A PROJECT REPORT

ON

C
CA
APPIITTA
ALL B
BU
UD
DG
GEETTIIN
NG
G
AT

INDIAN OIL CORPORATION LTD.

(GUWAHATI REFINERY, NOONMATI)

IN PARTIAL FULFILLMENT OF THE

REQUIREMENT OF THE AWARD FOR THE POST GRADUATE
DIPLOMA IN MANAGEMENT

PREPARED BY:
JAHNABI CHOUDHURY
GURU NANAK INSTITUTE OF MANAGEMENT
PUNJABI BAGH, NEW DELHI
2009-2011

SUBMITTED TO:
NP SINGH
FINANCE FACULTY
[1]

TABLE OF CONTENTS
PREFACE
ACKNOWLEDGEMENT
DECLARATION
EXECUTIVE SUMMARY

SL. NO.

PARTICULARS

PART - I

GENERAL INFORMATION

1.

About Indian Oil Corporation Limited

2.

Board of Directors

3.

History of IOCL

4.

Mission, Objective, Obligation

5.

Branded Product of IOCL

6.

About Guwahati Refinery

7.

Manufacturing process

8.

Structure, Department, Section

[2]

PAGE NO.

PART - II
9.

FINANCE PROJECT WORK

Brief Description
Background of the Study
Importance of the Study
Need for Improvement of MS
Quality

10.

Overview of the Project

Objective of the study

11.

Scope and Limitations of the Study

12.

Capital Investment Analysis

Need and Justification
Market and commercial
assessment
Technical Feasibility Study
Financial Analysis
Sensitivity and Risk Analysis

13.

Results and Findings

14.

Conclusions

[3]

LIST OF ANNEXURE
SR.
NO.

PARTICULARS
PART 1 GENERAL

1.

Phasing of the investment.

2.

Sources of capital.

3.

Calculation of interest on long term debt.

PART 2 ESTIMATED

4.

Project cost on the basis of April 2000 prices.

5.

Calculation of block of assets.

6.

Value of assets.

7.

Depreciation as per Income Tax Act (WDV

method).

8.

Annual sales realization.

9.

Calculation of IRR and NPV.

PART 3 ACTUAL

10.

Project cost on the basis of average prices

(2006).

11.

Calculation of block of assets.

12.

Value of assets.

13.
14.

Depreciation as per Income Tax Act (WDV

method).
Annual sales realization.

[4]

ANNEXURE PAGE
NO.
NO.

PREFACE
In todays era of globalization and competition, coping up with technological
advancement, which is undergoing evolution at a very fast rate, holds the key to the
survival and growth of any organization. Installing technology, well-equipped facilities
or going for modification in the existing ones are the means to attain better
performance efficiency and hence further the value addition.
Indian Oil, the largest commercial enterprise of India (by sales turnover) is Indias
sole representative in Fortunes prestigious listing of worlds 500 largest corporations,
ranked 135th for the year 2007. To maintain strategic edge in the market place, Indian
Oil has given importance to capital budgeting because capital investment decisions
often represent the most important decisions taken by an organization, and they are
extremely important, they sometimes also pose difficulties.
The evaluation of projects should be performed by a group of experts who have no
axe to grind. It is necessary to ensure that an impartial group scrutinizes projects and
that objectivity is maintained in the evaluation process.
A company in practice should take all care in selecting a method or methods of
investment evaluation. The criterion selected should be a true measure of the
investments profitability (in terms of cash flows), and it should lead to the net increase
in the companys wealth (that is, its benefits should exceed its cost adjusted for time
value and risk). It should also be seen that the evaluation criteria do not discriminate
between the investment proposals. They should be capable of ranking projects
correctly in terms of profitability. The NPV method is theoretically the most desirable
criterion as it is a true measure of profitability; it generally ranks projects correctly and
is consistent with the wealth maximization criterion

[5]

ACKNOWLEDGEMENT
This training part of PGDM programme taught me a lot to understand the key of
success in the organization. One of them is teamwork. Teamwork is ability to work
together towards a common vision. It is a fuel that allows common people to attain
results. Therefore, I would like to thank all management team of Indian Oil
Corporation Limited who help me to achieve this result.
This project is not an individual effort but a collection of efforts by each & every
member associated with it. Working with Guwahati Refinery, IOCL has been an
educative, interesting and motivating experience.
I would hereby like to extend my gratitude to the following people without whose
cooperation and help at every stage, successful completion of the project would not
have been possible.
It is my privilege to express my deep gratitude to Mr. Niranjan Mukund Bhalerao
(FM at IOCL) who gave me such a great opportunity & infrastructure to do this project
and also for his kind cooperation & help throughout the project.
I would like to express my profound gratitude & a sincere thanks to Mr. S.
Gurumoorthy (SFM at IOCL),

for his valuable time & educative guidance. Their

constant support, innovative ideas & practical approach helped me to make the project
more objective.
I would also take this opportunity to thank my college Guru Nanak Institute of
Management (GNIM) to put the theoretical inputs gathered at the institute to practice. I
also feel a sense of gratitude towards Prof.

N.P SINGH

who took personal interest in

the progress of this report.

JAHNABI CHOUDHURY
GUWAHATI

[6]

DECLARATION
This is to Certify that MISS JAHNABI CHOUDHURY has successfully completed her

project work

entitled Capital Budgeting from Guwahati Refinery (I.O.C.L). During her internship her effort towards
work was really praise-worthy.

Place: Guwahati,Assam
Date:

28/01/2011

(JAHNABI CHOUDHURY)

[7]

[8]

INDIAN OIL CORPORATION

[9]

[10]

[11]

INTRODUCTION

Brief History of Oil industry in India

In

1881, Assam Railway & Trading co.

began laying of tracks in Assam

They used elephants in place of cranes

One

day, one of the elephants wandered

away, to come back with its feet smeared
by slimy oil

Backtracking led to the discovery of oil in

Borbhil, near present day Digboi

A Canadian driller, Willey Leove hollered at

native boys, Dig boy dig

Oil was struck and the name Digboi stuck

[12]

Beginning of Petroleum Refining in India

Digboi

became the birth

place of Indias oil industry

In 1890s, crude oil distillated

at Margherita, 16 km away
from Digboi, in cast iron
pans, called Stills

Digboi

Refinery of Assam
Oil
Company
(AOC)
commissioned at its present
location in 1901 with 500
bbl/day capacity

AOC

nationalised and its

Refining
and
Marketing
functions merged with IOC
in October, 1981

Digboi refinery is one of the

oldest refinery in the world
that is still working

[13]

The first Still lies still

IndianOil
Corporate History

At the time of independence, Indias oil industry was

fully controlled by international oil cartel

In 1956, Industrial Policy Resolution was passed,

which laid the foundation of national oil industry

The resolution stated Oil is of vast importance in

the world today. A country that does not produce its
own oil is in a weak position. From the point of view of
defence, the absence of oil is a fatal weakness.

Exploration & production was put into Schedule A,

meaning thereby that only state would operate in this
field

Soon thereafter, ONGC was formed for oil exploration

and drilling

[14]

IndianOil
Corporate History

Indian Oil Refineries were formed in 1958 for

refining and manufacturing of petroleum
products, with Shri Feroze Gandhi as its
Chairman

This was followed by the formation of Indian Oil

Co. in 1959, for marketing and distribution of
petroleum products

In 1960, Indian Oil Co. signed a historic

agreement with soviet Union for import of 1.5
MMT of SKO, HSD, and ATF over a period of 4
years on rupee payment basis. This initiated
the end of to the monopoly of foreign oil
companies

On 1st September 1964, as a step towards

achieving improved efficiency, Indian Refineries
and Indian Oil Co. were merged. Indian Oil
Corporation Ltd. (IOC) was born

[15]

History of Indian Oil

Merger
Indian Oil Company Ltd.
1959

Indian Refineries Ltd.

1958

Indian Oil Corporation Ltd.

1st September 1964

[16]

[17]

Corporate Structure
BOARD

Corporate

Divisions

Finance including

Refineries (including
AODs Digboi Refinery)

International Trade / Information

Systems
/
Optimization
/
Corporate Affairs

Pipelines
Human

Resource

including
Corporate Communications

Marketing (including
AODs Marketing)

Planning & Business

Development

R&D

[18]

Refineries Division

Refineries HQ, New Delhi

Technical

Projects

Materials

HR

Refineries

Finance
S & EP

Digboi (AOD)
Guwahati
Barauni
Gujarat
Haldia
Mathura
Panipat
Bongaigaon

[19]

M&I

IOC

Indian
Refineries
Refineries
No.
MMTPA

IOC Group

BHATINDA
(9.0)

10 60.2

PANIPAT

Operates 10 of Indias 19 refineries

Groups refining Capacity: 60.2
MMTPA (1.2 mbpd) Largest in the
country
40.4% refining share in the country

MATHURA

BPC group

22.5

9.8

BARODA

JAMNAGAR

1 33.0
33.0+ 29.0)
(RIL

Total

NUMALIGARH
(3.0)

(6.0)

(6.0)

HALDIA

(13.7)

PARADEEP
(6.0+1.5)

MUMBAI

ESSAR

(0.65)

(1.0)
BINA

RIL (Pvt.)

(2.35)

BARAUNI

13.0

ONGC/MRPL 2

DIGBOI

GUWAHATI

(8.0)

HPC

BONGAIGAON
(12.0+3.0)

VISAKH (15.0)

ESSAR
10.5+ 3.5)
1 10.5
(BPC 12.0)

19 149.0

(HPC 5.5+ 2.4)

MANGLORE
(as of 1 Apr08)

(7.5+0.8)
TATIPAKA

Existing IOC

st

Total capacity :

(9.69 +5.31)

(0.08 + 0.08)
CHENNAI
(9.5+ 1.7)

KOCHI

149 MMTPA

(7.5 + 2.0)

NARIMANAM
(1.0)

(2.98 mbpd)

[20]

Subsidiaries of IOC

Others
New / Additions

Pipelines Division

Pipelines HO, NOIDA

Operations

Projects

Materials
Maintenance
Technical
Services

Northern
Region

MJPL (P)
PBPL (P)
MTPL (P)
PRPL(P)
PJPL (LPG)

Eastern

Western Region

Region

KAPL (P)
SMPL (C)
KSPL (P)
MPPL (C)
KNPL (P)
KDPL (P)

GSPL (P)
BKPL (P)
HBPL (P)
HMRPL (P)
PHBPL (C)

[21]

Southern
Region

CTMPL (P)

Pipelines
Jalandhar
Downstream
Industry Pipelines
(As on 21.1.2009)

Bhatinda
Sangrur
Panipat

Ambala
Roorkee
Najibabad

Meerut
Rewari Dadri Delhi
Sanganer
Mathura
Siliguri Bongaigaon
Ajmer
Jodhpur
Lucknow
Tundla
Chaksu
(38.2 MMTPA)
Guwahati
Barauni
Kanpur
Kot
Chittaurgarh
Product: 9866 KM
Sidhpur
Ahmedabad
Rajbandh
Kandla
Ratlam
Navagam
Budge
Mundra
(59.28 MMTPA)
Maurigram
Koyali
Budge
Vadinar

Tinsukia

Crude: 4366 KM

Total: 14232 KM

Digboi

Haldia

Dahej
(97.483 MMTPA)

Paradip

IOCs Pipelines
(Existing)
Product
Crude Oil

IOC Pipelines

LPG Pipeline

(As on21.1.2009)
Bangaluru

(38.2 MMTPA,
100%)
Product: 5698 KM

(Ongoing)
IOCs Pipelines

Chennai

Crude: 4366 KM
Sankari

Product
Crude Oil

Asanur

R -LNG Pipeline

Trichy
Madurai

(31.408 MMTPA,
53%)
Total: 10064 KM
(69.608 MMTPA,
71.4%)

[22]

Marketing Division

Marketing HO, Mumbai

4 Regional Services

AOD

North/East/West/South

&
Overseas Subsidiaries

State Offices

AFSs

International Marketing

Div./Area Offices
Depots/Terminals/
BPs/SCFPs
Field Force

[23]

Marketing Offices

Chandigarh

Delhi
Jaipur

NOIDA

Digboi

Lucknow

Guwahati
Patna

Ahmedabad

Bhopal
Bhubaneswar

Kolkata

Mumbai
Secunderabad
Bangalore

Chennai
Trivandrum

Regional Offices

State Offices

: 17

Divisional Offices : 66
Indane Area Offices : 35

[24]

Major Petroleum Products

Lightest

Liquified Petroleum Gas (LPG)

Naphtha
Motor Spirit (MS)/ Petrol/ Gasoline
Aviation Turbine Fuel (ATF)
Superior Kerosene Oil (SKO)
High Speed Diesel (HSD)
Light Diesel Oil (LDO)
Furnace oil (FO)
Heavy Petroleum Stock (HPS)
Lube oils
Raw Petroleum Coke (RPC)
Petroleum Wax
Bitumen/ Asphalt

Heaviest

[25]

R&D Division
R&D Centre, Faridabad

Refining

Lube

Fuels &

Petrochem

Technology

Technology

Emission

& Biotech

Process Development
Product Development
Transportation Studies
Projects

[26]

Others

Financials Subsidiaries

Turnover
Profit After Tax
Subsidiary
2006-07

2007-08 2006-07

2007-08

CPCL

29,349

32,891

565

1,123

LIOC*

1,405

1,720

(29)

90

IOML*

427

535

14

IOC ME FZE*

18

41

(0.22)

1.3

IN EQUIVELENT INR

RS. CRORES

* In equivalent INR
( ) Indicates loss

[27]

[28]

It has refineries at:S.NO.

NAME
OF
COMPANY

THE LOCATION OF CAPACITY

REFINERY
(mtpa)

1.

IOCL

GUWAHATI

1.00

2.

IOCL

BARAUNI

6.00

3.

IOCL

KOYALI

13.70

4.

IOCL

HALDIA

6.00

5.

IOCL

MATHURA

8.00

6.

IOCL

DIGBOI

0.65

7.

IOCL

PANIPAT

12.00

TOTAL

NOTE:

47.35

MTPA Million Ton Per Annum

The current Refining capacity stands at 47.35 million ton per annum.
Yet another refinery is being set up on the East Coast at Paradip(Orissa).
The outlay includes provision for Expansion of Barauni Refinery, Quality
improvement for HSD at Haldia, Gujarat, Mathura, Grass Root Refinery in Eastern
Sector, Residue Up gradation at Gujarat, and Implementation of Lube Quality
improvement at Haldia etc.
Indian Oils countrywide network of over 22,000 sales points (as on 1st April,
2004) is backed for supplies by its extensive, well spread out marketing infrastructure
comprising 167 bulk storage terminals, installations and depots, 94 aviation fuelling
stations and 87 LPG bottling plants. Its subsidiary, IBP Co. Ltd. is a stand-alone
marketing company with a nationwide network of over 3,000 retail sales points.

[29]

MISSION OBJECTIVES AND OBLIGATIONS

OF THE COMPANY

MISSION
To achieve international standards of excellence in all aspects of energy
and diversified business with focus on customer delight through value
of products and services, and cost reduction
To maximise creation of wealth, value and satisfaction for the
stakeholders
To attain leadership in developing, adopting and assimilating state-ofthe-art technology for competitive advantage
To provide technology and services through sustained Research and
Development
To foster a culture of participation and innovation for employee growth
and contribution
To cultivate high standards of business ethics and Total Quality
Management for a strong corporate identity and brand equity
To help enrich the quality of life of the community and preserve
ecological balance and heritage through a strong environment
conscience.

[30]

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 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.
To work towards the achievement of self-sufficiency in the field of oil
refining by setting up adequate capacity and to build up expertise in
laying of crude oil petroleum product pipelines.
To create a strong research and development base in the field of oil
refining and stimulate the development of new product formulations
with a view to minimise/eliminate their imports and to have next
generation products.
To maximise utilisation of the existing facilities in order to improve
efficiency and increase productivity.
To optimise utilisation of its refining capacity and maximise distillate
yield from refining of crude oil to minimise foreign exchange outgo.
To minimise fuel consumption in refineries and stock losses in
marketing operations to effect energy conservation.
To further enhance distribution network for providing assured
service to customers throughout the country through expansion of
reseller network as per Marketing Plan/Govt. approval.
To avail of all viable opportunities, both national and global, arising
out of the liberalisation policies being pursued by the Government of
India.

[31]

To achieve higher growth through integration, mergers, acquisitions

and diversification by harnessing new business opportunities like
petrochemicals, power, lube business, consultancy abroad and
exploration & production.

OBLIGATIONS
Towards customers and dealers
To provide prompt, courteous and efficient service and quality
products at fair and reasonable prices
Towards suppliers
To ensure prompt dealings with integrity, impartiality and courtesy
and promote ancillary industries.
Towards employees
Develop their capability and advancement through appropriate
training and career planning.
Expeditious redressal of grievances.
Fair dealings with recognised representatives of employees in
pursuance of healthy trade union practice and sound personnel
policies.
Towards community
To develop techno-economically viable and environment-friendly
products for the benefit of the people.
[32]

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.
To improve the condition of Scheduled Castes/ Scheduled Tribes in
pursuance of national policies.

BRANDED PRODUCTS OF IOCL

INDIAN OIL

[33]

GUWAHATI REFINERY
Guwahati Refinery is one of the largest production based organization in
the entire Northeast having 900 employees in total.
Guwahati Refinery, the first public sector refinery of the country,
was built with Romanian collaboration and was inaugurated by the first
Prime Minister of India, Pandit Jawahar Lal Nehru, on 1st January 1962.
Indian Oil commissioned India's first product pipeline, the
Guwahati - Siliguri pipeline, in 1965. This 435-Km pipeline connecting
Guwahati Refinery to different installations was designed to carry about
0.818 MMT of oil per year. As on 1st April 2003 Indian Oil operates the
country's largest network of 7170 km of crude and product pipeline with a
total capacity of 52.75 million metric tonnes per annum.
From a small begining with a sale of 0.032 million kilolitres,
IndianOil achieved sales of 10 million kilolitres with a turnover of Rs. 635
crore and profit Rs. 22.5 crore by the late 60's. From then on, the
company has grown from strength to strength and presently the company
sold 46.46 million tonnes of petroleum products in the domestic market
during the financial year 2003.
Guwahati Refinery is amongst those Indian Refineries who have
been rewarded with ISO-9001 certification of International Quality
Standards as well as ISO-14001, for Environment Management System
and Occupational Health and Safety Management System (OSHMS) which
is also a stringent International Standard which very few Indian
Companies have achieved till date. Guwahati Refinery has been certified
with International Safety Rating System (ISRS) level-6 certification by M/s
DNV. These achievements show the deep commitment of Guwahati
Refinery to Quality, Safety and Environmental Management System.
Guwahati Refinery came into operation in the year 1962 with an
installed capacity to process 0.75 MTPA of Assam Crude. After debottling
the operating process units, the total refining capacity was
[34]

subsequently enhanced in first stage to 0.85 MMTPA and now to 1.0

MMTPA.The Refinery has an elaborate pollution control system to ensure
that water generated are adequately treated prior to discharge into the
river Brahmaputra. More than 50 % of the treated effluent water is now
reused in the refinery.

Wide Range of Products:

With capacity of 1.0 MMTPA, Guwahati Refinery processes crude oil
received from the upper Assam oil fields and caters to the requirement of
the petroleum products of northeastern region.
Its product slate includes LPG, Motor Spirit (MS), Kerosene, High
Speed Diesel (HSD), Light Diesel Oil (LDO), Straight Run Naphtha (SRN),
Raw Petroleum Coke (RPC), and a special cut naphtha (RN) which is used
as a feed stock for CRU of Digboi Refinery of Assam Oil Division. Keeping
pace with changes in Industrial Environment, Guwahati Refinery is
diversifying to produce specialty products like Premium MS & Needle coke
etc. for gearing up the cleaner fuel requirements of the country in coming
years.
Guwahati Refinery is the first refinery in India to produce Needle
Coke.
Guwahati refinery set up with the expertise and technical
assistance.
From the Romanian Government was initially designed to
process 7, 50,000 metric tones of crude oil per year and now has been
upgraded to process 1.00 MMTA (million metric tones of crude per
annum). The refinery process a mix of Oil (Oil India Limited) and ONGC
(Oil & Natural Gasses Corporation Limited) crude received from Assam Oil
fields through a 430 km long and 16-trunk pipeline.

[35]

MANUFACTURING PROCESS
At Guwahati Refinery various petroleum products are produced by refining
crude oil. The process involved in production of these products can be
described under three basic steps: DISTILLATION, CRACKING and
TREATING.

1. Distillation
The process of separating the components of a mixture by differences in
boiling point; a vapor is formed from the liquid by heating the liquid in a
vessel and successively collecting and condensing the vapors into liquids.
In refineries, distillation involves pumping oil through pipes in hot
furnaces and separating light hydrocarbon molecules from heavy ones.
In Guwahati Refinery crude oil is distilled in one crude unit that operates
at near atmospheric pressure (CDU).
During this process, the lightest materials, like propane and butane,
vaporize and rise to the top of the atmospheric column. Medium weight
materials, including gasoline, jet, kerosene and diesel fuels, condense in
the middle. Heavy materials, called reduced crude oil condense in the
lower portion of the atmospheric column.

2.Cracking
The process of breaking down the larger, heavier and more complex
hydrocarbon molecules into simpler and lighter molecules of higher value.
Cracking is done by application of heat and pressure called as thermal
cracking or pyrolysis and use of heat and catalytic agent called as catalytic
cracking.
At Guwahati Refinery, thermal cracking is carried out in Delayed Coking
Unit (DCU) wherein reduced crude oil (RCO) from CDU bottom is
converted (using the coking, or thermal-cracking process) to high-value
light products, producing petroleum coke in the process. The large
residuum molecules are cracked into smaller molecules when the
residuum is held in a coke drum at a high temperature for a period of
time. Only solid coke remains and has to be drilled from the coke drums.

[36]

3. Treating (Removing sulfur)

In order to meet the environmental norms (BS-II /BS-III), the sulfur
content of Gasoil has to reduce to acceptable norms. For this purpose, the
GasOil produced in Crude Units/DCU is treated in (Hydrotreater Unit)
HDT unit where sulfur is reduced with the help of hydrogen.

[37]

LPG LIQUID PETROLEUM GAS

CLO CLARIFIED OIL

MS MOTOR SPIRIT

IFO INTERNAL FUEL OIL

HSD HIGH SPEED DIESEL

LN LIGHT NAPHTA

SRN STRAIGHT RUN NAPTHA

SRK STRAIGHT RUN KEROSENE

RPC RAW PETROLEUM COKE

RCO REDUCED CRUDE OIL

LDO LIGHT DIESEL OIL

RFO REDUCED FURNACE OIL

SKO SUPER KEROSENE OIL

TCO TOTAL CYCLE OIL

ATF AVIATION TERVINE FUEL

CK COKER KERO

CDU- CRUDE DISTILLATION UNIT

CGO COKER GAS OIL

HGU HYDRO TREATER UNIT

CFO COKER FURNACE OIL

ATU AMINE TREATING UNIT

SRGO - STRAIGHT RUN GAS OIL

DCU DELAYED COKING UNIT

HN HIGH NAPTHA

SRU SULPHUR UNIT

[38]

PROCESS FLOW DIAGRAM

LPG

HGU

LN

MS

ISOSIV

RN

NORMAL

RN

HN

Crude

ISOSIVATE

H2

Net Gas

SRK-I

SRK-I

CDU

SRK-II

HDT

SRGO

ATU

LPG

SRU

ATF
SKO
HSD
SULPHUR

CK

CGO
RCO

DCU

CFO
RFO

INDMAX

GASOLINE

RCO

TCO

LDO

CLO

IFO
RPC

[39]

INDIAN OIL CORPORATION LTD.

GUWAHATI REFINERY
ORGANIZATIONAL STRUCTURE
ED

Resource ED:

Executive Director;

GM (T):

General Manager (Technical)

DGM (HR):

Deputy General Manager (Human)

N.B.:

INSPECTION

FIRE & SAFETY

PROJECT

MATERIAL

ENGG. SERVICES

TECH. SERVICES

PRODUCTION

POWER & UTILITY

INSTRUMENT

MAINTENANCE

CORPO. COMMUN.

GM (TECH)

INFORM. SERV.

FINANCE

MEDICAL

MGT. SERV/TRG.

HR

VIGILANCE
INT.AUDIT

DGM (HR)

A Chief Manager or a Senior Manager heads each function

[40]

Director (Refinery)

ED (F)(RHQ)

GM(F)

HEAD OFFICE

UNITS

DGM(F)

DGM (F)/GM(F)

CFMs

CFMs

SFMs

SFMS

FMs

FMs

DFMs

DFMs

SACOs

SACOs

ACOs

ACOs

[41]

ED GM
DGM

EXECUTIVE DIRECTOR
GENERAL MANAGER
DEPUTY GENERAL MANAGER

CFM

CHIEF FINANCE MANAGER

SFM

SENIOR FINANCE MANAGER

FM -

FINANCE MANAGER

DFM

DEPUTY FINANCE MANAGER

SACO

SENIOR ACCOUNTS OFFICER

ACO

accounts officer

FINANCIAL MISSIONS:
To provide high quality financial staff support for decision-making and
control to all levels of managementcorporate, divisional, unit and
location to enable the achievement of overall corporate objectives and
goals.
To play a lead role in scanning the domestic and international financial
environment, the formulation and implementation of all financial
policies and plans for different time spans consistent with and
conducive to the business plans for expansion, diversification,
productivity etc.
To interact pro-actively with the relevant Government agencies on
pricing and investment and with financial institutions, depositors and
creditors, with sensitivity and prompt ness, for mobilization and
[42]

provision of funds for uninterrupted operations and project execution at

optimal costs.
To maintain, review and update all relevant accounting records,
systems and procedures for discharging the fiduciary responsibilities
and enabling compliance with statutory obligations.
To inculcate financial awareness, cost benefit attitudes and system
orientation in the entire organization.
To develop the human resources, systems and techniques of finance for
continuing innovation and contribution towards IOC corporate
excellence.
FINANCIAL OBJECTIVES:
To ensure adequate return on capital employed and maintain a
reasonable annual dividend on its equity capital.
To ensure maximum economy in expenditure.
To generate sufficient internal resources for financing partly/wholly
expenditure on new capital projects.
To develop long term corporate plans to provide adequate growth of
the activities of the Corporation.
To continue to make an effort in bringing reduction in the cost of
production of petroleum products by means of systematic cost control
measures.
The endeavour to complete all planned projects within stipulated
time and within stipulated cost estimates.
FINANCIAL GOALS:
To inculcate cost consciousness in user departments.
Development of Standard Refining costs at each unit level.
Proper implementation of budgetary control and submission of MIS in
time.
To keep the level of inventories below the level fixed by the Board and
outstanding debts, loans & advances and claims at bare minimum.
Ensure payment on due date to various agencies.
Monitor capital expenditure to ensure completion within stipulated
time and cost.
Optimize utilization of working capital.
Efficient management of Funds.
[43]

THE FUNCTIONS OF THE FINANCE DEPARTMENT INCLUDES:

Management of financial resources for meeting the Corporations
programmes of operations and capital expenditure including investment
of surplus fund, if any.
Ensuring uniform financial and accounting policies and procedures, to
the extent possible, in the Division.
Establish and maintain a system of financial scrutiny and internal
checks and render advice on financial matters including examination of
feasibility studies and detailed project reports.
Establishment and maintain an appropriate system of Budgetary
Control and Management Information System for different levels of the
Management.
Carry out periodical/special studies with a view to control costs, reduce
expenditure, economy in administrative expenditure, and improve
efficiency to maximize profitability of the Corporation.
Maintain the financial accounts, cost accounts and other relevant
books and records in accordance with the various statutory and other
requirements.
Advise on corporate cash planning, credit policy and pricing policies of
the Corporation.
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.

FINANCE DIVISION
A-1: MAIN ACCOUNTS

[44]

Cash budget is prepared in this section and the same is to be produced

before HO. All other section of finance department provides the
information to A-1 section for preparing list B. List B details include 20
items approximately. Some of them are mentioned below.
Employment and Housing accommodation statistics.
Payment of sales tax, Excise duty, Entry tax and other tax and
duties.
Loss on disposal/write-off of
(a) Assets
(b)

Stores and spares showing original cost, book value and reason
for disposal of each item under various categories.

Details of staff welfare expenses etc.

Asset management is controlled by A-1 section. For assets management,
they prepare the master of assets, which includes name, cost centre and
other details for capitalization of assets. Further, receiving debit, credit
notes and reconciliation also form a part of this section.

A-2: PURCHASE
Generally A-2 section deals with the payment of purchase items only. After
purchase, the material is kept into stores. Store Department makes Goods
Receipt Vouchers (GRV) and sends it to the purchase i.e. A-2 section. Here
the GRV is checked with the purchase order (PO) and payment is made on
its basis.
Section dealing with purchases is responsible for
[45]

Scrutiny & concurrence of purchase proposals

Deposits and advance payment to suppliers.
Passing of bill for supplies received.
Pricing of goods receipts notes.
Accounting of cash purchases made by the materials
department.
Arrangement for insurance of transit risk.
Maintenance of books of accounts.
Sales tax matters.

A-3: WORKS
A/3 work section mainly deals with payment or running contracts. Its
considers only plants maintenance, roads, painting, welding, water etc.
First and final payments are made on the basis of work completion.

A-4: PAYROLL
This section mainly deals with the payment to employees for their work.
Rules for pay and allowance are prescribed by head office from time to
time. The eligibility for special type of allowance such as special
allowances, shift allowance etc. is determined by personnel department
[46]

and intimations and sent to the finance department for employees eligible
for such allowance.
Function dealing with this section can be broadly classified as:
Scrutiny

&

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.
A-4 also maintains the data to transfer and new recruitment of persons
and adds it to master information. If a person is transferred to another
unit, the LPC (last pay certificate) is required to be added into master
information.

A-5: STORES AND MODVAT

MODVAT stands for Modified Value Added Tax, which is now known as
CENVAT i.e. Central Value Added Tax. It is a scheme, which provides relief
to final manufacturers on the excise duty borne by the suppliers in
respect

of

goods

manufactured

by

them.

Under

this

scheme, a

manufacturer can take credit of excise duty paid on raw materials and
components used by him. The normal excise duty rate is 16%. However it
depends upon the Tariff class under which the product is classified.

[47]

The section dealing with accounting of stores shall have the following
functions:
Passing and accounting of transportation bills.
Accounting of receipts, issues, return and transfer of materials.
Accounting of imported materials for capital works and operations/
maintenance.
Stock verification.
Accounting for sale of surplus materials.

A-6: TA/LTC/MEDICAL
This section maintains in-transfer and out-transfers accounting for claim
settlement and also handles the bill payment of official tour of employees.
HO. Claim of Leave Travel Concession (LTC) controls all foreign tours; this
section also deals encashment of LTC and medical payment.

A-7: MISCELLANEOUS SECTION

The function of the Miscellaneous Section includes the following:
1. Accounting of cash imp rest and advances for company expenses;
2. Passing of bills of miscellaneous nature
3. Miscellaneous recoveries from outsiders
4. Inter-sectional coordination.

[48]

A-8: PRODUCTION ACCOUNTING

This section maintains production accounts, including crude accounting,
custom duty payments, product bill accounts, bitumen drum accounts
and stock valuation accounts. A-8 Keeps records of input in terms of
crude oil and output in terms of the companys final products.
The basis functions of the production accounts are:
Crude

oil

quantity

and

value

accounting

for

the

receipts,

consumption and stock.

Accounting of inter-divisional/ inter-unit transfer of products for exrefinery value and excise duty.
Accounting of consumptions of own fuel/products.
Valuation of closing stocks i.e. Raw Material, ISD, Finished Goods
Preparation of Cost Sheet and Cost Audit Performa
Monitoring of Revenue Budget, Preparation of Revenue Budget.
Monthly Profitability and MIS.
Monitoring of STR MOU performance.

A-9: CASH / BANK

This section mainly deals with making payments. No fixed limit is
established by the organization for making payments. The organization
has special current accounts with State Bank of India. These accounts are
the sources of payments. The balance at the end of the day, becomes nil
by transferring the amount to the head office. The employees of the
organization are paid through cash up to Rs.20000 and by cheque for over
[49]

and above Rs. 20000.Perks such as TA, LTC and medical. Salary, on the
other hand, is paid through cheques.
Cash section shall be responsible for:
Receipts of cash, cheques and bank drafts
Payment of cash, cheques and bank drafts.
Handling of bank deposits/ with drawls, custody of cash and transfer
of funds.
Security arrangement for cash handling.
Safe custody of valuables and documents.
Petty cash imp rest.
Maintenance of subsidiary cash credit account and special current
account.

A-10 & A-11: PROJECT (WORKS) & PROJECT (PURCHASE)

These sections deal with payment regarding capital expenses. In case of
project (Works), Services Entry Sheet is an important document to be
produced by the in-charge engineer.

A-12: PF & ADVANCES

The scheme of the provident fund is the same as in case of any
government undertaking i.e. 12% of the dearness allowance is kept aside
for this purpose and the company contributes the same amount. All the
employees irrespective of their position in the organization are entitled to
[50]

9.5% interest on provident fund. This rule is applied uniformly to all the
units and branches of the refineries division of Indian Oil Corporation
limited.

A-13: OIL ACCOUNT

Here are some basic functions of the oil accounting:
Accounting of crude oil receipts
Accounting of customs duty on crude oil
Accounting of finished product receipts
Dispatch of products;
Excise procedure and accounting
Material balance & Production statistics.

A-14: EDP SECTION

The main jobs of Electronic Data Processing (EDP) section are:

Salary preparation: preparing the salary information given by payroll

section. A/14 processes the data which is given to oil accounting and
crude oil accounting (related to A/13).

A-15: CONCURRENCE SECTION

The Financial Concurrence is objected towards protection of financial
interests of the Company in the decision making while ensuring financial
propriety as a part of internal control system. The internal control is
[51]

exercised through the vetting and concurrence by Finance department so

that decision-making is as per policy guidelines, rules, regulations,
provision of budgets, etc. and it is not detrimental to the financial interest
of the Company.
The financial concurrence facilitates achievement of transparency in the
decision making which is subject to the scrutiny of various Government
agencies like audit vigilance etc.

EXECUTIVE SUMMARY
IOCL is currently India's largest company by sales with a turnover of
Rs. 247,479 crore (US $59.22 billion) and profits of Rs. 6963 crore (US $
1.67 billion) for fiscal 2007-08. As premier National Oil Company, Indian
oils endeavor is to serve the national economy and people of India and
fulfill its vision of becoming an integrated, diversified and transnational
energy major
With the global competition to maintain strategic edge in the market
place, Indian oil has given importance for capital budgeting because
capital investment decisions often represent the most important decisions
taken by an organization, and they are extremely important, they
sometime also pose difficulties. In the given sample project the process by
which company studies the different aspects of proposal, and decides
about feasibility and viability of the project. Moreover it reflects
phases, process of analysis of capital budgeting.
[52]

different

An important step in raising capital is estimating the capital

requirements. Some of the capital raised will likely be used to increase
working capital. Capital budgeting is the process of identifying and
ranking which of these capital investments add the most value to the
business. Capital budgeting decisions are not unlike the personal
budgeting decisions we make every day. Consider these common features

CONSTRAINT
The amount of capital one can raise is limited, imposing a constraint
on the choices. As it increases the firms debt, its debt equity ratio and
debt-servicing requirement increase, making it harder to raise additional
debt.

PROJECT RANKING
How one chooses to allocate the investment capital raised depends on
the set of Investment opportunities. Project ranking is a means of
allocating the investment Capital to those projects that contribute the
most value to the business.

MEASUREMENT
There is a variety of methods available for measuring the firms return
on an investment project. Three major methods useful in measuring a
project value are the pay back, net present value, and IRR methods

METHODS

ADVANTAGES

DISADVANTAGES

[53]

PAY BACK

Simplest

method

to Ignores

use and calculate

subsequent

cash outflows

Ranks projects by rate Projects can have more

IRR

of

return.

Can than one IRR.

compare to hurdle rate

to make accept reject
decision.
NET PRESENT VALUE

Ranks projects by net Negligible.

present value.

Hurdle rate is an important part of using either the IRR or NPV method. The
hurdle rate is the most appropriate interest rate to use when evaluating
investments.

PART-II
FINANCIAL ANALYSIS

INTRODUCTION
The Financial analysis of a project is vital for assessing the viability of
the project and hence provides valuable information to the decisionmaker. Financial analysis produces an estimate of the financial gains,
which will accrue, to the Corporation after implementation of the project.

[54]

The financial analysis entails determination of year-wise cash flow of

the project, computation of key decision criterion like internal rate of
return (ROI & ROE), net present value (NPV) of cash flows, debt service
coverage ratio (DSCR) and break even (BE) analysis etc.
Financial analysis of capital investment proposals shall be carried out
based on realistic set of assumptions duly considering present prices of
input / output, market forces etc.

DETERMINATION OF CASH FLOWS

Determination of year-wise cash flows is the most crucial step of the
financial analysis. The cash flows shall be determined for three
components namely:
a) Initial Investment

b) Operating Cash Flows

c) Terminal Cash Flows

a)

INITIAL INVESTMENT
This component of cash flow mainly represents net cash outlay in the

period in which the asset is purchased or constructed. In other words,

initial investment shall comprise of the total project cost as indicated in
the capital investment proposal and shall also include incremental value
of working capital, wherever required.
While computing initial investment, a care needs to be exercised in respect
of following:
In respect of proposals where financing through borrowings is
envisaged, receipt/ repayment of loans and payment of interest shall not
[55]

be considered while calculating ROI. However, these are to be considered

while calculating ROE.

b)

OPERATING CASH FLOWS

This component of cash flow presents year-wise cash flow generated

from operations after the project has been commissioned. The capacity
utilization shall not be more than 60% in the first year and at 90% from
second year onwards till project life cycle.
The determination of operating cash flows shall, therefore, entail
estimating year-wise operating income, input/ raw material cost and
operating expenses during the project life.

OPERATING INCOME
(a) Operating income of a project represents total realization or savings
from the operations, after implementation of the project.
(b) While computing the Gross operating income, following issues are to
be kept in view:
For Refinery projects, Refinery Gate Price (3 Years average excluding
abnormal fluctuation such as war situation etc.) based on import
parity (80% of import parity and 20% of export parity) considering
applicable ocean freight, ocean loss, ocean insurance, present duties,
inland freight etc. as included in the price build up is to be reckoned.
Sale prices of free trade products in target market and basis of
adoption for it.

For petroleum products, 3 years average import

parity (80% of import parity and 20% of export parity) prices on

[56]

landed cost basis/ as per pricing policy of corporations are to be

assumed. However, in case competitors prices are lower than import
parity then the same shall be used. Product-wise marketing margins
shall be based on 8% mark-up or actual margin whichever is less are
to be considered.
The prices should take into account the impact of discounts
including cost for extended credit, freight under recovery etc.
Further, in case any price cap by Govt. / Regulatory authority is
applicable then it is to be considered.
Sale price of regulated products (if any) is to be considered as per
policy of Govt. in this regard. Subsidy component of any to be borne
by Corporation is to be duly factored in.
For Pipeline projects, alternate mode of transportation is to be
considered as benchmark. Freight is to be compared with alternate
transportation mode for return on investments (cost of capital). In
the base case, 70% of Notional Railway Freight (NRF) shall be
considered as revenue generation. In case there is a tariff cap by
regulating authority then it is to be considered.
For diversification products, prices are to be considered based on
competitors prices or Govt. policy in this regard.
For new products, prices are to be based on landed cost of
substituted products (based on import parity).
In case of Export Parity Price, selling price to be considered based on
average 3 years FOB price at nearest market having demand for
similar or near similar product (excluding abnormal period) minus
5% to take care of the impact of extra supply in the market plus
[57]

freight charges (ocean and inland)/ other charges. However, export

incentives if available to be considered.
(c) Here it is pertinent to mention that future pricing should factor in
likely supply/demand situation and impact of likely substitution, if any.
(d) For such projects where investment shall result in savings in costs,
there shall be detailed calculations for cost in both cases i.e. cost
without investments vs. cost with investment.

INPUT/ RAW MATERIAL COST

a) Landed cost of inputs / raw material shall include all the incidental
costs involved including present rate of custom duties.
b) For refineries, crude cost may be considered based on 3-year average
import parity prices of identified crude (excluding abnormal fluctuation
such as war situation etc.).
c) For Marketing projects, cost of procurement of products, including
freight up to market / storage point is to be considered.
OPERATING EXPENSES
(a) The operating expenditure of the project shall include the cost of
chemicals and consumables, utilities (like power, water, and fuel)
repairs and maintenance, wages and salaries, rent and insurance,
depreciation, other administrative expenses etc.
(b) The expenses under these various heads shall be estimated on a
realistic set of assumptions and past experience, wherever applicable.
The basis for estimating the expenditure shall be clearly indicated in
the proposal.
[58]

(c) A comparative analysis of the estimated operating cost with the

similar existing operations shall also be indicated along with reasons for
variations, wherever applicable.

c)

TERMINAL CASH FLOW

The cash flow in the terminal year of the project mainly represents the
salvage value of the project plus release of incremental working capital.
Salvage value shall be considered as under:
Land to be valued at original cost.
Other items to be valued at 30% of the original cost without
financing cost.
Tax on capital gain should be considered.

Capital gains shall be

taken as terminal value minus written down value as per income tax
act.
Terminal cash flow to be taken in 16th year.

PROJECT LIFE
For cash flow determination and financial analysis, the life of project
shall be assumed as 15 years from the date of completion, unless the
project life is shorter.

ISSUES REQUIRING SPECIAL CARE CASH FLOWS

While determining the cash flows for the projects special care need to be
exercised in respect of following:

[59]

(a) Cash inflow can occur by increase in cash revenue and / or cash
saving through reduction in operating costs.
(b) Cash outflow can occur by increase in operating expenses and/ or
decrease in cash revenue, apart from outgo for initial capital
investment.
(c) The net cash flow shall be estimated on after tax basis, as payment
of taxes is an outflow of cash.
(d) For calculation of IRR, all financial charges arising due to financial
leverage like interest payment / dividend payment shall not be
considered as cash outflows. Similarly, tax shield/ benefit allowable
due to such financial charges shall also not be considered as cash
inflow / outflow.
(e) For calculation of ROE, interest outgo on project loans, tax shield
available and principle payments shall be considered. In this case,
initial capital outgo shall be limited to equity outgo.
(f) Corporate tax to be considered as under:
Corporate tax to be considered on the project on stands alone basis.
No tax shields for loss, if any.
Loss, if any, to be carried forward for adjustment with future profit.
Minimum Alternative Tax (MAT) to be considered, wherever regular
tax liability does not arise.
All deductions / rebates/ benefits etc. wherever available under the
income tax act to be considered.
CENVAT credit not to be considered.

[60]

(g) While depreciation is not to be treated as the cash expenditure,

depreciation tax shield shall be duly considered while computing the
tax liability.

CASH FLOWS BASED ON CONSTANT PRICES

While preparing Cash Flow estimates, an issue, which is raised quite
frequently, is whether such estimates shall be based on current prices
or constant prices.
Forecasts in current prices, which include the effects of inflation do
not give a realistic picture of the true financial profitability of a project,
since, inflation can artificially improve apparent profitability by
increasing future revenue as compared with todays capital costs.
Further, as stated before, no forward cost escalation is being
considered while estimating the project cost.

Therefore, future

income, expenses and net revenues may be stated in constant prices

or values based on todays investment price levels.

However, the

project cost shall also be prepared based on completion project cost.

FINANCIAL EVALUATION
After determination of cash flow as per methodology enumerated above,
the next logical step is to financially evaluate the proposal. The
evaluation shall be carried out through following two methods:
(a) Internal Rate of Return (ROI/ROE)
(b) Net Present Value (NPV)
[61]

Both the above methods fully recognize the timing of cash flows through
the process of discounted cash flows.

INTERNAL RATE OF RETURN (IRR)

(a) Internal Rate of Return (IRR) is the discounting rate at which present
value of cash inflow is equal to the present value of cash outflow. In
other words, the discount rate that yields a ZERO Net Present Value is
called Internal Rate of Return.
(b) IRR shall be computed for all capital investment proposals and
indicated in the Capital Investment Proposals.
(c) Normally projects having IRR of less than Hurdle Rate (i.e. cost of
capital + premium) shall not be considered as commercially viable and
therefore, shall be fully justified on non-commercial grounds, wherever
applicable.
(d) For calculation of Return on Equity, interest outgo along with
principle repayment is to be considered

NET PRESENT VALUE (NPV)

(a) The present value of a future sum of money can be found by
discounting it to the present point in time or Year O at the required
rate of return/ discount rate. Required rate of return shall not be less
than cost of capital.
(b) Under this method, the present value of each years net cash flow is
calculated, starting from the year 0 till complete project life i.e. 15
years. This discounting rate adopted shall be the Hurdle Rate.
[62]

(c) If the project has a positive Net Present Value, the project is
considered to be commercially viable.
(d) Divisions shall indicate Net Present Value of all the projects at a
discount rate of Hurdle Rate duly enclosing workings with the capital
investment proposal.
OTHER MEASURES
For debt-financed projects, Debt Service Coverage Ratio (DSCR) is also
to be calculated, so as to ascertain the debt serving capability of the
project. DSCR is calculated as under:

Profit after tax+ Depreciation + Interest on long term loan

Interest on long term loan + Loan Repayment installment

Break-ever analysis is a tool to ascertain the level of sales required to

meet the funds requirement (fixed + variable). This can be used as a
sensitive analysis tool and can be computed as under:

Total fixed cost

Break Even Units = __________________________________
(BEU)

Unit Selling Price Unit Variable cost

BEUs are minimum sales units at which, project is just meeting its
funds requirement and there is no loss or gain.
[63]

The computed IRR shall be compared with Benchmark IRR (hurdle

rates). Hurdle rates shall be calculated based on Weighted Average
Long Term Cost of Capital (WACC) along with project specific risk
premium. Hurdle rates shall be revised annually after approval of
competent authority.

SUMMARY OF FINANCIAL ANALYSIS

For the purpose of financial analysis of capital investment proposals,

cash flow estimates shall be prepared for the full project life. These
cash flow estimates along with calculation of ROI/ROE, NPV, DSCR &
Break Even analysis shall be attached to the proposal. While
considering the base case, capacity utilization shall not be more than
90% (2nd year onwards) through out the project life cycle for all projects.
A statement of assumptions made for Financial Analysis shall be
enclosed.

[64]

In summary it may be stated that the more sophisticated and

mathematical methods of investment appraisal, particularly NPV and
IRR can have extremely useful applications so long as they are used
appropriately.

Divisions while using these methods shall have an appreciation of

limitations of these methods. Though these methods do reckon time
value of money, but results of these methods largely depend on the
accurate forecasting of the future cash flow. Therefore, it is important
that utmost care is exercised in correctly estimating the future cash
flows.

OTHER INTANGIBLE BENEFITS

Apart from carrying out the financial analysis of the proposal, it is equally
important that the proposal shall also indicate other intangible benefits of
the project. Normally, these are the benefits related to socio and strategic
needs of the country. This includes projects for pollution control, safety
needs, staff welfare etc.

[65]

A care needs to be taken while listing the intangible benefits of the project.
The benefits, which can be quantified and measured, shall not be treated
as intangible benefits. For example, a project for modernization of
equipment may have a number of intangible benefits like lesser pollution,
better safety etc. but it may also lead to higher productivity. The higher
productivity shall be measured, quantified and considered for the purpose
of financial and economic analysis of the proposal.

BRIEF DESCRIPTION:
Guwahati Refinery with an installed capacity of 1.0 MMTPA has Motor
Spirit (MS), Superior Kerosene Oil (SKO), Aviation Turbine Fuel (ATF) and
High Speed Diesel (HSD) as white oil products. These products are stored
in various storage tanks at Oil Movement & Storage (OM&S). The various
types of tanks at OM&S for above services are enumerated in Table - I:
Table I
Sl.
No.

Tank No.

Service

Capacity; KL

Type

01

MS

5000

FLOATING

02

10

MS

5000

FLOATING

03

11

MS

5000

FLOATING

04

26

MS

5000

FLOATING CUM FIXED

05

27

MS

5000

FLOATING CUM FIXED

06

83

MS-ISOSIVATE

2000

FLOATING

07

84

MS-ISOSIVATE

2000

FLOATING

[66]

08

00B2

MS-XP

200

FIXED

09

00B3

MS-XP

200

FIXED

10

00B6

MS-MULTISERVICE

500

FLOATING

11

00B7

MS-MULTISERVICE

500

FLOATING

12

13

SKO

5000

FIXED

13

94

SKO

5000

FLOATING

14

70

ATF

2000

FIXED

15

78

ATF

2000

FIXED

16

79

ATF

2000

FIXED

17

12

HSD

5000

FIXED

18

14

HSD

5000

FIXED

19

16

HSD

2000

FIXED

20

21

HSD

5000

FIXED

21

22

HSD

5000

FIXED

22

23

HSD

5000

FIXED

23

28

HSD

5000

FLOATING

24

29

HSD

5000

FLOATING

25

93

HSD

5000

FLOATING

26

00B5

HSD

800

FIXED

27

00B4

HSD

800

FIXED

From Table I it can be seen that high capacity majority of SKO & HSD
tanks are of fixed roof type contributing to fugitive emission loss resulting
in high fuel & loss of the refinery. Opportunity exits for reduction of loss
by converting high capacity tanks of OM&S from fixed roof to floating roof.
The Floating roof facilitates the reduction of evaporative loss that occurred
the vapour space of fuels that were stored in fixed roof tanks. It has not
only proved effective for reducing emissions from the storage of volatile
organic compounds when compared to fixed roof tanks, but also helped
to reduce the potential for vapour space explosions that regularly occur in
[67]

fixed roof tanks. The floating roof also virtually eliminates the possibility
of a boil over phenomenon that occurs in fixed roof tank farms where
crude oils are stored. Because of these advantages the floating roof is now
used extensively throughout the industry to store petroleum and
petrochemical substances in large quantities.
As per Benchmarking report of Shell Global Solutions International,
Storage and handling Index of Guwahati Refinery for the year 2003-04 &
2004-05 are 429.4 and 458.8 respectively against Shell benchmark of 86.2
and this accounts to a gap of US$ 0.6 millions.

1. COST ESTIMATE

- Price used are based on which year

Rs. 151.60 Lakhs

200809

- % of escalation amount

- % of custom duty/other duties

10 %
N/A

Cost of conversion of roof from fixed to floating of Tank13 is Rs.

151.60 Lakhs only.
For cost estimation engineering services were asked to provide with basic
cost estimation for various jobs of roof conversion from Fixed to Floating
for tank-13. Based on cost estimation of engineering services detail cost
estimation was prepared for the total job and material with 10 %
escalation. As per total cost estimation Tank roof conversion of T-13 & 14
will cost Rs. 116.71 Lakhs.

[68]

2. JUSTIFICATION OF THE PROPOSAL:

3.1

Fugitive emission loss from Tank 13 has been estimated to be

59.9 MT of SKO per Annum respectively.

3.2 By conversion of Roof from fixed to floating roof of Tank 13
Guwahati Refinery can save 60.0 MT of high valued petroleum products
and earn extra revenue of Rs. 17.54 Lakhs/Annum with average 2005-06,
2006-07 & 2007-08 AOR prices of SKO @ Rs. 29281/MT.
3.3 Guwahati Refinerys Fuel & Loss is second highest among Indian
refining sector and this proposal is towards improvement in this area.
Details of loss and crude processing of Guwahati Refinery for last four
years are enumerated in Table II as below:

Table II
Sl. No.

AOR

Crude Processed; MT

Loss; MT

Loss on % of Crude

01

2003-04

890655

4269

0.48

02

2004-05

1002271

5250

0.52

03

2005-06

863911

5083

0.58

04

2006-07

839074

4364

0.52

05

Average

898978

4742

0.53

3.4 Payback period of investment is 8.6 (Without CDM) & 8.2 (With CDM)
Years and IRR on investment is 5.8% (Without CDM) & 6.5 %( With
CDM)%.
3.5 Tank 13 is higher capacity which accounts to high fugitive
emission.
[69]

3.6 The project will attract additional recurring benefit of Rs. 0.85
Lakhs/Yr under Clean Development Mechanism (CDM).
3.7

GR inspection recommended for replacement of tank roof in 2006.

3.8 Being refinery located in heart of the city, the proposed facility will
contribute towards corporations social commitment for cleaner
environment.

ADVANTAGES:
SHORT TERM:
As stated above in justification.

LONG TERM:

a)

ALTERNATIVE OPTION CONSIDERED, IF ANY: N/A

b)

CONSEQUENCE (ON PRODUCTION/ PROFIT/ EFFICIENCY ETC.,)

IN CASE THE PROPOSAL IS NOT ACCEPTED :

i)
ii)
iii)
iv)

LOSS OF PRODUCTION
LOSS OF PROFIT
LOSS OF EFFICIENCY
OTHERS (PLEASE SPECIFY)

: YES
: NO
: YES
: N/A

3. TECHNICAL FEASIBILITY :
a) EFFECT OF ENVIRONMENT, IF ANY:
loss.
[70]

Yes, high ongoing fugitive

b) TECHNICAL CONSTRAINTS, IF ANY: No

4. IMPACT OF PROPOSAL ON MANPOWER:

a) WHETHER ADDITIONAL MANPOWER IS REQUIRED FOR RUNNING

THE FACILITY. IF YES, PLEASE FURNISH THE DETAILS IN THE

FORM
OF
AN
ANNEXURE.
No
b) IF ADDITIONAL MANPOWER IS REQUIRED, HOW THE SCHEME WILL BE
MANNED
: No
c) WILL THE PROPOSAL RESULT IN SAVING MANPOWER FOR DEVELOPMENT IN
OTHER JOBS : No

5. OPERATIONING AND MAINTENANCE COST: No

6. REQUIREMENT OF ADDITIONAL WORKING CAPITAL, IF ANY:

No

(DETAILS TO BE ATTACHED)

7. ECONOMICS:
a)

NET SAVING

b)

PAY BACK PERIOD

: 8.6 Year (Without CDM)

8.2 Year (With CDM)

Rs. 17.54 Lakhs (Without CDM)

Rs. 18.39 Lakhs (With CDM)

[71]

AS PER PRICING NORMS

CIF BASIS

c)

INTERNAL RATE OF RETURN : 5.8 % (Without CDM)

6.5 % (With CDM

d)

ANY OTHER CRITERIA USED

Reliability & Social Commitment

9.PHASING OF EXPENDITURE:
YEAR

Rs. (Lakhs)

2008

2009

151.6

8. CLASS OF PROPOSAL:
PRIORITY

MARKS

STATUTORY REQUIREMENT

20

SAFETY ITEM

20

ECONOMIC GROUNDS

[72]

18

OPERATIONAL NECESSITY

16

WELFARE / SOCIAL BENEFIT

14

REPLACEMENT / ADDITIONAL OF ASSETS

12

9. LEVEL OF DESIRABILITY:
WEIGHTAGE
ESSENTIAL

HIGHLY DESIRABLE
DESIRABLE

1.5

PRIORITY RANKING:

PRIORITY

WEIGHTAGE

MARKS

MARKS

DEPT. UNIT HEAD

[ 18 ]

[3 ]

[ 54 ]

UNIT ED

[ 18 ]

[3 ]

[ 54 ]

HEAD OFFICE

[73]

TOTAL

In view of the foregoing, it is proposed to convert roof of Tank13 from

fixed to floating at an estimated cost of Rupees 151.6 Lakhs. The
expenditure towards conversion of to be booked under Additional facility
budget of 2008-09 & 2009-10.

LIST OF ANNEXURES
ANNEXURE I

TOTAL COST ESTIMATION

ANNEXURE II

BENEFIT ANALYSIS

ANNEXURE- III

COMPLETION SCHEDULE

ANNEXURE-I
TOTAL COST ESTIMATION

DESCRIPTION

Value

Unit

Equipment & Machinery

66.9

Rs Lakhs

Erection Charges

47.1

Rs Lakhs

Civil Works

23.8

Rs Lakhs

137.8

Rs Lakhs

13.8

Rs Lakhs

151.6

Rs Lakhs

Add: 10% Contingency

Total Expenditure

[74]

Benefit Analysis

Benefit calculation for Roof conversion of Tank-13 Annexure II

Sl.No

Parameter

Value

Unit

Remarks

Total loss from T-13 with fixed roof

66.0

MT/Yr

As per Annexure-III

Total loss from T-13 with Floating

roof

6.1

MT/Yr

As per Annexure-III

Saving by conversion of roof from

Fixed to Floating for T-13

59.9

MT/Yr

Average SKO price

29281

Rs/Mt

Monetary saving by conversion of

roof from fixed to floating for T-13

1753881

Rs/Yr

Total annual monetary saving

1753881

Rs/Yr

As per Avg Priceof

AOR 2005-06, 200607&2007-08

Rs.20.6 Lakhs/Yr.

Estimation of CDM Benefit for Roof Conversion of Tank-13

Calculation for CO2 emission reduction & CDM benefit
Parameters
Projected fuel saving from Roof
Conversion
Average density of Saved Oil

Value

Units

59.9

MT/annum

0.84

MT/m3

[75]

Calculated C:H ration of saved oil

Carbon content of saved oil
Reduction in CO2 emission due to
saved oil(Considering 12 MT of C
generates 44 MT of CO2)
Equivalent Carbon credit (CER)
Prevailing price of CER
(Based on inputs from M/S
Ernst&Young)
Prevailing conversion rate of Euro
to INR
CDM benefit based on E&Y projection

6.47
51.88

MT/annum

190

MT of CO2

190
8.00

CER
Euro/CER

56.18

Rs/Euro

0.85

Rs/Lakhs/annum

Parameters

Value

Units

Projected monetary saving in a year

17.54

SRFT/annum

CDM benefit based on E&Y Projection

0.85

Rs. Lakhs/annum

151.58

Rs. Lakhs/annum

0.00

Rs. Lakhs/annum

Total Investment cost for Roof Conversion System

Annual Operating Cost for Floating Roof

IRR Calculation

Case-I
Without
consider
ing
CDM
benefit

Case-II
With
CDM
benefit

Units

Projected Annual Benefit (Benefit due to Loss reduction)

17.54

18.39

Rs.Lakhs/annum

Total investment cost for Roof conversion of Tank-13 & 14

151.58

151.58

Rs.Lakhs

[76]

Annual maintenance /operating cost

0.00

0.00

Rs.Lakhs/annum

Pay back period

8.6

8.2

Years

-151.58

-151.58

Rs.Lakhs

Cash inflow in 2009 (considering 0% benefit in1st year)

0.00

0.00

Rs.Lakhs

Cash inflow in 2010 (considering 75% benefit in 2nd year)

13.15

13.80

Rs.Lakhs

Cash inflow in 2011

17.54

18.39

Rs.Lakhs

Cash inflow in 2012

17.54

18.39

Rs.Lakhs

Cash inflow in 2013

17.54

18.39

Rs.Lakhs

Cash inflow in 2014

17.54

18.39

Rs.Lakhs

Cash inflow in 2015

17.54

18.39

Rs.Lakhs

Cash inflow in 2016

17.54

18.39

Rs.Lakhs

Cash inflow in 2017

17.54

18.39

Rs.Lakhs

Cash inflow in 2018

17.54

18.39

Rs.Lakhs

Cash inflow in 2019

17.54

18.39

Rs.Lakhs

Cash inflow in 2020

17.54

18.39

Rs.Lakhs

Cash inflow in 2021

17.54

18.39

Rs.Lakhs

Cash inflow in 2022

17.54

18.39

Rs.Lakhs

Cash inflow in 2023

17.54

18.39

Rs.Lakhs

Internal rate of return (without considering financial

cost)

5.8%

6.5%

Cash outflow in 2009 (100% of investment cost)

ANALYSIS:
THE PROJECT IS ACCEPTED IF THE INTERNAL RATE OF RETURN IS HIGHER OR EQUAL TO
THE MINIUM REQUIRED RATE OF RETURN .THE MINIMUM REQUIRED RATE OF RETURN IS
ALSO KNOW AS CUT OFF RATE OF FIRM COST OF CAPITAL.
A PROJECT SHALL BE REJECTED IF ITS IRR IS LOWER THAN THE CUT OFF RATE. AS THE
IRR IS FOUND TO BE HIGHER THAN THE CUT OFF RATE THE PROJECT IS ACCEPTED
[77]

[78]