
DHDT (Diesel Hydro-Desulphurization Treatment)
MSQ (Motor Quality Up gradation)
WHAT IS BUDGETING:
Budgeting is a technique by which financial and / or quantitative expression are given to
a set policy in a form of time to get the desired results and initiate a corrective action
wherever and whenever necessary so as to comply with the goals set up.
BUDGETARY PROCESS
The budgetary process in business operation can broadly be divided into three functions
of management.
planning
co-ordination
control
PLANNING
The effectiveness of budgets depends greatly on the quality of the planning, which has
preceded their framing. Not be realistic or useful. All members of management have to
participate in the preparation of budgets even at the stage of planning, as it will evoke
interest at all levels of management.
CO-ORDINATION
To ensure effective implementation of the budgets, it is necessary to have proper co-
ordination. This is achieved by ensuring that budget plans are communicated to all level
of management.
CONTROL
Budget actually covers not only expenditure but all the phases of operations. The
function of control is to ensure that the performance strictly follows the plan envisaged
and to point out the variations between performance and plan as per budget.
CAPITAL BUDGET
Capital Budget:
The Capital Budget is a plan of expenditure over a period of time on a chosen set of
projects, which results in acquisition of assets to the Corporation and helps in generating
income over a period of years in future. Such projects are expected to a generate income/
improve efficiency over a period of time in future.
Classification of Capital Budget :
Capital Budget can be classified into two categories:
Plan Schemes
Non-Plan Schemes viz. Additional Facilities.
Plan Schemes are those schemes which are required to be included in the Annual Plan
documents for submission to Government / Planning Commission for approvals. These
schemes ultimately form part of the Govt.’s Annual Plans. These schemes are either
important from national point of view or involve substantial expenditure, generally above
Rs. 100 crore on items relating to capacity improvement of primary or secondary units,
yield pattern improvements, energy saving, quality improvement etc. As against this,
Non-plan Schemes generally cover capital investments on Additional Facilities like
buildings, offsite, utilities, furniture, vehicles, etc.
Plan Schemes:
Plan Schemes should generally be developed in line with action plan drawn on Long
Range Plan (5 years) / Perspective Plan (10-15 years) of the Corporation. However, fresh
schemes can also be justified even though they were not foreseen while developing Long
Range Plans. No expenditure on Plan Schemes can be incurred unless the Scheme is
included in the approved Annual Plan document of the Government with a budget
allocation for the year and also the scheme is approved by competent authority as per
delegation of powers.
The Annual Plan is required to be submitted to the Government by mid-September of
every year. The Government for submission of Annual Plan has prescribed the forms.
A brief write-up is required to be given for each project included in the Annual Plan
under the following heads:
Brief description of the project
Benefits
Original approval cost, latest approved cost and cost now anticipated.
Brief reasons for revision in the project cost estimates from the latest approved
estimates (FR or DPR), as applicable; this item is necessary only where the anticipated
cost differs from the latest approved cost.
Present physical and financial status of the project as at end August of the current year.
Brief justification for outlay proposed for the current and next financial year.
Completion schedule; original as well as now anticipated along with reasons for
slippage, if any, and corrective measures taken.
It is essential that the revised outlay required for the current year and the outlay required
for the next year is assessed realistically in order to ensure that the total actual
expenditure would be closed the proposed outlays.
In order to provide realistic outlays, the following information is to be submitted along
with Annual Plan proposals:
Quarter wise break up of outlays under major heads.
Status of Purchase orders/ indents raised and commitments made upto date and
expected to be made in future.
In case of major projects above Rs.10 crore, the fund requirement should be linked with
the PERT network schedule of the project.
NON-PLAN SCHEMES/ ADDITIONAL FACILITIES:
Additional facilities play a very important role in our operations and are vital for constant
up gradation of efficiency and productivity. The term Additional Facilities (AF in short)
signifies the ‘Non-Plan’ section of our Capital Budget. The AF schemes encompass wide
spectrum of activities covering safety, statutory requirements, welfare, replacements /
additional of assets, operational necessities, technology up gradation etc. Infect, almost
all the functional departments are involved at some stage or the other in the initiation and
execution of AF Projects. Even though individually the AF schemes may be lower cost,
collectively, they may account for a significant portion of the total capital expenditure.
Therefore, the handling of AF schemes with regard to their selection, accurate cost-
estimates and timely completion assumes a great significance. The schemes need to be
judiciously decided before propelling the same for approvals/ implementation after
detailed study of various alternatives available.
Name, Objective and Purpose:
The name of the proposal should be brief but reflect the contents. The objective and
purpose of the proposal shall be stated clearly and unambiguously and it should be
ensured that the same are specific and not of a general nature
Background / Origin of the proposal:
The circumstances leading to the preparation of the proposals should be explained in
detail. In case the proposal is prepared in pursuance of the recommendations of a
committee, working group, statutory bodies, Ministry etc., the mere mention of this does
not constitute the background for propelling the case. The case must be presented in
perspective, explaining briefly the rational behind particular recommendations. Full
documentary evidence must be presented in support wherever applicable.
In many cases, AF proposals are initiated to improve an existing operation by removing
constraints, updating technology, replacement/ additional of equipment’s, process
modifications, extension of an existing facility to new areas etc. In all these cases, it is of
prime importance that the proposal includes a brief description of existing facilities/
operations. The constraints / limitations experienced with the existing facilities must be
discussed and efforts made in the pas to overcome these problems etc. should be
sufficiently elaborated. Brief description of operation of facilities in past vis-à-vis the
need for proposed modification would help to appreciate the problem.
Generation and evaluation of alternatives:
Once the objective of the proposal is firmed up and the evaluation of the existing
facilities have been completed the next logical step is generation of alternatives or
options available for achieving the desired objective. The following points are of
importance in this regard:
i. All possible alternatives should be explored and listed. This may involve different
level of efforts and cost of different ways of performing the same functions,
activity operation.
ii. Evaluation of alternative must also be carried out in a systematic manner. While
there cannot be a uniform approach for evaluation of alternatives, some of the
factors to be considered are: cost – benefit analysis, repercussions on other units/
operations, time schedule, availability of resources, downtime requirements in
case of plant modifications, long-term implications, conforming to corporate
policies, legal and other statutory requirements, etc. In any case, the proposal
should clearly indicate the criteria and considerations that led to the selection of
the recommended alternative.
Description of activities:
Once the evaluation of alternatives and selection of the optimum scheme is completed the
proposal should be developed with sufficient detailing.
Benefits / Savings from the proposal:
It is important that all expected benefits, achievements, savings etc. must be listed in the
proposal. This should include both tangible and intangible benefits. Thereafter, efforts
must be made to quantify the benefits. It may be possible that a proposal which is
primarily an ‘operational necessity’ may also bring in economic benefits, which must be
identified and quantified.
Project cost estimates:
Need for realistic cost estimates :
The importance of making an accurate cost estimate cannot be over stressed. It will have
a direct bearing on the economic viability of the scheme. While over-estimation may
cause blockage of funds which otherwise could be utilized profitability for some other
purpose, under – estimation would necessitate repeated approvals for cost overruns and
may also affect the project completion schedules. The salient points involved in cost
estimation are discussed below:
Basis :
It is essential that the basis adopted for cost estimation of all major components be
indicated. Generally, cost estimates for major equipment’s, imported goods, proprietary
items etc. shall be on the basis of current Budgetary Quotations. Each refinery shall
maintain an updated Schedule of Rates (SOR) for materials as well as works, which can
be used as basis for estimation. Detailed work ups, copies of quotations etc. must be
enclosed with the proposal. The effort shall always be to base the cost estimates on a
sound basis.
Escalation:
All cost estimates shall be as on the date of submission of the proposal and the rate of
escalation adopted for different cost elements shall be indicated, along with basis.
Foreign exchange requirements :
The Foreign Exchange requirements are to be worked out separately and shown. The
need to import equipment’s / process etc. involving outgo of Foreign Exchange are to be
critically reviewed, indigenous availability fully explored and Foreign Exchange
component of the proposal kept to the bare minimum.
Indirect costs:
An indirect cost includes Excise Duty, Sales Tax, Customs duty, Insurance,
Transportation charges etc. These costs must be computed on the basis of prevailing rates
and shown separately. Indirect costs should not be clubbed along with material costs.
Concessional customs duty, wherever applicable, shall be considered.
Consultant fees :
In proposals where engaging a consultant is envisaged, provision must be made in the
cost estimates for the consultants’ fees. This should be on the basis of quotations from the
consultant/s, for clearly identified job scope. The fees could also be compared to similar
jobs awarded in the past, to confirm that they are realistic and reasonable.
Design change / contingency provisions :
A contingency provision not exceeding 10% of the total estimated cost can normally be
included in all proposals, to take care of minor changes in scope of work, errors in
estimation, unforeseen expenditure etc.
However, the inclusion of Design change allowance and the rates adopted needs to be
justified on a case-to-case basis. The maximum limit for design change allowance, in
case justified, is also 10% of total estimated project cost. However, for minor schemes
and/ or for proposals where the process package is complete and bill of material /
specifications and quantum of execution of jobs are finalized, design change allowance
need not to be considered.
Phasing of expenditure :
A proper phasing of expenditure indicating separately foreign exchange and Indian
component should be worked out based on the project activities as per activity chart.
Efforts should be made to work out a realistic phasing considering payment terms for
major equipment’s/ works, cash flow pattern etc.
Motor spirit quality up gradation project
Comprises Naptha splitter and Hydrotreater, Reformate Splitter, Isomerization –
LPG Recovery, Selective Hydro-generation, FCG Gasoline Splitter process units.
Currently under execution in a working refinery.
The main unit of MSQ is PENEX Unit.
PENEX UNIT
The UOP Penex Process is specifically designed for the continuous catalytic
isomerization of pentanes , hexanes, and mixture thereof. The reactions take place in a
hydrogen atmosphere , over a fixed bed of catalysts , and at operating conditions which
promote isomerization and minimize hydrocracking.
The performance is simple and straightforward in design and operating and trouble-free
in performance permitting a minimum of staffing and supervision. Operating conditions
are not severe as reflected by moderate operating pressure, low temperature, high
catalysts space velocity, and low hydrogen partial pressure requirements.
Except for normal hydro treating, the Penex Process requires neither special treatment
nor especially sharp or costly pre-fractionation for removal of C6 cyclic or C7+.
The major elements of the Penex Unit are the sulphur guard bed, liquid feed and makeup
gas driers , the reactors and associated heater and exchangers , the product stabilizer and
the caustic scrubber.
The Penex system normally employ two reactors in a series flow configuration with the
total required catalyst loading being equally
distributed between the vessels. Valving and
piping are provided which permit reversal of the
processing positions of the vessels and the
isolation of either for partial catalyst replacement. With time, the Penex catalyst will
activated by water, not by hydrocarbon. Because the water deactivation proceeds as a
sharp front which moves down the bed in a position-like fashion, catalyst downstream of
the front remains unaffected. When catalyst in the lead reactor is spent, the reactor is
taken off line for reloading. During the short period of time the reactor is out of service,
the second reactor is capable of maintaining continuous operation at design throughput
and yield; conversion is moderately lower. After catalyst reloading is completed, the
processing of the two reactors may be reversed.
The two-reactor design permits essentially 100% unit on stream efficiency and reduces
catalyst consumption costs by making partial catalyst replacement practical. It also
permits the unit to be designed for a smaller catalyst inventory and benzene
hydrogenation reactions are both exothermic and the temperature increases across the
reactor. Equilibrium requires that the outlet temperature be as low as the activity of the
catalysts permits. With a single reactor this would lead to a low inlet temperature and low
isomerization rates in a part of the catalyst bed. The two reactor permits the imposition of
an inverse temperature gradient by cooling between reactors through exchange against
cold feed. The first reactor therefore be operated at a higher temperature and achieve a
higher reaction rate. This reduces the inventory of catalyst and the reactor size required.
Most of the isomerization is thus accomplished at high rate in the first reactor and the
final portion is performed at a lower temperature to take advantage of the favorable
equilibrium.
The following projects have been taken up in the recent past at Mathura Refinery for
further improvement of distillate yield, production of eco-friendly products, optimization
of energy consumption and for reduction of SO2 emission and are under various stages of
implementation.
PROJECT COST RS. Cr. STATUS
Catalytic Reforming Unit 360 Commissioned in May,
1998.
Once through hydro cracker unit 1041 Mechanical completion
over. Commissioning in
July 2000.
Diesel Hydrodesulphurization unit
(DHDS)
307 Commissioned in July,
1999.
Need for improvement of M.S.Quality
At present, all refineries are producing MS as per BIS specification (IS2796: 1995).
Ministry of Environment & Forest (MOE&F), Government of India had amended certain
pollution related specification for MS & HSD to reduce the pollution from Petrol/Diesel
Engines vide Gazette notification in May 1996.
The salient changes for MS quality are with respect to Benzene, Lead & Sulphur content
and the implementation are given below:
S.NO REQUIREMENT STATUS
1 LOW LEAD PETROL
0.15 gm/lit by Dec 1996 for the
entire country
Introduced in metros by Dec 1994
Introduced in Taj trapezium in Sept
1995
Introduced in the entire country in Dec
1996
2 UNLEADED PETROL
0.013 gm/lit
By 1st April 1995 in four metros.
By 1st Dec 1998 in all state capitals
&Uts.
Compiled
Compiled in June 1998
By 1st April 2000 for the entire
countryCompiled progressively by Oct.1999
BENZENE CONTENT:
S.NO REQUIREMENT STATUS
1 5% by vol. for the entire country IMPLEMENTED
2 3% by vol. In metros cities by 2000 AD Compiled progressively by Aug. 1999
As can be observed from the above, actions are required to improve the quality of MS in
the following areas:
1 Benzene reduction
2 Sulphur reduction
3 Olefins reduction
4 AKI improvement
EURO NORMS
All the Euro norms have been issued by European Economic Country (EEC) council
directive since March 1970 and amended from time to time.
The implementation schedule of Euro norms is as under:
ATTRIBUTESNOTIFICATION DATE IMPLEMENTATION DATE
EURO I 1992/1993
EURO II March 1993 1996/1997
EURO III October 1998 2005
EURO IV October 1998 2010
PROJECT DESCRIPTION
The proposed treating facilities comprise the following units.
Additional Facility Capacity TMTPA
PENEX Unit
a)Benzene saturation Unit
b)Isomerization unit
440
Light Naphtha Hydro treatment Unit 270
Selective Hydro treatment Unit for FCGCC
Gasoline
330
Extractive Metrox 150
PROJECT QUALITY
On implementation of the project, Mathura Refinery is able to produce MS with the
following qualities, which conforms to Euro IV stipulations except for the specification w.r.t.
RON/AKI.
ATTRIBUTE REMARKS
Benzene Max 1%VOL
Sulphur Max 50 PPMW
Aromatics Max 35% V
Olefins Max 18%V
RON 91 MIN
AKI 86 MIN
PROJECT COST
The estimated capital cost of the project works out to Rs. 709 crores inclusive of Rs. 141
crores (US $42.47 Million) in foreign exchange component and Rs. 43.65 crores as
financial cost.
CAPITAL COST
(FIGS. IN RUPEES LAKH)
S.NO. DESCRIPTION FOREX I.C. TOTAL
1 Land --------- -------- --------
2 Site Development 817 817
3 Engg.,proj. mgmt. Etc. 1016 1016
4 Royalty & know how 376 376
5 Plant & machinery 23612 34855 58467
6 Roads & buildings
7 Water supply & public health 1573 1573
8 Office equipment & furniture 50 50
9 Railway siding
10 Construction Site requirement 50 50
11 Construction period expenses 92 290 382
12 Start- up expenses 814 180 994
13 Township
14 Financial Cost 7219 7219
TOTAL (1 to 14) 24518 46426 70944
Say, Rs. Crores 245 464 709
FINANCIAL ANALYSIS
The subject proposal is for quality improvement in MS and is essentially an
environment protection measure. However a national economic has been worked out
considering nil MS production as a consequence of not meeting the quality requirement
and assuming the entire quantity can be converted to Naphtha. There will thus be a
resultant surplus of Naphtha in NW region, which need to be moved out of zone. On this
assumption, with production of about 1.0 MMTPA of improved quality MS from
Mathura, in line with supply-demand projection, by installation of the envisaged
facilities, there is an estimated increase in gross margin by approximately Rs 2101.5
crores/year. The IRR on the investment is estimated as 15.21%.
The customs duty products proposed as part of the phased dismantling programme of
administered pricing mechanism, has been considered as given below:
Items Proposed customs duty
HSD/MS/ATF/Bitumen and others 15%
LPG/FO/LSHS 10%
Naphtha 5%
Kerosene 0%
OPERATING COST
SL. No. Description Basis (Rs.
Lakh)
1 Salaries 24 Employees 96
2 Natural Gas 23 THMT/Yr
Rs.5500/MT
1265
3 Water 0.5MGD @Rs.7/1000
gallons
12
4 Catalysts & Chemicals Estimated 447
5 Repair & Maintenance 1.50%on capital cost
w/out financial cost
797
6 Gen. Administration 0.4% on capital cost
w/out financial cost
213
7 Consumables 0.15 on capital cost
w/out financial cost
52
TOTAL 2882
FINDINGS
YIELD PATTERN WITHOUT
Additional Facilities
TMT/yr
‘base case’
WITH
Additional Facilities
TMT/yr
DEL
PRODUCT
‘000MT/YR
FEED
Crude Oil 8000 8000 0
Natural Gas 271 294 23
TOTAL 8271 8294 23
PRODUCTS
Sulphur 54 55 1
LPG 286 286 0
LAN 1360 337 -1023
Motor Spirit 0 1018 1018
SKO/ATF 1171 1171 0
HSD 3427 3364 -63
LDO 60 60 0
FO/HPS 782 782 0
Bitumen 500 500 0
TOTAL 7640 7573 -67
Profit &Loss 631 721 90
TOTAL 8271 8294 23
POLLUTION CONTROL MEASURES:
In view of the forthcoming projects, it is required to augment Treatment Plant by
providing following facilities:
Installation of T.P.I. (Tilted Plate Interceptor)
Installation of DAF (Dissolved Air Floatation) unit,
Equalization tank in place of open pond,
Installation of Bio-Towers
SIGNIFICANCE OF THE UNIT
Mathura Refinery commission in 1982 presently operates at about 8.0 MMTPA
throughput level. A Diesel Hydro-desulphurization Unit of 1.1 MMTPA capacity along
with associated facilities had been commissioned in Aug. 99 to meet 0.035% wt. Sulphur
specification of Diesel.
The Ministry of Surface Transport has issued a Gazette Notification on 31st January 2000
to supply 0.035% wt sulphur HSD to NCR w.e.f. 1st April 2000 for non-commercial
vehicles. MOP&NG had also worked out plans for supply of 0.035% wt. Sulphur HSD in
NCT/NCR. As per the timetable drawn, with effect from 1st April 2001 all categories of
diesel vehicles in NCT and Taj Trapezium (tpz) has been supplied Diesel not exceeding
0.035% wt. Sulphur. Entire NCR had switched over to 0.035% wt. Sulphur Diesel by 1st
October 2002.
At present Mathura Refinery can produce 300 TMTPA of 0.035% wt sulphur Diesel.
With the commissioning of Oncethrough Hydro Cracker Unit (OHCU) production of
0.035% wt. Diesel will increase to 480 TMTPA. After installation of second reactor in
existing DHDS Mathura Refinery is able to produce about 1.8 MMTPA of 0.035% wt.
Sulphur Diesel in October 2000. Board of Directors had approved an expenditure of Rs
22 Crores inclusive of Detailed Feasibility Report (DFR) and other pre-project activities
for installation Additional DHDS at Mathura Refinery for production of extra low
sulphur Diesel in its meeting that was held on 30th July 1999.
PROJECT DESCRIPTION
The proposed project envisages the following major facilities:
S.No. Process Units Capacity
1 DHDT 1.8 MMTPA
2 Hydrogen Unit 60,000TPA
3 Tail Gas Treatment Unit 180 TPD
4 Sour Water Stripper 20 MT / hour
The proposed Hydrogen Unit, Tail gas Treatment Unit and Sour Water Stripper shall also
meet the requirement of MS Quality Improvement Project.
1 Utility:
Requirement of Utilities viz. Steam, Power, DM water, Plant/instrument air,
Nitrogen, Cooling Water system etc. has been met from the facilities being envisaged
under MS quality improvement project..
2 Offsite facilities:
Two tanks each of 20,000 KL have been envisaged as feed tanks to proposed
DHDT unit and two tanks each of 10,000 KL have been envisaged for storage of Naphtha
as feed to new Hydrogen Unit. In order to meet the additional load, a new Flare Stack
along with separate header and knock out drum etc. has been envisaged which has taken
existing load also.
3 Product Quality
On commissioning of the project, the Diesel produced in the refinery shall meet
Euro-III quality specification w.r.t. sulphur (0.035%wt. Max) and Cetane (51min). Unit
hydraulics will be designed to take care of Poly Aromatics specification of 11% v max.
CAPITAL COST
The estimated cost for setting up of Additional Diesel Hydro-Desulphurization Treatment
(DHDT) Facilities at Mathura refinery is Rs. 872 crore including a foreign exchange
component of Rs. 195.5 Crore (equivalent US $ 44.9 Million) and Rs 82.4 crore as
financial cost. The financial cost has been calculated based on debt equity ratio of 1:1.
The cost estimates are within +/- 10% accuracy.
The cost has been worked out based on Nov.99 prices and no escalation has been
considered beyond Nov.99. The exchange rate has been considered as 1US$=Rs.43.5
FINANCIAL ANALYSIS
Production of 0.035% wt. Sulphur Diesel is required for environmental consideration.
However, national internal rate of return i.e. IRR (free pricing) for the proposal has been
worked out based on deregulation scenario considering last three years average CIF price
with applicable customs duty. For this purpose, it is considered that 0.25% wt. Diesel will
not have any market in India and it may either have to be exported or downgraded to
FO/HPS pool. The price of 0.25%wt. Sulphur Diesel has been worked out to match its
FOB price after adjusting freight. The IRR for the project works out to 33%. While
working out IRR reverse freight for transportation of 0.25% wt. Diesel firm Mathura to
Kandla port has not been considered. Alternatively, if down-gradation of 0.25% sulphur
diesel to FO/HPS pool is considered, IRR of the project will improve further.
PROJECT COST
The capital cost of the proposed project for Additional Diesel Hydro-treatment Facilities
at Mathura refinery had been estimated to be Rs. 1047 crore inclusive of foreign
exchange component of Rs. 373 crores and financial cost of Rs. 101.3 crore. The
financial cost had been calculated based on debt to equity ratio of 1:1 the cost estimates
are based on Nov 99 prices and no furtherescalation beyond Nov 99 had been considered.
The capital cost summary is given below:
Project Cost Estimation:
(Figs in Rs Lakhs)
S.No Properties FX IC Total
1 Land - -
2 Site Development - 1690 1690
3 Process Design/Engineering 220 2402 2622
4 Royalty & Know how 507 31 538
5 Plant and Machinery 35006 50835 85841
6 Roads and Buildings - - -
7 Water supply/Public health - - -
8 Office equipment & furniture - 49 49
9 Railway siding - - -
10 Construction site requirement - 601 601
11 Construction period expense 384 618 1002
12 Start -up expense 1142 475 1617
13 Township 0 500 500
Sub Total 37259 57201 78995
14 Financial cost - 10125 10125
Total cost 37259 67326 104585
Say, Rs. Crores 373 673 1046
Estimation for Financial Commitments for Pre-Project Activities:
S.No Properties FX IC Total
1 Site Development and dismantling
and relocation of existing facilities
- 1887 1887
2 Royalty 59 9 68
3 Process Package Fee 613 155 768
4 Detailed design Engg Fee & PMC - 407 407
activities
5 EIA/Risk Analysis studies - 30 30
6 DFR Preparation - 16 16
Total 672 2504 3176
Say Rs 32.0 Crore
OPERATING COST
The operating cost for new facilities includes cost towards utilities, chemicals,
adsorbents, salaries & wages, repair & maintenance, general administration and
overheads/insurance, consumables etc. The operating cost for chemicals, catalyst had
been considered based on the information provided by the process licensors as well as in-
house data. The total operating cost per annum for the project was estimated to be Rs. 64
Crores.
Description Basis/Qty FX IC TOTAL
A Variable Cost
1. Power @ Rs. 2.57 (7470 KWH) 1536 1536
2.Steam @ Rs. 291.1 per MT(15.8MT/hr) 368 368
3.Cooling Water @ Rs. 0.38/M3 (3342M3 per hr) 102 102
4.DM Water @ Rs. 32/M3 (98M3 per hr) 251 251
5.Natural Bas @ Rs. 5000/MT (9000MT/tear) 450 450
6.Chemicals &
Catalyst
As per the data of Process Licensor/
DFR Consultant
514 171 685
B. Fixed Cost
1.Repareires
&Maintenance
@ 2.5% on capital cost without FC
& land cost
1975 1975
2.GeneralAdmn.
& overhead
@0.5% on capital cost without FC&
land cost
395 395
3.Consumables @0.15% on capital cost without
FC&
land cost
79 79
4.Salaries &
Wages
105 employees@ Rs 5 lakhs per
Employee
525 525
Total 514 5851 6365
Say Rs. 64 Crores
(Figs: Rs. Lakhs)
Environmental Aspects
The existing facilities in the refinery is taking care of additional liquid effluent loads
generated due to operation of new facilities.
There is a marginal increase of SO2 emmition by about 50 Kd/hour after commissioning
of proposed facilities. However, overall SO2 emission from the refinery shall be within
stipulated limit of 450 Kg/hour set by MOE&F while giving clearance for MSQ and
DHDT project. In addition, the Diesel products from the refinery are environmental
friendly having a sulphur level of less than 0.035% wt. And overall pollution level will
reduce considerably.
Actions have already been initiated for obtaining Environment & Clearance to the project
from the Ministry of Environment & Forest (MOE&F). The Risk Analysis study report
had been prepared and was finalized in April 2000. After receipt of the report, application
for No Objection Certificate (NOC) from UP State Pollution Control Board (UPPCB) had
been submitted. After issue of NOC, application had been filed with MOE&F for
Environment Clearance.
The implementation of this project improved the quality of Diesel conforming to EURO-
III equivalent for NCT/NCR/Taj Trapezium area .
The requirement for ultra-low sulphur Diesel (0.035%wt.sulphur) is expected to become
obligatory throughout the country in the near future products which gives the Mathura
Refinery a competitive advantage and distinct edge over the others in controlling the
NCR market and overall pollution level will reduce considerably
This DHS quality up-gradation project has been implemented at a cost of approximately
Rs 1000 crore and the technology was provided by M/s UOP, USA. Euro III equivalent
DHS has very low Benzene, olefin and sulphur contents and has a high octane number.
FINANCIAL CONCURRENCE
One of the important control techniques are that the Board of Directors delegate the
powers of the Chief Executive who in turn sub delegates the powers to various
functionaries in order to enable them to take decisions on day to day basis. They are
given specific powers up to which they can bind the company in case of purchases or
other expenditure or in appointment of personnel etc. Those decisions can be divided
into two main categories:
1) Decisions having a long term / recurring effect and
2) One time effect.
For example, if a long term contract for the purchase or sale of the product is entered in
to, it is going to bind the company for a long time and the company has to honor its
commitments even though in subsequent period the price mentioned in contracts may not
be to the advantage of the company due to change in the market conditions. While in
short term contracts or in one time purchase, the decision-making does not have the same
extent of criticality and for reaching lasting effect. In order that the decisions are taken to
the best interest of the Corporation , generally in the delegation itself management
resources are placed up and it is provided that decisions beyond a certain value
are to be taken with finance concurrence. The intention is to pool up the talent within the
organization such as Materials Manager , Engineer – in – Chief , Operations
Manager , etc., and a senior representative from Finance is also associated so that
financial and other implications are all taken into account before a decision is taken .
Before concurring a proposal initiated by a department, the Finance Department exercises
financial checks such as:
1) whether there is a provision of funds for expenditure in the approved proposal.
2) Whether the procedures laid down by the Company has been followed.
3) Whether the decision is within the framework of the policies laid down by the Board
and Management.
4) Whether the expenditure is being incurred after keeping in view the cannons of
financial propriety.
It will thus be seen that the Finance concurrence is one of the important controls,
which are laid down by the management for safeguarding thefinancial interests of the
company . The finance concurrence does not , however , take away the basic
responsibility of the administrative department in taking a judicious decision to the
best interest of the corporation and their responsibility remains to explain later on, if
called upon to do, so the propriety of its decision. The finance concurrence is a control
exercised concurrently by the finance department as and when a transaction or a deal
involving monetary terms beyond a certain value takes place.
CONCURRENCE
In order to ensure that public fund are judiciously and economically utilized within the
framework of the budgets approved by the Board of Directors, a system of financial
concurrence is imperative. It provides independent check on the expenditure proposal at
the stage of estimates as also at the time of award of work. In case of expenditure
proposal of a higher order, a system of pooling of talents (Tender Committee) is laid
down to ensure that proper and right decisions are taken before incurring an
expenditure.
WORKS PROCEDURE
Works expenditure can be defined as expenditure incurred on the acquisition of assets or
on Repairs and Maintenance of assets , through engagement of contractors. Works
procedure covers mainly expenditure of capital nature involving fabrication ,
construction , erection of Plant and Machinery. It also deals with revenue expenditure for
the maintenance. It covers the engineering practices and procedures employed in the
execution of works. A detailed procedure has been laid down for engagement of
contractors , the process of construction, measurement of works for periodic payment of
periodic bills and capitalization of assets. The main objective is to ensure that
adequate control is exercised on Capital and Maintenance expenditure.
Thereafter , each proposal along with detailed estimates and award of work should be
approved by the competent authority as per delegation of powers approved by the
Board of Directors.
EXPENDITURE PROPOSAL
Expenditure proposal may be for construction, maintenance or for purchase of materials.
Every project/additional facility has to be duly budgeted and approved by the board,
providing full justification for the scheme. Maintenance jobs are also budgeted. Based on
the budgetary provision, expenditure proposal is processed for the approval of competent
authority
ADMINISTRATIVE APPROVAL
Works proposal requires a formal acceptance by the competent authority based on
preliminary estimate and supported by budgetary provision.
TECHNICAL SANCTION
A detailed estimate is prepared for every works proposal so that it is technically sound
and viable. Competent authority has to accord his approval after detailed estimate is
prepared . It would be desirable , however , to have administrative approval and
technical sanction taken simultaneously after detailed estimate is processed.
DETAILED ESTIMATE
Detailed estimate has to be prepared for works proposal based on the schedule of rates
approved by the competent authority and sent to the Finance department for concurrence.
Schedule of Rates should be maintained for civil work, electrical works and mechanical
works. In case schedule of rates are not available, the rates adopted by PWD for Civil
Works , electricity Board for Electricity works, surrounding public sector
undertakings for Mech9anical works or rates as per past similar work done with suitable
escalations may be considered. schedule of rates must be revised periodically ( mostly in
3 years ). It should be ensured that no item/work is included in the estimate without
indicating estimated quantum of work .
CONCURRENCE OF ESTIMATES
While scrutinizing the estimates in the Finance Department, the following points should
be looked into:
1) Administrative approval.
2) Budget provision.
3) Rates are in accordance with approved schedule of rates.
4) Arithmetical accuracy of the calculations.
TENDERING
For selecting suitable party for execution of a job or purchase of materials, a detailed
tendering system is provided. Tenders can be invited for various types of jobs as detailed
below:
1) Piecework tenders.
2) Composite item rate tenders covering supply of materials and erection.
3) Erection comprising labor rates only.
4) Lump-sum tenders / turn-key contracts.
5) Fabrication, supply and erection of plants and equipment’s.
6) Rate contracts for supply of materials.
7) Materials handling and transportation contracts.
8) Canteen services.
9) Transport contract etc.
TYPES OF TENDERS
I. SINGLE TENDER
In case of exigencies or where items are proprietary nature or where only single known
party is available, tender/quotation can be obtained from one party who is capable of
executing the job. The offer should be reasonable.
II. LIMITED TENDER
Limited tender is a tender where only few known parties are invited to send quotations
This may be done in the following cases after obtaining approval of competent authority.
1) For jobs involving specialized know - how and patented process, where only few
dealers/contractors exist.
2) Where the work is of urgent nature and sufficient time is not available for inviting
press tender.
3) Where it is not in public interest to call for press tender.
III. OPEN TENDER / PRESS TENDER
Beyond a certain limit tenders are issued to all registered contractors and state vide
publicity through advertisement in local and one English newspaper is done.
IV. TWO PART TENDER
Where detailed engineering and design work have to be done by the contractors, tender
for work should be invited in two separate sealed covers, one for technical specification
and other for commercial bid.
GENERAL CONDITIONS OF CONTRACT
A copy of general conditions of contracts should be attach to the tender documents.
IOCL has the standardized general conditions of contract, covering various conditions
regulating the procedure for execution of the contract.
TENDER OPENING
All tender papers received up to the date and time of opening tenders shall be dropped in
the tender box and the same shall be sealed thereafter. Any tender received after the time
and date of receipt, shall be marked late/delayed. Delayed tender is one, which is posted
on a date prior to the opening of the tender as may be evident from the postal mark .
Late tender is one, which as posted on or after the date of opening off the tender. Tenders
shall be opened by officer inviting tenders in the presence of Finance representative and
tenderness, if any. All tenders shall be serially numbered. All corrections and cutting
shall be initiated and circled. The total number of corrections should be noted on the
page. In case there is no correction, the word ‘No correction’ shall be written on the page.
CONCURRENCE FOR AWARD OF WORK
While scrutinizing the evaluation of tender, the following points shall be examined:
1) Quantities and rates have been correctly incorporated from the quotations;
2) Arithmetical accuracy;
3) Discounts, rebates, taxes etc. have been incorporated;
4) Whether prices are firm or subject to escalation clauses;
5) If there are escalations , the same should be clear and , must be subject to a
ceiling as far as possible;
6) Other conditions having financial implications have been evaluated, such as
interest on advance if any, etc. Payment terms should be clearly mentioned in the
comparative statement;
7) The evaluation is made on the basis of cost;
8) Whether comparative statement is signed by the department’s representatives;
CONCLUSION
The implementation of this project improved the quality of MS to meet EURO - III
quality norms. This MS quality up-gradation project has been implemented at a cost of
approximately Rs 700 crore and the technology was provided by M/s UOP, USA. Euro
III equivalent MS has very low Benzene, olefin and sulphur contents and has a high
octane number of 91. Supply of Euro III equivalent MS therefore, improve vehicular
emission and thereby the quality of air for the benefit of all.
Motor Spirit Quality Up-gradation Unit heralds a major step in implementing the latest
state-of-the-art technology aimed at improved environment management in the refineries.
Thus the Mathura Refinery continues to be in the fore front of supplying environmental
friendly petroleum products which gives the Refinery a competitive advantage and
distinct edge over the others in controlling the NCR market.
LIMITATIONS OF STUDY
All the employees were extremely helpful. But then also there were certain limitations in the study. They are as follows: -
TIME CONSTRAINT: - Although the HR officers were willing to help the trainees as much as possible but in spite of that they could not devote much of their office time to us regularly, because of their own duties and responsibilities for the company.
CONFIDENTIALITY: -Confidentiality regarding cooperation policies was also a hindrance in the study.
LIMITED AREA: - Some of the welfare measures were applicable only inside the battery area .Eg. Safety Shoes, Boiler Suits, Helmets etc.
UNCOVERING:- To make Questionnaire of manageable size, some of the inputs related to welfare measures could not be dealt upon.
