LEADING CHANGE (MRPL)

Contents
INDUSTRY PROFILE ........................................................................................................................................ 2 INTRODUCTION ......................................................................................................................................... 2 IMPORTANCE OF OIL AND GAS IN THE ECONOMY ................................................................................... 2 OIL EXPLORATION AND PRODUCTION (UPSTREAM SECTOR) ................................................................... 3 OIL REFINERY AND MARKETING OF REFINED PRODUCTS (DOWNSTREAM SECTOR) ............................... 3 ONGC..................................................................................................................................................... 4 MRPL ..................................................................................................................................................... 5 PORTERS 5 FACTOR INDUSTRY ANALYSIS FOR REFINING COMPANIES ................................................... 8 MCKINSEY 7S MODEL .............................................................................................................................. 10 STRATEGY ............................................................................................................................................ 10 STYLE ................................................................................................................................................... 11 STRUCTURE ......................................................................................................................................... 11 STAFF ................................................................................................................................................... 13 SYSTEMS .............................................................................................................................................. 14 SKILL .................................................................................................................................................... 14 SHARED VALUE.................................................................................................................................... 14 PROBLEM STATEMENT................................................................................................................................ 15 DATA ON FINANCIALS ................................................................................................................................. 15 ISSUES INVOLVED .................................................................................................................................... 15 GROSS REFINING MARGIN .......................................................................................................................... 16 KEY FACTORS DETERMINING RGM ......................................................................................................... 16 USA IRAN EMBARGO ................................................................................................................................. 17 CHANGE NEEDED ........................................................................................................................................ 19 SITUATION ANALYSIS .............................................................................................................................. 19 PROPOSED SOLUTION ................................................................................................................................. 22 OBSTACLES TO CHANGE.............................................................................................................................. 23 KOTTERS 8 STEPS ....................................................................................................................................... 24 REFERENCES ................................................................................................................................................ 26

LEADING CHANGE (MRPL)

INDUSTRY PROFILE

INTRODUCTION
Oil, gas, hydroelectricity, nuclear power and coal are the constituents of conventionally used primary energy. Wind and Solar energies are examples of non-conventional sources. Driven by a boom in the automobiles sector, demand in the Indian oil sector has been growing consistently. There is a huge potential for demand growth in India because of a higher rate consumption compared to the world average and increasing share of oil and gas in primary energy consumption. The oil and gas sector gained importance on account of its multiple and costeffective applications compared to coal, hydroelectricity. Oil prices have a significant impact on the economy.

IMPORTANCE OF OIL AND GAS IN THE ECONOMY

The oil and gas sector spares equal importance worldwide. They significantly contribute to the foreign exchange reserves through exports, for countries, like Russia where nearly half the currency earnings corns prove crude oil exports oil has varied applications in different segments of the economy. Natural gas is used for lighting and cooling purposes in urban areas and for transportation. The sector also contributes in manufacturing plastics, clothes, fertilizers, ropes etc. Gas became important since the oil prices have sky rocketed, which led to supply descriptions, inflation, output loss and reversion. Crude oil and refined petroleum products account for about 30% of Indias total imports. The Indian oil sector is under the purview of the Ministry of Petroleum and Natural Gas (MoP&NG). The oil and gas sector has three sub sectors: Oil and Gas Exploration and Production (E&P), Oil Refining and Marketing of refined products(R&M) and Distribution of Natural Gas.
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OIL EXPLORATION AND PRODUCTION (UPSTREAM SECTOR)

Oil and gas is expected to experience a sustained growth in demand, which is primarily a function of economic growth. As per the MoP & NG around to thirds of the oil exploration area in India is either not or inadequately explored. There is a potential for locating additional reserves. With deregulation, the upstream NOCs are likely to see an increase in the profitability and hence the additional resources can be employed in E&P activities. The domestic upstream companies are now improving recovery from existing fields, improving reserve accretion by bidding for domestic fields and acquiring equity in oil assets abroad, integrating into downstream areas and maintaining this will lead to revenue growth and will help them to diversify their risk portfolio. While ONGC is a leading upstream player, IOC is dominant in downstream projects. In India there is a great potential for locating additional reserves. This is more valid today after the gas discovery by Reliance

OIL REFINERY AND MARKETING OF REFINED PRODUCTS (DOWNSTREAM SECTOR)

With full control over the petroleum sector, price at the retail end would vary in accordance with the international trends. However, since petroleum products are for mass consumptions, sociopolitical reasons may prevent frequent changes in the prices of the product. This may prevent growth in the marketing margins. Another impact of dismantling the oil pool account would be that the liquidity position of the oil company should be better because of improved certainty in cash flows. In view of uncertainty, oil companies have initiated a number of measures to give competitiveness in a deregulated market. Some of these are strengthening import/marketing infrastructure, enhancing scale of operation, undertaking environmental measures, entering into domestic/overseas alliance and setting up hedging mechanism to mitigate its exposure to price volatility and undertaking business restructuring to ensure operational efficiency. The majority of Indias oil reserves are located in fields offshore Bombay and onshore in Assam. The offshore
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Bombay High regional field accounts for about two thirds of Indias oil production. India contains natural gas reserves of 25 trillion cubic feet (Tcf).About 70% of these reserves are located in associated and non-associated fields in the offshore Bombay High region as well as in the offshore and onshore regions of Gujarat. Indian analysts estimated that by 2010, the country will need eight coastal LNG receiving terminals. At least 2 LNG terminal sites are currently under study. At the same time, domestic production is anticipated to satisfy only about one third of the demand, with the balance coming in from imports. Imports will either be through international pipelines or via liquefied natural gas (LNG) shipments from countries like Iran, Bangladesh, Indonesia and Myanmar.

ONGC

ONGC is Asias best Oil and Gas Company, as per a recent survey conducted by a US based magazine Global Finance.

Holds largest share (57.2%) of hydrocarbon acreages in India.

Every 6th LPG cylinder comes from ONGC. About 1/10 of Indian refining capacity.

Created a record of sorts by turning MRPL around from being a stretcher case for referral to BIFR to among the BSE top 30, within a year.

Owns 23% of Mangalore-Hasan-Bangalore Product Pipeline (MHBPL) connecting MRPL to the Karnataka inter-land.

The market capitalization of ONGC group constitutes 8% of the market capitalization of BSE
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MRPL
VISION

The vision of the company is to be a world class refining and petrochemicals company, with a strong emphasis on productivity, customer satisfaction, safety, health and environment management, corporate social responsibility and care for employees.
MISSION

The mission of the company is to sustain leadership in energy conservation, efficiency, productivity and innovation. Capitalize on emerging opportunities in the domestic and international market and strive to meet customers requirements to their satisfaction. It also maintains global standards in health, safety, environmental norms with a strong commitment towards community welfare. It gives continuous focus on employee welfare and employee relations.
HISTORY

The idea of MRPL was generated in 1987 when HPCL was looking for a partner to start refinery in South India, it was also a dream project of Aditya Vikram Birla which was known as Petro Gold. A tripartite agreement was signed between the Govt. of India, HPCL and Indian Rayon Limited during 1987. It was incorporated on 7th March 1988 after a memorandum of understanding executed to the President of India. A detailed project report was prepared by Lummus Crest and Engineers India Limited (EIL) which was submitted to the Govt. for approval. Work on the project started in 1992.It was designed and managed by international consultants like Toyo Engineers Corporation of Japan, Mitsui and Company of Japan, Mitsubishi Corporation of Japan, Engineers India Limited and many other reputed companies. The technology for the project was given by companies like Universal Oil Product Company of USA, ABB Lummus of Holland, KTI Holland and Porner of Austria. The first phase was commissioned in 1996 with a refining capacity of 3.96 MMT to increase the capacity to 9.09 MMT the second phase was commissioned during 1999.The cost of project was around 2700 crore rupees for the first phase and Rs. 3690 crone for the second phase. MRPL was initially set
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up during June 1991 as a joint sector company promoted by Indian Rayon and Industries Ltd. and its associates (forming part of Aditya Birla Group) and Hindustan Petroleum Corporation Ltd., a public sector company. This has a distinction of being a first joint sector refinery in India and also the fifth oil refinery in South India. The unit was initially set up with a refining capacity of 3 million metric tons per annum during March, 1996. The refinery is designed to process 3040 degree API crude to produce various essential petroleum products namely, LPG (Cooking Gas), Naphtha, lead-free Motor spirit (Petrol), Kerosene, Aviation Turbine Fuel (ATF), Diesel, Fuel Oil, Bitumen and Sulphur. The plant is located at Kuthethoor (distance of 22 kms from Mangalore) in the outskirts of Mangalore thus being accessible to coastline (16 kms from site).To augment the capacity, the unit commissioned the second phase of operations during 1999 consequent to which the capacity has increased to 9.69 million metric tons per annum. The unit has well-established infrastructure including state-of-art Laboratory for efficient measurement of product quality. The products are sold through HPCL, who has retail outlet network. However, recently MRPL has started the process of marketing some of the products like Sulphur, Bitumen, Furnace oil, Naphtha, Reformat to Non-HPCL customers also. In the year 2003, Oil & Natural Gas Corporation Limited ONGC MRPL and now MRPL is a subsidiary company of ONGC. The manufacturing process and the interrelationships are captured in the flowchart provided in next page. The products are manufactured in strict compliance to IS standards. The total plant consists of following manufacturing facilities, which were designed, installed by International consultants of repute under the project management consultation by Toyo Engineering Corporation.
PARTS OF THE PLANT

HYDROGEN The Hydrogen Plant designed by M/s. KTI Holland produces Hydrogen by Steam Reforming of Naphtha. Hydrogen purity of 99.9% is achieved through Pressure Swing Adsorption (PSA) Unit, the technology for which is given by UOP.

LEADING CHANGE (MRPL)

BITUMEN This Unit employs the highly efficient Biturox process given by M/s. Porner of Austria to produce paving grade asphalt. POWER PLANT Keeping in view the power situation in the district, MRPL has installed a 112.5MW power plant to meet its entire power requirement, through five turbo generators of 22.5 MW each. There are seven boilers of 140 MT/Hr. capacities each. SULPHUR RECOVERY UNIT The unit was licensed by KTI Italy and produces 99.9% purity sulphur using the most modern and sophisticated process of Selection process. There are three sulphur units to meet the produce, the above said grade sulphur with a capacity of 100 tones per day for each of unit.

INFRASTRUCTURAL FACILITIES

Two oil jetties to receive crude oil and dispatch petroleum products by oceantankers. Total of 79 nos, of storage tanks including 4 nos of LPG Horton spheres. Waterline, 43km long from Nethravati River. A dam has been constructed across the river.

Well-equipped laboratory with sophisticated analytical instruments. State-of-the art distributed digital control system for entire refinery operation. Tele-communication facilities between the port and the refinery.

LEADING CHANGE (MRPL)

AREA OF OPERATION

MRPL is a globally operating company and MRPL exports its products to different foreign countries by inviting tenders. The company operates from its corporate office in Mumbai. Its liaison office is located in Bangalore and Delhi. The registered office is at Mangalore. The area of operation of MRPL is said to be extensive, it exports its products to some of the African countries, Malaysia, Singapore and Mauritius. It imports some of its technologies and machineries from countries like Holland, Germany, USA etc. MRPL exports products like naphtha, motor spirit(petrol), aviation turbine fuel, high speed diesel and fuel oil. In terms of global exposure, MRPL outsources crude oil from different suppliers resulting in the creation of products that are global in nature.
OWNERSHIP PATTERN

MRPL an oil refinery company was set up in 1988 as a joint venture between HPCLwhich acted as a representative of the government of India and the Aditya Birla group. In 2003, ONGC acquired the shareholding to the tune of 72% thereby making MRPL an ONGCsubsidy. HPCL also has an equity stake of around 16.97% in the company.

PORTERS 5 FACTOR INDUSTRY ANALYSIS FOR REFINING COMPANIES

ENTRY BARRIERS The industry has moderate barriers characterised by economies of scale. Larger refineries with latest technologies which can process varying types of crude tend to have higher GRM (gross refining margins). For the most part, refining is a slow and stable business. The large amounts of capital investment means that very few companies can afford to enter this business

LEADING CHANGE (MRPL)

RIVALRY DETERMINANT The rivalry in the industry has been low till now as the industry was tightly regulated by the government. The level competition would increase in the future, with Reliance and other MNCs becoming more aggressive.

SUPPLIER POWER Supplier power is high as the net margins are strongly dependent on the price of the crude. Due to crude price volatility and supply risks, a lot of the Indian companies are integrating backwards into E&P(exploration and production) activities. BUYER POWER Not too critical for most companies as refining operations are a part of the complete supply chain, with the refining operations supplying the product to the marketing company. However in case of standalone companies (which may no longer apply) long term contracts have to be signed with the marketing companies. The margins in such cases are dependent on such long term contracts.

SUBSTITUTE Although gas, solar power etc exist as substitutes, none of them are big enough to impact the demand of the petroleum products. Solar energy, and other non-renewable sources offer strong competition in a long run because of renewability and pollution matters.

LEADING CHANGE (MRPL)

MCKINSEY 7S MODEL

These seven elements are distinguished in so called hard Ss and soft Ss. The hard elements are feasible and easy to identify. They can be found in strategy statements, corporate plans, organizational charts and other documentations. The four soft Ss however, are hardly feasible. They are difficult to describe since capabilities, values and elements of corporate culture are continuously developing and changing. They are highly determined by the people at work in organization. Therefore it is much more difficult to plan or to influence the characteristics of the soft element. Although the soft factors are below the surface, they can have a great impact of the strategies and system of the organization.

STRATEGY

Strategy refers to set of decisions and an action and it includes mission objectives, goals, and major action and policies. MRPL mission is to produce petroleum products of world class quality at internationally competitive cost. The quality policy of MRPL is to have a
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set of satisfied internal customers, business associates, and society through excellence in quality products and service and also to achieve safe working conditions and Eco friendly environment through continuous improvement in the technology and man power skills. Its strategy is to be committed to the state of the technology, environmental protection and safety in its operations, social commitment and employee relations. Another strategy of the company is to upgrade the quality specifications of the products manufactured. It aims at the maximum use of the raw material and upgrades the crude oil into value added products.
STYLE

Style is one of the factor from which manager of the organization can bring organization change. The management of MRPL is associated with team building, interpersonal

interactions and human skills as the management style at MRPL is domestic in nature. It encourages the employees to participate in decision making. The authority and responsibility of each employee is clearly defined at MRPL. Efficient employees are recognized and their performance is praised in the form of quick promotion and attractive incentives. Regarding the style of productions, MRPL has adapted the policy of TQL, which refers to providing training on various areas such as total productivity management, total quality management, etc. In MRPL managers spend more time interacting with various employees in various departments, it can be said to be democratic wherein the employee are given full freedom to express what they think and sometime the discussion of the employee with employee are also taken into consideration while making important decisions.
STRUCTURE

Structure describes the hierarchy of authority and accountability in an organization. The relations are frequently diagrammed in its organizational charts. The structure of MRPL is as follows.

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MRPL has a well built organization structure. Since its activities has grown by expanding their overall scope of operations through further penetrating existing markets by introducing similar products organization structure. The functional structure at MRPL, establishes a formal, lateral channel of communication that existing hierarchical channel of authority and responsibility. It provides clearly in to additional markets it has adopted a functional

marked career path for their services and it also facilitates the developments of skills
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who are working in organization.

STAFF

People are the main assets of the organization. Organization performance mainly depends upon individuals performance who are working in the organization. So staffing plays important role by placing the right person in right job. Staffing is the process of acquiring human resources for the organization and assuring that they have the potential to contribute to the achievement of the organizations goals.

The work force at MRPL is very skilled, 97% of the workforce is qualified with the minimum qualification being graduation on the administration side and diploma on the technical side.The personnel and administration department is responsible for recruiting people for MRPL. The most eligible candidate is selected and they are trained for a month and promotion of the employees is based on the performance appraisal undertaken. The employees of MRPL are paid a high salary and MRPL has provided hospital facility, shopping centers, schools, departmental stores and employees club facility to its employees.

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SYSTEMS

System means all the rules, regulations and procedures both formal and informal that complement the organization structure and the flow of activities involved in the daily operation of a business including its core process and its support systems. In MRPL there is a formal flow of communication in two ways i.e. top level to bottom level and bottom to top. Each division has its own reporting system which integrates the entire organization into a corporate office. MRPL has a proper set of procedures for selecting the right candidates into the organization.
SKILL

MRPL possesses a labour force with various skills. The company encourages and provides training for developments of skills, depending on the employees at operating level and managerial level. The employees at managerial level, possess skills for company administration, leadership, motivation etc. They are also trained under various aspects like skill development, behavioral development, fire and safety training etc.At the operating level the employees possess various skills in relation of their jobs as well as other aspects like self-development, first aid training fire and safety training, work culture etc. All the employees are properly trained in order to improve their skills so as to help them to contribute to maximum productivity.
SHARED VALUE

Shared values, the center case of the framework gives rise to a certain spirit among organizational members regarding who we are and where we are headed. The spirit permeating in the organization in turn is reflected in the values, attitudes and philosophy of its members. MRPL gives prime importance to safety aspects in all the activities; it also trains and motivates personnel at all levels on reactive pollution control measures. In view of this vigorous forestation programmers have been created in around MRPL to protect the existing flora and fauna.

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PROBLEM STATEMENT
How will MRPL post profits and sustain it, facing the global problems?

DATA ON FINANCIALS
MRPL recorded loss of Rs. 1,521 Crore in the1st Quarter 2012-13 after adjustment of tax. The above loss is after considering Rs.138 Crore as depreciation, Rs.110 Crore as interest Cost and Rs. 46 Crore as Interest Income as compared to Rs.173 Crore of Profit after Tax, (after considering Rs. 95 Crore as depreciation, Rs. 27 Crore as interest Cost and Rs. 133 Crore as Interest Income) in the corresponding 1st Quarter of 2011-12.

ISSUES INVOLVED
Plant was shut down for a period of 10 days. MRPL generates its own electricity using the water which it acquires for the coolants. The plant remained closed from April 17 to April 26 due to the lack of water supply, after which it started working at 60% of its capacity, only after suffering an estimated loss of Rs200 crore. The focus has turned towards Mangalore City Corporation, (MCC) as the water was diverted for domestic usage. It has been accused of failing to provide sufficient water for domestic as well as industrial usage. Rupee value depreciated making imports costlier. MRPL bought crude oil from Iran and by the time payment was made; rupee had depreciated making it costly for the company. As the rupee value against USD depreciated during Q1 from Rs. 51.53 level to Rs. 55.62 against US$, the Company recorded an exchange loss of Rs. 649 Crore.

Crude oil prices In view of stoppage of water drawl from river source for almost 10 days it has to carry forward inventory when prices of crude and products were declining sharply resulting in

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Inventory loss of Rs. 733 crore and the rupee was getting devaluated against USD resulting in loss of Rs. 649 crore.

GROSS REFINING MARGIN

The most important metric to study the economics of a refinery is to calculate its REFINERY GROSS MARGIN (RGM). RGM is the difference in the dollars per barrel between its product revenue (sum of barrels of each product multiplied by the price of each product) and the cost of raw materials (primarily crude, but also purchased additives like butane and ethanol). For example, if a refinery receives $80 from the sale of the products refined from a barrel of crude oil that costs $70/bbl, then the RFM is $10/bbl. The Net or Cash Margin is equal to the gross margin minus the operating costs (excluding income taxes, depreciation and financial charges). If a refinery experiences operating costs of $2 per barrel, then the Net Margin is $8/bbl. So the RGM of a refinery directly affects the Net Margin of the company. The best refinery in India, Reliance Petroleum, has the best RGM of $8 to $16 per barrel whereas the industry standard has been around $5 to $7 per barrel. MRPL in the past 2 quarters has had its lowest RGM, hovering around $3 to $5 per barrel.

KEY FACTORS DETERMINING RGM

The type of crude being purchased Light, Medium or Heavy. Heavy crude is the cheapest and gives the highest RGM compared to the other two variants. The type of crude also determines the sourcing of the crude hence determining the cost of purchase and the complexity. Manufacturing reliability and efficiency. Demand-Supply mismatch of products.

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USA IRAN EMBARGO
The US government has been pushing UN sanctions against Iran over its controversial nuclear program. It has been widely criticized that the sanctions have had more impact on the economy of Iran rather than its politics. One of the hard hit industries because of these sanctions is the Oil and Gas industry in Iran. Lifting the sanctions will increase the world crude oil productions and also reduce the world crude oil prices by 10%. The Treasury of United States has evaded four of the major oil companies in Iran namely Petro Suisse Intertrade, Hong Kong Intertrade, Noor Energy and Petro Energy Intertrade from exporting crude. These 4 are the front companies for Irans National Oil Company which is the single largest supplier for MRPL (Refer to the chart below)
Others 8%

ONGC 12% Kuwait 8% National Iran Oil Co.(NIOC) Iran 60%

Saudia Arabia 12%

Adding to this the US government has also blocked 58 vessels of the National Iranian Tanker Company from getting into international waters and ship oil to other countries. The US government and the EU has also taken measures to ban banks around the world from completing transactions with Iranian banks, as well as several sanctions targeting Iran's central bank.

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All these politio-Economic sanctions have made the import of crude from Iran an unstable alternative. MRPL which heavily depends on the Iranian Oil industry has to start reducing this dependence and look at other alternatives. MRPL has been trying to diversify its crude procurement sources by adding more countries. Indian refineries have slowly been shifting to Iraq for crude supplies (Refer the following figure)

(Source: Iraq topples Iran, becomes 2nd largest crude oil supplier to India by Richa Mishra Business Line) Biggest domestic refiners like IOC and Reliance have shifted to Iraq for their major crude supplies whereas MRPL is still dependent on Iran. And it is very evident that Reliance has a better RGM and hence a better Net profit compared to all the other players in the industry.

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CHANGE NEEDED
SITUATION ANALYSIS
The majority of expenses for any oil refinery company are contributed by cost of crude, most of which is imported. It is about 90% in the profit making season, and can be more sometimes contributing to operating loss. The companies operate on small level of percentage margin. Even if there is slight increase in cost of crude, the profits are slashed. The cost of crude for oil companies in India is depended on i) volatility of crude price depending on demand and supply conditions ii) foreign exchange rate fluctuation (ref fig). MRPL attributed its losses in quarter ending in June FY12 to foreign exchange loss. Figures (Iran Rial vs INR and USD vs INR) below indicate Indian rupee has been depreciating making imports costlier. Both the uncertainties can be managed by hedging in respective things i) entering into forward or future or option contracts on crude price ii) entering into swap agreements for foreign exchange. Added to this, since MRPL is importing most of its crude from Iran, it faces quantity uncertainty because of possible sanctions against Iran. It also can be eliminated by hedging, especially forward contracts. All the companies, except Reliance, reported losses in the last quarter. Earnings per share have always lower than that of industry peers

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1. The loss of Rs 1521 crore in the quarter April-June may be a one-off event but MRPL needs to take stock of situation. 2 . Company should become more sensitive to environmental concerns. The fact that MRPL was denied access to river water for 10 days resulting in a loss of Rs 733 crores due to inventory devaluation indicates inadequate appreciation of this factor. (Loss in the same quarter). 3. Although founded as a joint venture between HPCL and a clutch of A V Birla group of companies, MRPL is now a subsidiary of ONGC, a government undertaking, and a government culture dominates. Its inability to respond quickly to the crises of having to reduce import of Iranian crude following European and American sanctions, underscores this point. 4. Net profit has been stagnant for the last 5 years. There is no earnings growth. This is viewed negatively by the financial markets. As a listed company, MRPL should be concerned about this. Stock options for employees, which gain in value as the share price rises, may spur employees towards higher profitability.

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5. Expansion/diversification through Phase III will catapult MRPL from a petroleum refiner to a petroleum products company competing with the likes of Reliance Industries Limited. Marketing capabilities will call for enhancement. 6. MRPL must shrug off any complacency acquired on account of fiscal and other benefits and concessions it has been gifted by the government of Karnataka. As its peers clamor for a level playing field, it must brace itself to doing business without government favours. 7. While the production facilities of Phase III are generally ready as of June 2012, the 110 MW captive power plant supplied by BHEL is not expected to function before September 2012. This reflects poorly on the planning and coordination capabilities of MRPL. This mismatch is likely to have a huge negative impact on its finances. 8. MRPL is planning to take over Haldia Petrochemicals Limited (HPL), a sick company. MRPL itself was in dire financial condition till 2003 and this turnaround experience may not be quite adequate as it was gained in a different political and financial environment. At that time, development banks were prodded to come to rescue. 9. Mangalore Chemicals and Fertilizers (MCF) is another take-over target for MRPL. Its obsession may lead it to aggressively outbid other suitors and dent its own finances. 10. Although MRPL has entered into joint ventures with reputed global companies like Shell, absorption of best management practices has been slow.

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PROPOSED SOLUTION
For the same period, loss of Rs 649 crore was on account of rupee depreciation. MRPL needs to acquire/sharpen its Forex management skills. Hedging may become necessary. Treasury function may need up gradation. Forecast demand, how many barrels required (to buy) Strategically hedge, dept to be developed, forecast the exchange rates, if they are favorable, wont hedge, if favorable will hedge Various options would be futures contracts, call options Enter into costless collar strategy, simultaneously writing put options, and buying call options Facilities like water pipelines, infrastructure for effluent disposal, corridor for the movement of trucks and other vehicles Depending on the water from the river is not a sustainable option as it indirectly depends on the rain. Hence, options like rain water harvesting, Desalination of seawater can be considered. Though it will cost them Rs. 50-60 crores, it is not a big amount for MRPL. This is the best option available for MRPL.

MRPL has been granted the license to open market in the retail market. However, they have not taken any stance on it. They should take a firm decision whether or not to enter the retail market and not be indecisive. However, as the retail market has restrictions on pricing, unlike the global market where the company is free to set their own pricing the company will eventually run into losses. Wind-energy sources MRPL cannot depend on the Mangalore electricity board for power as this board does not have the supply that is needed by MRPL. Hence, they can also give a thought to using wind-energy resources.

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Solar energy sources On the lines of other industries in and around Mangalore MRPL can make use of SELCOs solar power panels for their internal power supplies.

OBSTACLES TO CHANGE
1. Price Volatility - Fixing up price for raw materials, hedge means fixing a certain price, have to buy it in future. There is no option to back out of the contract once already committed. 2. Date Specificity One may not find the future contracts at delivery dates as per ones convenience. 3. Transaction Costs Expected to be huge in case of hedging as there could be costs that could eat up the profits. 4. Need Experts People with great skills needed to hedge, need to be well versed in dealing with such contracts. Hedging is a precise trading strategy and successful hedging requires good trading skills and experience. 5. Political Instability An external factor that has a huge deterring effect on probable transactions with certain countries. This would affect the company in case certain sanctions or embargos are imposed on countries. 6. Water and Electricity Generation Getting alternate sources would be difficult, as they cannot provide as much electricity as needed by MRPL. 7. Mindset The entire mindset of the company, years of tradition and safe play would be a big obstacle that would hinder the change management process.

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KOTTERS 8 STEPS
1. Establish a Sense of Urgency Communicating to the employees that the company has stagnant profits, implying that there is no growth. Even if the balance sheets, profit and loss statements are available as it a public limited company, the higher officials should specifically communicate it to show the seriousness of the situation

2. Creating the Guiding Coalition A new team called, foreign exchange management should be formed. This team will report to the Director, Finance The team will work on hedging and forecasting demand This team should have a good understanding of the market trends and forecasting techniques so as to minimize the risk involved and devise strategy accordingly (options, futures contract as tools of hedging) CEO to personally mentor this new team

3. Developing a Change Vision To come up with a strategy to minimize risk involved in crude oil volatility and currency fluctuations through hedging

4. Communicating the Change Vision This has to done majorly within the groups who can understand and give inputs for carrying out this hedging process. The finance department of MRPL should be the one monitoring the achievement of the vision and should guide this team

5. Empowering Broad Based Action The company should venture into exploration and production to reduce supplier dependency.
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A firm stance on whether to enter the retail market, as they have the license to do so. Hiring highly skilled personnel in the finance department specialized in hedging in order to ensure that effective measures are taken to overcome global crude oil price uncertainty.

6. Generating Short Term Wins Posting growth in the next quarter will motivate people in working further Phase III project operation is a short-term win. Operating this plant will make help it in moving from a petroleum refiner to a petroleum products Process more of high sulphur, produce value added products like propylene, and upgrade its total diesel pool to Superior

7. Consolidating Gains and Producing More Change

Facilities like water pipelines, infrastructure for effluent disposal, corridor for the movement of trucks and other vehicles

Options like rain water harvesting, Desalination of seawater can be considered, now that the major problem of handling global issues of foreign exchange, crude oil volatility

Innovative means of producing electricity can be pursued such as wind energy, thereby becoming a sustainable plant with minimum dependency on government resources.

8. Anchoring New Approaches in The Culture

In order for the company to achieve its vision of becoming a world class Refining and Petroleum Company, they should do away with the public system mentality.

A culture of innovation and continuous development through emphasis on enhancing productivity should be cultivated in the employees

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REFERENCES
BOOKS Kotter, John, 1996, Leading Change, Harvard Business Review Press. Porter, Michael, 2004, Competitive Advantage, Free Press. Rasiel, Ethan, 1999, The McKinsey Way: Using the Techniques of the Worlds top strategic consultants to Help You and Your Business, McGraw Hill. ONLINE Capitaline The Hindu BusinessLine The Economic Times Investopedia

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