Professional Documents
Culture Documents
Ongc
Ongc
Submitted For
Bachelor of Business Administration (BBA)
Submitted By
Submitted TO
Hemchandracharya North Gujarat University, PATAN
2008-11-12-2009
This is to certify that Mr. VIJAY KUMAR SHUKLA. has completed the Report entitled
“BUDGETING PROCESS OF ONGC, Mehsana Asset” under my guidance for the
partial fulfillment of the course. Project Work of the Bachelor of Business Administration
(Batch: 2008-2009)
Finance in any organization is indispensable and is said to be the lifeblood & backbone of
the organization. All kinds of business enterprises, irrespective of their size and nature,
need finance to carry out the day to day operations without which it is not at all possible
to run the enterprises.
Budget is one of the principle tools available to the management for planning and control
of organization operation and financial activities and helps in regulation of expenditure in
consonance with the organizational objectives.
This project has been undertaken with the main objective of studying the budgeting
process in Mehsana asset as well as ONGC as a whole.
This report also reveals the guidelines for framing financial budgets, departmental
budgeting practices followed in all the department of Mehsana asset under the head plan
and non plan activity and how the budget of the various departments are converted from
natural heads to activity wise budget along with the recent changes in the budgeting
system of ONGC.
The report gives an insight of the utilization parameter in the asset along with my
contribution to the asset.
ACKNOWLEDGEMENT
I would like to thank and owe my gratitude to “OIL AND NATURAL GAS COMPANY
LIMITED” for giving me an opportunity to work on project which has been titled as
“BUDGETING PROCESS OF ONGC, Mehsana Asset”.
I would like to thank Mr. R. K. Jain, CM (F&A); who gave me an opportunity to work
in Finance department and helped me with his support and guidance to complete the
project.
I would also like to thank my project guide Mr. R. A. Pegu, Sr. F&A Officer, Budget
coordinator, MEHSANA ASSET & Mr. K.C.Ramesh (manager) F&A , who was
always there to extend me a helping hand not only as a guide but also as a friend, teacher
and mentor.
The successful completion of this project is a result of the guidance and timely inputs I
have received from various other employees of ONGC, MEHSANA ASSET.
I would also like to take this opportunity to thank our Honorable Dr. B.S. Agrawal, The
Principal for providing me an opportunity to do this project works.
I would certainly like to thank my beloved Faculty Guide Prof. HARSAD PATEL for
lending his valuable time in guiding me to complete this project.
1) INTRODUCTION
a) PREFACE & ACKNOWLEDGEMENT
b) ONGC PROFILE
c) ONGC HISTORY
d) ONGC MEHSANA ASSET
i. Introduction
ii. Key Objectives
e) PROCESS OF EXTRACTION OF OIL & GAS
2) SYNOPSIS
a) OBJECTIVES
b) REASIONS FOR TAKING UP THE PROJECT
3) BUDGET
a) INTRODUCTION
b) BUDGETING
c) WHY BUDGETING
d) BUDGET PERIOD
e) PRE-REQUISITES OF A GOOD BUDGETARY SYSTEM
5) EXPENDITURE BUDGET
a) PLAN EXPENDITURE
b) NON-PLAN EXPENDITURE
c) NATURAL HEADS OF THE BUDGET
14) ANNEXURE:
a) LOCATION OF ONGC WORK CENTERS
b) ORGANOGRAM
c) MEHSANA ASSET STUCTURE
d) ONGC PERFORMANCE
15) BIBLIOGRAPHY
ONGC PROFILE
Oil and natural Gas Corporation Limited popularly know as “ONGC”, republic India’s
no. one E&P Company with significant contribution in industrial and economic growth of
the country, it is a leading national oil and gas producing company of India engaged
mainly in exploration, development and production of crude oil, natural gas and some
value added products.
2. ONGC is India’s largest producer of crude oil, natural gas, LPG etc. It also
produces other value added products such as NGL, C2-C3, aromatic rich
naphtha and kerosene.
From a small directorate to a monolith today ONGC is circumpassing the entire gamut of
public sector organization. ONGC today is endeavoring to become a world-class oil and
gas producing company in pursuit of exploration and production business in the domestic
and international area and related opportunity specific energy business.
1. The No.1 E&P Company in the world. Ranked 20th amongst the leading global
energy majors, as per the ‘Platt’s Top 250’ Global energy company ranking,
2006.
2. Started in 1955, when Government of India dedicated to develop the oil and
natural gas resources in the various regions of the country as part of the Public
Sector development. With this objective, an Oil and Natural Gas Directorate
was set up towards the end of 1955, as a subordinate office under the Ministry
of Natural Resources and Scientific Research.
3. The main function of the Oil and Natural Gas Commission subject to the
provision of the Act, were “to plan, promote, organize and implement programs
for the development of Petroleum Resources and sale of petroleum.
4. In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC
diversified into the downstream sector. ONGC will soon be entering into the
retailing business.
5. Cumulatively producing 685 Million Metric Tones (MMT) of crude and 375
Billion Crude Metric (BCM) of Natural Gas, from 115 fields
ONGC HISTORY
1947 - 1960
During the pre-independence period, the Assam Oil Company in the northeastern and
Attack Oil company in northwestern part of the undivided India were the only oil
companies producing oil in the country, with minimum exploration input.
After independence, the national Government realized the importance of oil and gas for
rapid industrial development and its strategic role in defence. Consequently, while
framing the Industrial Policy Statement of 1948, the development of petroleum industry
in the country was considered to be of utmost necessity.
Until 1955, private oil companies mainly carried out exploration of hydrocarbon
resources of India. In Assam, the Assam Oil Company was producing oil at Digboi
(discovered in 1889) and the Oil India Ltd. (a 50% joint venture between Government of
India and Burma Oil Company) was engaged in developing two newly discovered large
fields Naharkatiya and Moran in Assam.
In 1955, Government of India decided to develop the oil and natural gas resources in the
various regions of the country as part of the Public Sector development.
Delegates under the leadership of Mr. K D Malviya, then the Minister of Natural
Resources, visited several European countries to study the status of oil industry in those
countries. Foreign experts from USA, West Germany, Romania and erstwhile U.S.S.R
visited India and helped the government with their expertise.
In April 1956, the Government of India adopted the Industrial Policy Resolution, which
placed mineral oil industry among the schedule 'An' industries, the future development of
which was to be the sole and exclusive responsibility of the state.
Soon, after the formation of the Oil and Natural Gas Directorate, it became apparent that
it would not be possible for the Directorate with its limited financial and administrative
powers as subordinate office of the Government, to function efficiently. So in August,
1956, the Directorate was raised to the status of a commission with enhanced powers,
although it continued to be under the government. In October 1959, the Commission was
converted into a statutory body by an act of the Indian Parliament, which enhanced
powers of the commission further. The main functions of the Oil and Natural Gas
Commission subject to the provisions of the Act, were "to plan, promote, organize and
implement programmes for development of Petroleum Resources and the production and
sale of petroleum and petroleum products produced by it, and to perform such other
functions as the Central Government may, from time to time, assign to it ". The act
further outlined the activities and steps to be taken by ONGC in fulfilling its mandate.
1961 - 1990
ONGC not only found new resources in Assam but also established new oil province in
Cam bay basin (Gujarat), while adding new petroliferous areas in the Assam-Arakan Fold
Belt and East coast basins (both inland and offshore).
ONGC went offshore in early 70's and discovered a giant oil field in the form of Bombay
High, now known as Mumbai High. This discovery, along with subsequent discoveries of
huge oil and gas fields in Western offshore changed the oil scenario of the country.
Subsequently, over 5 billion tonnes of hydrocarbons, which were present in the country,
were discovered. The most important contribution of ONGC, however, is its self-reliance
and development of core competence in E&P activities at a globally competitive level.
After 1990
The liberalized economic policy, adopted by the Government of India in July 1991,
sought to deregulate and de-license the core sectors (including petroleum sector) with
partial disinvestments of government equity in Public Sector Undertakings and other
measures. As a consequence thereof, ONGC was re-organized as a limited Company
under the Company's Act, 1956 in February 1994.
After the conversion of business of the erstwhile Oil & Natural Gas Commission to that
of Oil & Natural Gas Corporation Limited in 1993, the Government disinvested 2 per
cent of its shares through competitive bidding. Subsequently, ONGC expanded its equity
by another 2 per cent by offering shares to its employees.
During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and Gas
Authority of India Limited (GAIL) - the only gas marketing company, agreed to have
cross holding in each other's stock. This paved the way for long-term strategic alliances
both for the domestic and overseas business opportunities in the energy value chain,
amongst themselves. Consequent to this the Government sold off 10 per cent of its share
holding in ONGC to IOC and 2.5 per cent to GAIL. With this, the Government holding in
ONGC came down to 84.11 per cent.
In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC
diversified into the downstream sector. ONGC will soon be entering into the retailing
business. ONGC has also entered the global field through its subsidiary, ONGC Videsh
Ltd. (OVL). ONGC has made major investments in Vietnam, Sakhalin and Sudan and
earned its first hydrocarbon revenue from its investment in Vietnam.
Mehsana Asset was established in November 1967 as a small project, Mehsana has
emerged as the Highest Onshore Producing Asset in ONGC with production figures at
2.23 MMT for 2006-2007. It has consistently achieved the highest oil production figures
amongst all onshore Asset year after. Spacing an area of 6000 sq. km, Mehsana has 28
fields, which are mostly oil producing.
There are 1295 oil wells and 21 gas wells producing about 6120 tones per day. Mehsana
produces sweet oil. The average depth of a well in Mehsana is in the range of 1100m to
3000m. There are total 39 numbers Installation in the Asset
ONGC Mehsana can proudly claim to be the pioneer of In-Situ combustion (thermal
recovery technique) implementation at sub surface depths of 1000 to 1100 meters, which
is a first of its kinds in the whole world. The asset is in the process to increase the oil
recovery from 28% to global recovery leavel of 40%.
First of all a survey is carried out to find out the possibility of hydrocarbons in the earth
Crust. This is done by geologists in many ways. They use sound waves and electric
current for identification of existences of HC. After a well location is released, the land
has to be acquired, site is to be prepared for drilling and it has to be cleared & leveled so
that access roads may be built. Drilling consists of two components-exploration and
development. An exploratory test is done to establish the presence of hydrocarbons in the
selected areas of earth crust. In development the reservoirs are developed for extracting
the oil. Here the drilling starts with the help of an oilrig after which a mental pipe called
‘casing’ is cemented into the hole. After the completion of drilling, Rig is removed and a
pump is placed on the top of the well. Now the process of the extraction of oil starts. The
well are connected to Group Gathering Station (GGS) though the flow lines for collection
of crude oil and gas.
Segregation of crude oil, gas and water is done by mechanical, thermal and electrical
process. Lastly, the oil which is separated is also not in pure form. So, it is sent to Central
Tank Form (CTF) for further purification through flow lines. Form here it is sending to
refinery with help of trunk lines to Baroda.
SYNOPSIS
PROJECT TITLE:
OBJECTIVES:
1. To study existing process of budgeting & find out new ways of improving the
existing budgeting process with clear understanding of the pros and cons.
2. To enable productive utilization of the limited funds of the organization keeping
in view the opportunity cost and the time value of money.
The setting of the physical targets considering resource availability, converting these
physical targets into financial figures, correct estimation of expenditure and revenue
requires a great degree of skill & involves coordination between various technical and
financial personnel.
Hence, the study of the budgeting process in such a big organization like ONGC is
perceived as a very good opportunity. A proper understanding of the budgeting process
and finding out the loopholes if any can prove out to be greatly advantageous to the
company.
INTRODUCTION
Every organization takes proper care of the future. At the same time, it cannot afford to
forget the present. It has to ideally balance long-term advantages and goals against short-
term performance pressures with the objectives of creating a business to be stronger
tomorrow. Budget is an ideal tool to meet the objective.
The word ‘budget’ has been derived from the French word ‘baguette’ which denotes a
leather pouch in which funds are appropriated for meeting anticipated expenses. Budget
is quantitative expression (numerical statement of plan, policies and goals prepared in
advance for a definite period in future). It is an estimate, which when approved by the
management become a budget. Infect, budget acts as a business barometer as it is a
complete programme of activities of the business.
WHAT IS A BUDGET?
Definition of budget has been attempted by various Organizations / Experts.
For an organization like ONGC, “the budget can be best defined as a statement of targets
both physical and financial, intended to be achieved in term of exploration, drilling,
production and other allied activities and connected expenditures vis-à-vis revenue.”
BUDGETING:
Budgeting is the procedure which help to know the future financial requirements, the plan
when presented in written form is called budget. It includes budget plan and budgetary
control and other related techniques.
It provides a tool to the management for controlling the activities of the employees.
WHY BUDGETING??
Preparation of the budget is essential for steering the organization in a well directed
manner and for enabling its various business group/ units to operate with maximum
efficiency through planning, coordination and control.
1. It spell out the targets, both physical and financial, to be achieved during the
budget period.
2. It provides the detail about the resources needed for fulfilling the laid down
targets.
6. It helps in arranging for the financing of the operation so that adequate working
capital is available as and when required. At the same time, a better utilization of
liquid capital and avoidance of uninvited surpluses in certain period is made
possible.
7. It enable the control of all activities by the top management through review and
planning of each aspect at appropriate level and bringing out areas where attention
of the top management is needed.
9. It provides the basis of control by determining the variation of the actual from the
planned and reasons for such variations.
BUDGET PERIOD:
As a matter of practice, budgets are prepared on financial year basis.
The budgeting practice in ONGC starts in the month of June of every year. Whereas, they
have to submit their final revised estimates of the current year and the budgeted estimates
for the next year along with commitment budget for the next to next year by the end of
the month of September.
7. A well define management structure so that the responsibility for deviations from
the budget can be readily established.
8. A genuine concern among all the levels of the management for the success of the
system.
ONGC follows Accrual method of accounting, hence, while preparing the financial
budget, principles of accrual is kept in mind, as the budget process has to be aligned with
the Accounts. However, as the cash management is also equally important activity for the
company, the cash budget also forms a sub-set of the overall budget. Therefore the budget
in ONGC can be classified mainly into the following categories:
5. performance budget
CASH BUDGET: - Cash budget is scheduling for the cash inflows and outflows
expected over the budget period. Apart from the revenue & expenditure it also takes into
consideration. While arriving at the cash out go component of the budget, the cash
payment made for the last years liability and the liabilities created against the
expenditure of this year for which the payments will shift to next accounting year, need
to be factored. This is primarily the working capital change, which is forming the part of
cash budget.
Though the budget is prepared on accrual basis, cash forecast is required for fund
management. Therefore, cash budget is basically prepared to have a proper control over
the cash flow. It helps in planning the investment of surplus cash, mitigates any crisis of
cash payments and avoids idling of funds.
The expenditure, which is likely to be incurred during the budgetary period forms part
of the accrual budget. The payment against the expenditure may be made in the
budgetary period or it may spill into the next year. To explain this aspect more clearly, if
an item has been provided in the budget and the action against the same has been
completed, the payment may not be made in the same year against that item, but the
liability has to be created, in such cases the budget is deemed to be utilized under
accrual concept for which the budget need not to be carried in the year. Likewise, the
items, which existed in the budget but no action, could be taken, needs to be considered
in the next budgetary period.
Form the costing and profitability point of view accrual budget is a healthy system of
budgeting.
GENRAL BUDGET: -This the total budget both indigenous and imported, of the
corporation for the current year and next year which is submitted after being approved
by the ONGC Board, to the Ministry by 15th October every year, in compliance with
statutory requirement as per O.N.G.C. Act. After submission the budget is discussed
with the Planning Commission where the final budget is approved. This budget is made
of two parts.
REVENUE BUDGET: - ONGC’s revenue accrues from the sale of Crude oil, Natural
gas, LPG, NGL, Naphtha, C2-C3 and other value added products. The revenue budget is
prepared on the basis of Sales programme, which depends on the production targets
Finalized by the Board.
2003-04 2004-05
BE RE Actual BE RE Actual
crude 20952 23971 22213 21959 29127 32254
Natural Gas 5067 5083 5219 4806 5089 5502
Value Added 3763 4344 4708 3934 4936 5113
Others 49 386 49 40 446
Total 29782 33447 32526 30748 39192 43315
NATURAL HEAD BUDGET vs. ACTVITY BUDGET: - Plan and non-plan budget
both are prepared at work centers at natural head level. Natural heads of the budget in
ONGC has been mentioned in this chapter later on. These natural budgets are further
allocated to activities to work out the activity wise plan and non-plan budget.
Traditional Budgets are being prepared for different elements of cost like manpower,
material, etc. This cannot help us to determine the efficiency of various activities. This
cannot be used as performance indication. To overcome this and make budget more
objective and purposeful, budget is being prepared for different activities. These budgeted
parameters are compared with actual performance taking into account the actual physical
achievement with planned level of activity and the financial implication in order to
evaluate the performance and productivity.
EXPENDITURE BUDGET
ONGC’s Expenditure Budget is classified as under:
1. Plan expenditure
2. Non-Plan expenditure
3. Natural heads
Plan expenditure: - Plan budget/ Expenditure consist of all activities under survey,
exploration, development, research areas, which will enhance the capacity of the
organization to grow.
It comprises of following:
1. Survey
2. Drilling (Both Exploratory & Development)
3. Institutes and R & D
4. Working Capital
5. Capital
It incurred with the objectives of creating some assets, e.g. reserves, which will give
rise to revenue. However, the entire capital acquisition is considered as Plan expenditure
irrespective of its development for plan activity i.e., Survey or Drilling or Non-Plan
activity like production. As regards working capital, it can be added that plan working
capital means the inventory held for plan activities like Survey and Drilling. Research &
Development expenditure is considered as plan expenditure because this is incurred
primarily with the objective of enhancing the capacity to produce. It adds to the
efficiency and efficacy of the organization, the benefits of which are enjoyed over a large
period. Again, the plan expenditure for Survey and Drilling in totally is termed as
“Deferred Revenue Expenditure”, which is primarily budgeted element-wise, i.e.
Manpower, Materials, Contractual Payment and Other charges.
After-wards, this is further grouped under Survey and Drilling expenditure. Subsequently
it is bifurcated, between Exploratory and Development Drilling Expenditure on the basis
of certain pre-determined ratio, wherever necessary.
Non-Plan expenditure: - Any expenditure, which is incurred for earning the revenue and
maintaining the same, is termed as Non-Plan expenditure. There is some resemblance of
non-plan expenditure with Revenue Expenditure. But these two are not same. For
example, survey is plan expenditure but it is charged off to Profit and Loss Account as
revenue expenditure. Similar is the treatment for Research and Development expenditure.
Expenditure not coming within the preview of Plan Expenditure is treated as non-plan
expenditure. In this way, the total expenditure is accounted for either under Plan or Non-
plan expenditure.
Royalty
Octroi
f) Allocation from Plan – this represents the allocation from common expenditure
for plan & non-plan initially booked under plan.
Budget on ONGC is primarily prepared for the elements which are required for executing
the plan of action grouped primarily under the following heads: -
1. Capital
2. Manpower
4. Contractual payment
5. Other charges
1. CAPITAL
Capital items can be classified under following:
Items having a life span more than 1 year.
Technical officers in consultation with stores and purchase officers and finance officers
estimate for the capital expenditure
.
2. MANPOWER
Manpower item includes
Salary and wages
Number of actual manpower is kept in view before forecasting manpower expenses and
the changes in the level of activity and price index changes is also considered.
Chemical
Drill pipes
Explosives
Electric spare
Estimation of budget for stores and spares is basically related to purchase of stores and
spares.
4. CONTRACTUAL PAYMENTS
Contractual payment includes
Work over services
Seismic surveys
Drilling
The executives who are responsible for getting the contract work executed for the
organization evaluates the costs and gives proper justification for it.
5. OTHER CHARGES
Other charges includes
Rents
Telephone expenses
Traveling expenses
It is also forecasted on the basis of actual expenditure during the preceding period and
level of activities.
Budget in ONGC is initially prepared for the physical activities. Thereafter it is converted
into financial terms, which is based on natural heads of the budget. The natural head
budget is further drilled down on cost allocation basis to derive at the activity wise
financial budget. The natural head budget of ONGC is prepared at location level and
aggregates at regional level, which is then finally compiled at ONGC level.
The budgeting process starts in Feb/ March with the preparation of plan action for
Revised Estimates of the current year, Budget Estimates of the next year and
Commitment Estimates of the next to next year.
Every year a budget circular is issued from the corporate budget section at the beginning
of the financial year to all the budget location / work centers. The budget circular
contains the following:
b) Guidelines for preparation of the budget and technical improvement, if any made
in the budget software.
c) The methodology to be adopt for compilation and submission of the Budget along
with the necessary formats, if any.
e) The role of the Budget Co-coordinators and the Regional Budget Co-coordinators.
1. Budget of the virtual corporate is prepared at cost center level under the CRC
structure.
2. The items, which need to be included in the budget, are concurred first and then it
is included in the procurement budget. Accordingly to concurrence, cost benefit
analysis is carried out. Necessary action to obtain the financial concurrence is
initiated in advance so that there is adequate time for the finance officers to vet
the proposals and have them included in the budget.
3. Budget is prepared to the Board and the planning commission in terms of activity
wise financial outlays. The consumption figures are used for working out activity
wise outlays and activity wise budgeted costs. The difference between
procurement and consumption is reflected as inventory variations and is shown as
working capital charges.
4. Replacement capital chargeable to R&L A/C as per corporate policy also forms
part of operational budget.
5. The procurement budget is prepared as per accrual principle. It is therefore taken
care that while compiling the procurement budget, status of cases and leads-time
in tendering and delivery of the item/ service be taken into account and such
amount be kept in the respective budget years during which there is reasonable
certainty of utilization of budget.
6. The throw forward cases, for which budget has been revalidated through re-
appropriation from the budget are shown under throw forward column of the
budget software.
7. Budget is kept at the work centers were the material/ services are utilized/
consumed and not at the work centers where payments are made. If the budget
provision is not kept at the consuming centers, it does not reflect the true
profitability and cost of activities for the virtual corporate.
8. Assets/ Basins identify the capital items, which forms part of the approved
projective schemes because “other capital” is growing at higher rate than the
projective expenditure. Proper justification is given in support of the budgetary
requirement for items of replacement and addition.
1. The unit cost of activities is to be taken as the guiding factor for working out
budgetary outlays. Budget co-coordinators play lead role in working out of the
budgeted cost of activities keeping in mind the inter-unit cost transfer.
3. The asset and basins are supposed to prepared the budgeted profit margin and
contribution and emphasize on the achievement of overall efficiency and cost
effectiveness in all its operations.
4. Budget software has been developed in ONGC recently to meet the requirements
under the CRC structure as well as assist the work centers in working out their
activity wise outlays and budget cost of activities.
5. Currency rates are adopted prepared the imported budget.
ACTIVITY-WISE BUDGET
ACTIVITY-WISE BUDGET
The budget in terms of these three activities is called Activity-Wise Budget. Natural head
budget is kept by the respective budget units as per the CRC structure at cost center level.
This natural head budget is converted into capital budget and deferred revenue budget
(DRE) for each of the CRC entity. This deferred revenue budget (DRE) comprises of:
1. Consumption of stores and spares
2. Contractual payment
3. Manpower
4. Other charges
DRE budget for services are allocation final activities viz. Exploration, Development and
Production on the basis of utilization of services.
The budget for regional offices and head quarter overhead is also allocation to final
activities. After all allocations natural head budget gets converted into activity budget
under CAPEX and OPEX.
Example to make the concept more clear :
LOGISTICS: The logistics department fulfils the vehicular requirement of the various
departments while providing the services to these departments. The final cost that is
incurred by logistics is ultimately allocated to the department head to which it belongs
turning its own cost to zero
LOGISTICS
| | | | | | | |
WORKSHOP:
Similarly in the case of workshop also the total budgeting cost is divided into the various
departments in accordance with the services that will be rendered. The JOB CARD kept
separately for each department service as the basis for such allocations.
SUPPORT SERVICES:
In the case of support services (except logistics), the total cost i.e.
Cost of support service department + Cost from logistics + Cost from workshop are
directly charged to P&L A/C under the head project overload
LOGGING SERVICES:
In logging services the total cost of logging services in addition with cost of workshop
and logistics arrived is further distribution on the basis of services provided:
NEW WELLS - EXPLORATION/ DEPARTMENT
OLD WELLS - PRODUCTION
On basis of this the cost is finally apportioned to the three activities.
In the similar way, all the departments distribute the total budgeted cost they arrive at
(after adding logistics and workshop cost) to exploration, department and production.
This activity wise budget so prepared is also presented before the board at the time of
approval of the expenditure budget.
2. Budget is kept at the work centers where the material/ services are utilized and not
at the work centers where payments are to be made. Consuming work centers
send indents along with the sanction orders to the central procurement agency for
procurement.
4. Consumption of stores and spares is considered. The work centers feed the details
of opening stock planned consumption and planned closing stock.
a) FINAL ACTIVITIES
1. Survey
2. Exploratory drilling
3. Development drilling
4. capital
5. R&D
6. JVC
7. Operating Expenditure
b) INTERMEDIATE ACTIVITIES
1. Drilling services
2. Cementing services
3. Mud services
4. Work services
5. WSS services
6. Well services
7. Logging services
8. Engineering services
9. Logistics services
10. Geophysical services
11. Project overhead
12. Regional & headquarter overhead
1) Each of the final and intermediate activity has been further classified
under sub activities to capture further details of activity wise expenditure.
3) Guidance note issued by ICAI and the relevant accounting guidelines are
to keep in mind. As per present accountancy policy, Non Plan
Replacement Capital is charged to the P&L Account.
4) The cost allocation cycles for preparation of activity wise outlays and
activity wise costs have been placed under a separate menu in the budget
as stages of cost allocation.
The various stages of cost allocation cycles are as under:-
2) Allocations are not for the identified amounts but are proportionate on
the basis of activity parameters. In case direct activities parameters are
not available, allocations are carried out on the basis of weights
considering last years actual allocations in accounts, change in activity
level, technical weights etc.
4) The physical target is used by the system to work out the budgeted per
unit cost of activities.
Final budget data is submitted to regional finance coordinators/ corporate budget section.
(Rupees Crores)
Revised Estimates (RE) RE 02-03 RE 03-04 RE 04-05 RE 05-06 RE 06-07
Exploration:
Survey 843.83 851.51 1252.64 1732.00 2797.00
Exploratory Drilling 1800.23 2430.84 2496.42 2791.00 2906.00
Other (APEX)
Total 2644.06 3282.35 3749.06 4523.00 5703.00
Development/ Production:
Development Drilling 1561.41 1876.44 1541.22 1525.68 2109.24
Schemes 1165.00 1321.48 3444.35 3444.60 4687.20
Total 2726.44 3197.92 4985.57 4970.28 6796.44
Others
Capital 1421.18 1466.33 793.49 1028.00 1731.00
JVC 261.14 248.45 452.61 451.00 1422.00
R&D 90.04 129.66 139.16 155.00 135.00
Acquis. / Integration/ OVL 2300.00 730.00 170.00 734.00
Total others 1772.36 4144.44 2115.26 1804.44 4022.00
TOTAL PLAN 7142.86 10624.71 10849.89 11297.28 16521.44
Development/ Production:
We can say it traditional because the budget in ONGC is prepared on the basis of
previous year’s figures. By and large, as a matter of practice it has been observed that
each and every department estimates around 10% rise in allocation, for present year
under RE (revised estimates), over last year actual which is properly on account of
providing for inflation. The Corporation Budget section consolidation the figures and the
overall physical programme is correlated with the total financial impact before
submission and presentation to the board. Decision package are not made and important
activities are not ranked accordingly to their importance. This process of budgeting does
not eliminate budget for activity that is not important in present year.
The budget in Mehsana asset depends upon the various departments divided on the basis
of:
1) ASSET
2) SERVICE
3) FORWARD BASE
The estimation is done by the departments are:
Contractual
The estimation of the contractual is done under the following heads:
a) Hiring of vehicle.
BUDGETARY CONTROL
BUDGETARY CONTROL
The budgetary control in ONGC starts when the file containing the requirement of the
indenter reaches the stage of financial concurrence. After the budgets have already been
approved for the year, the indenter makes a case of his requirement and sends it to the
finance department for the concurrence to the budget controller. The budget controller
checks whether the requirement is a budgeted or a non-budgeted item and whether the
funds are available for it or not. If the funds are available, the concurrence officer checks
the other details for the PR and when satisfied, release the PR. In case, the funds are not
available, the re-appropriation is to be done which is in accordance with the BDP. The
study of the stages of the procurement of a material/ services makes the concept even
easier.
A
A
USER
FC
ISSUE Indenter
VOUCHER
GRV PR
RECIEPT OF MRP
MATERIALS CONTROLLER
RLER
ORDER FINANCE
PLACEMENT RELEASE
PURCHASE FINAL
CLEARANCE
a) Change from Business wise to CRC based structure: Though not a proposed
changed in the Budget methodology but has implications on the corporate budget.
The organization structure that was earlier business group based i.e. five year
business groups (Exploration, Drilling Operations, Technical & Co-ordination)
has now been changed by CRC (Corporate Rejuvenation Campaign). The CRC
has restructure ONGC as Assets, Basins, Services, Institutes and regional offices
as strategic business units (SBU). In the present scenario these Sub’s become
virtual corporate within the real corporate and the key executives become the
managing directors of these virtual corporate. The CRC seeks to ensure horizontal
consistency within the organization through proper linkage of virtual Boards with
the ONGC Board.
c) Shifting from Natural head wise budget to Activity wise oriented Budget: In
the past natural head budget was the basis of control for the entire budgetary
process whereas it was converted into activity wise budget on the basis of certain
allocations. But in the present scenario, new budget software with improved
features has been developed in house to facilitate the line item wise budget at the
location and automatic conversion to activity budget based on pre-defined cost
allocations. Allocation of costs has been made in line with the accounts in order to
facilitate comparison. The Budget software is vibrant enough rework the activity
wise outlays as and when the line items are revised. The Software also permits
cost allocations modification on specific logical of the end user.
procurement for long lead items. It has mitigated the problem of throw forward
and assists in ascertaining the budgetary needs more precisely.
i) Budget Report: Generation of various budgetary reports has now been made
possible with the modifications and improvements incorporated under the ICE.
Reports by exception have made the task of review and monitoring more easily
and quickly.
k) Alignment with CRC: The funds center hierarchy has been aligned with the
CRC structure to reflect the realities of the organization structure. The funds
center is therefore kept at Sub-surface, surface, support etc. The funds availability
is now checked at the Fund center + Commitment Item. The commitment item is
linked with the General Ledger (GL) heads of accounts and the budgetary control
is at CI level.
OBSERVATIONS
1. During the course of study it has been observed that the basis concept of
budgeting, as a tool for planning and financial control is not taken in the perfect
manner. Budget is prepared largely for the sake of presenting before the
management and the legislature and acts as a part of the mechanism for
allocation and approval of expenditures.
2. It has been observed that there is a tendency of over provisioning in the budget.
This is on account of lack of awareness, proper projection of time schedules (lead
time in various processes), administrative reasons etc. this has led to the serious
problem of under utilization and query from the ministry. The astonishing part
is that the utilization hovers around 70% of the planned expenditure, which is
certainly to be pondered over.
4. In ONGC the budgeting process starts with a bottom-up approach, which gets
consolidated gradually. But, thereafter when the fine- tuning is made at the board/
ministerial level the approve budget aggregates with reference to he last year’s
utilization, with slight modifications/ alterations factoring the major projects
during the year.
6. As per the instructions from the top management the virtual corporate are
supposed to work out the financial outlays corresponding to the approval physical
targets on the basis of per unit cost of the activities. However, there are no
specific guidelines due to the varied nature of the industry, which leads to large
variations in the budgeted and actual numbers.
7. Considerable flexibility has been given to the work centers for meeting out their
budgetary requirement.
9. One of the major findings during the course of interaction with the officials of
ONGC was that, the concept, essence and implication of budgeting was not
properly understood by many employees who are also involved in contributing to
the budgeting exercise. Some of them had a preconceived notion that it would be
safe & comfortable to provide for any expenditure in the budget. Adequate
thought and plan action for materializing the planned budget was not taken up that
seriously. This adds up to the difficulty with the top management in allocation of
resources in order to priorities. Some genuine demands get chopped off as against
the low priority items.
Last but not the least is the culture of working inherited as a typical government concern.
The main reason is the strict compliance in accordance with the Delegated powers &
procedural delays which at times results to loss of opportunity.
CONCLUSIONS
The tendency of over provisioning in budget is also because of the cyclic effect. From the
experience in the past the end user expects certain curtailment in case of normal budget
and hence keeps a cushion for it while preparing the budget.
A final word to conclude is that “Easier said than done”. Subjectively and no paper the
work seems to be logical, but when the fact comes on to the implementation in the literal
stage, the scene is not same. The unique nature of the industry, its peculiarities &
complexities cannot be totally avoided.
However, if there is a will, there is wish. The top management has a cardinal role to play
in the implementation of budgeting procedure. Much depends upon the will to manage,
the commitment to achieve and the level of involvement. If the top management
decides to make the budgeting procedure more effective, they can do it by strengthening
the persons involved in the process and by giving it the desired importance. But like most
new management tools, success requires balancing the approach with common sense,
human relationship and creative problem solving techniques.
SUGGESTIOS
Based upon the understanding and observation of the existing system of budgeting in
ONGC it is felt that though initiatives have been taken/ are being taken, there is a lot of
scope for improvement in order to make the budgeting system more efficient and
effective. Some of the suggestions are mentioned below:
3. The technical and financial personnel having proper exposure and knowledge
in both the fields should interact in a reiterative process before preparing a
realistic budget.
4. In order to avoid the negative remarks (and thereafter giving justifications) from
the ministry with reference to under utilization of the planned budget, the
budgeting procedure should be based on realistic basis. Proper vision of the
external factors, time consumed in obtaining government clearance, the
procedural and administrative delays in processing of the budget. Experience
from the past provides sufficient inputs for proper planning.
5. It has been observed that there are strict norms for re-appropriation of budget.
This has also led to the over provisioning in the budget. Adequate flexibility for
re-appropriating the budget would mitigate the problem. The administrative
powers in respects to this shall be diluted so as to facilitate proper utilization of
the available budget.
2) To a great extent the budget in ONGC is still input oriented, not linked with the
results/ targets/ objectives/ initiatives. Hence, the focus should be concentrated on
the schemes and major projects rather than on the line items.
In our opinion, the budgets of the centralized procurements should be kept with the
procurement section in head quarters which is also considered as a reason for under-
utilization at Asset level.
Using the previous year figures, an effort has been made by me to show the actual state of
affairs to the company of the increased differences between BE, RE and Actual.
BE-------------------------58,590.98
RE-------------------------63,083.88
Actual---------------------54,888.65
RE – BE = 4492.9
RE – Actual = 8095.23
BE – Actual = 3602.33
The Approval for BE is taken in advance in the preceding year for all years & RE gets the
approval in October. As we know that money always has a time value and opportunity
cost attached to it, this is an alarming signal to the company.
Therefore,
1) Attention and focus should be attached while preparing the budget be company is
able to productively utilize its limited resources.
This study is confined only to one of the projects of ONGC-Mehsana Asset. The overall
advantage that the company will gets as a whole is worth given a thought.
As a result, on the basis of the study conducted it can be concluded that budgeting is
a very useful tool in the hands of management and can prove to be effective,
provided, it is given due importance and necessary changes are implemented with
the changing needs of time & technology.
At the time of compilation of the budgetary requirements received from the various
department of the asset, the budget officer in finance department prepares the manpower
budget.
The manpower budget is the one on which no control can be exercised and a traditional
approach of increase by a pre-determined percentage is being done.
During my study period in the asset, the budgets of the various departments were being
prepared and send to finance section. I luckily got the opportunity to prepare the
manpower budget for the year 2008-09 for Mehsana Asset. Apart from the various useful
learning’s from the organization; this practical study of manpower budget added
extensively to our knowledge.
The predetermined percentage increase from the previous years actual is being done. This
percentage increase is decided with a rational approach by the budget officer (finance)
himself.
The important classifications done in the manpower budget of all the departments are:
1) Officers
2) Staff
This classification is done because there are certain allowances that differ in both the
cases. Like the allowance professional pursue is only in the case of officers and canteen
and productivity allowances is only there in case of staff. However, the rates of increment
in both the cases are also different.
The classification under the head plan and non-plan is done on the basis of the head to
which they belong but there are certain heads that are necessarily non-plan irrespective of
the head they belong. They are:
2. DEARNESS ALLOWANCE:
Increment:
Officers - 8% Staff - 7%
3% - over and above basic pay provision
6. PROFESSIONAL PURSUIT:
Increment:
Officers - 5%
It is in the case of officers only.
OTHER CHARGES-
In the case of expenditure under the head OTHER CHARGES the fixed percentage of
10% increment is given over previous year’s actual expenditure for all the
expenditure heads. It is only for the inflation factor.
Some of the items included in other charges are:
1. T.A. & D.A.
2. Training expenses
3. Stationary and printing
4. Marine insurance
5. Other misc. expenses etc.
The budgeted figures of the manpower budget for the year 2007-08 of different
departments is added in the annexure.
ANNEXURE
ORGANOGRAM
Director
Onshore
Asset Manager E D
A K Gupta
VISION
To be a world-class Oil and Gas Company integrated in energy business with dominant
Indian leadership and global presence.
MISSION
World Class
1. Focus on domestic and international oil and gas exploration and production
business opportunities.
Retain dominant position in Indian petroleum sector and enhance India's energy
availability.
1. http://www.ongcindia.com
2. http://www.ongcreports.com
Published Reports: