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A PROJECT REPORT ON

CAPIITAL BUDGETIING CAP TAL BUDGET NG 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


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TABLE OF CONTENTS
PREFACE ACKNOWLEDGEMENT DECLARATION EXECUTIVE SUMMARY

SL. NO.

PARTICULARS

PAGE NO.

PART - I 1. 2. 3. 4. 5. 6. 7. 8.

GENERAL INFORMATION

About Indian Oil Corporation Limited Board of Directors History of IOCL Mission, Objective, Obligation Branded Product of IOCL About Guwahati Refinery Manufacturing process Structure, Department, Section

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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. 12.

Scope and Limitations of the Study 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

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LIST OF ANNEXURE
SR. NO. PARTICULARS PART 1 GENERAL 1. 2. 3. Phasing of the investment. Sources of capital. Calculation of interest on long term debt. PART 2 ESTIMATED 4. 5. 6. 7. 8. 9. Project cost on the basis of April 2000 prices. Calculation of block of assets. Value of assets. Depreciation as per Income Tax Act (WDV method). Annual sales realization. Calculation of IRR and NPV. PART 3 ACTUAL 10. 11. 12. 13. 14. Project cost on the basis of average prices (2006). Calculation of block of assets. Value of assets. Depreciation as per Income Tax Act (WDV method). Annual sales realization. ANNEXURE PAGE NO. NO.

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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

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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), 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. the progress of this report. JAHNABI CHOUDHURY GUWAHATI N.P SINGH who took personal interest in for his valuable time & educative guidance. Their constant support, innovative ideas & practical approach helped me to make the project

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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)

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INDIAN OIL CORPORATION

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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

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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 nationalised and its Refining and Marketing functions merged with IOC in October, 1981

AOC

The first Still lies still

Digboi refinery is one of the


oldest refinery in the world that is still working

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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

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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

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History of Indian Oil

Merger
Indian Refineries Ltd. 1958 Indian Oil Company Ltd. 1959

Indian Oil Corporation Ltd. 1st September 1964

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Corporate Structure
BOARD

Corporate Finance including


International Trade / Information Systems / Optimization / Corporate Affairs

Divisions Refineries (including


AODs Digboi Refinery)

Pipelines Human
including Corporate Communications

Resource

Marketing (including
AODs Marketing)

Planning & Business Development

R&D

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Refineries Division

Refineries HQ, New Delhi


Technical Projects Refineries HR Finance S & EP M&I

Materials

Digboi (AOD) Guwahati Barauni Gujarat Haldia Mathura Panipat Bongaigaon

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IOC

Indian Refineries
Refineries No. MMTPA
BHATINDA (9.0) PANIPAT (12.0+3.0) MATHURA

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
BONGAIGAON (2.35) GUWAHATI BARAUNI (1.0) (3.0) (6.0) DIGBOI (0.65) NUMALIGARH

IOC Group BPC group HPC 2

10 60.2 3 22.5

(8.0)

13.0
BINA JAMNAGAR

ONGC/MRPL 2 RIL (Pvt.) ESSAR Total

9.8

BARODA (13.7)

(6.0)

HALDIA PARADEEP (6.0+1.5) VISAKH (15.0) (7.5+0.8) TATIPAKA (0.08 + 0.08) CHENNAI (9.5+ 1.7) NARIMANAM (1.0)

1 33.0 (RIL 33.0 + 29.0)


MUMBAI ESSAR 10.5+ 3.5) 1 10.5 (BPC 12.0)

(HPC 5.5+ 2.4) MANGLORE (as of 1 Apr08)


st

19 149.0

Existing IOC
Subsidiaries of IOC

Total capacity : 149 MMTPA (2.98 mbpd)

(9.69 +5.31) KOCHI (7.5 + 2.0)

Others New / Additions

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Pipelines Division

Pipelines HO, NOIDA


Operations

Projects

Materials Maintenance Technical


Services

Northern Region

Eastern Region

Western Region

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

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

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

Southern Region

CTMPL (P)

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Pipelines
Jalandhar Downstream Industry Pipelines (As on 21.1.2009) Crude: 4366 KM Ambala Roorkee Najibabad Tinsukia Bhatinda Sangrur Panipat

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 Total: 14232 KM Dahej (97.483 MMTPA) IOC Pipelines (As on21.1.2009) Bangaluru Crude: 4366 KM (38.2 MMTPA, 100%) Product: 5698 KM (31.408 MMTPA, 53%) Total: 10064 KM (69.608 MMTPA, 71.4%) Sankari Chennai Asanur Trichy Madurai Haldia Paradip

Digboi

IOCs Pipelines (Existing) Product Crude Oil


LPG Pipeline

(Ongoing) IOCs Pipelines Product Crude Oil

R -LNG Pipeline

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Marketing Division

Marketing HO, Mumbai


4 Regional Services North/East/West/South State Offices

AOD

International Marketing & Overseas Subsidiaries

AFSs

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

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Marketing Offices

Chandigarh

Delhi
Jaipur

NOIDA Lucknow Patna Bhopal Bhubaneswar

Digboi Guwahati

Ahmedabad

Kolkata

Mumbai
Secunderabad Bangalore

Regional Offices State Offices

: 17

Chennai
Trivandrum

Divisional Offices : 66 Indane Area Offices : 35

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Major Petroleum Products

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

Lightest

Heaviest

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R&D Division
R&D Centre, Faridabad

Refining Technology

Lube Technology

Fuels & Emission

Petrochem & Biotech

Others

Process Development Product Development Transportation Studies Projects

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Financials Subsidiaries

Turnover Profit After Tax Subsidiary 2006-07 CPCL LIOC* IOML* IOC ME FZE* 29,349 1,405 427 18 2007-08 2006-07 32,891 1,720 535 41 565 (29) 8 (0.22) 2007-08 1,123 90 14 1.3

RS. CRORES

IN EQUIVELENT INR * In equivalent INR ( ) Indicates loss

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It has refineries at:S.NO. NAME OF COMPANY


IOCL IOCL IOCL IOCL IOCL IOCL IOCL

THE LOCATION OF CAPACITY REFINERY (mtpa)


GUWAHATI BARAUNI KOYALI HALDIA MATHURA DIGBOI PANIPAT 1.00 6.00 13.70 6.00 8.00 0.65 12.00

1. 2. 3. 4. 5. 6. 7.

TOTAL

47.35

NOTE:

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.

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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.

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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.

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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.
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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

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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
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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.

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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.

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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.

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LPG LIQUID PETROLEUM GAS MS MOTOR SPIRIT HSD HIGH SPEED DIESEL SRN STRAIGHT RUN NAPTHA RPC RAW PETROLEUM COKE LDO LIGHT DIESEL OIL SKO SUPER KEROSENE OIL ATF AVIATION TERVINE FUEL CDU- CRUDE DISTILLATION UNIT HGU HYDRO TREATER UNIT ATU AMINE TREATING UNIT DCU DELAYED COKING UNIT SRU SULPHUR UNIT

CLO CLARIFIED OIL IFO INTERNAL FUEL OIL LN LIGHT NAPHTA SRK STRAIGHT RUN KEROSENE RCO REDUCED CRUDE OIL RFO REDUCED FURNACE OIL TCO TOTAL CYCLE OIL CK COKER KERO CGO COKER GAS OIL CFO COKER FURNACE OIL SRGO - STRAIGHT RUN GAS OIL HN HIGH NAPTHA

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PROCESS FLOW DIAGRAM


LPG
LN

HGU
RN HN

H2

ISOSIVATE

MS

ISOSIV
NORMAL

RN
Net Gas SRK-I

Crude

CDU

SRK-I SRK-II SRGO LPG CK GASOLINE

HDT
ATU SRU

ATF SKO HSD SULPHUR

INDMAX

TCO

CGO RCO

LDO

DCU

CFO RFO

CLO

RCO

IFO RPC

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INDIAN OIL CORPORATION LTD. GUWAHATI REFINERY


ORGANIZATIONAL STRUCTURE
ED

DGM (HR)

GM (TECH)

CORPO. COMMUN.

POWER & UTILITY

ENGG. SERVICES

MGT. SERV/TRG.

TECH. SERVICES

INFORM. SERV.

FIRE & SAFETY

MAINTENANCE

PRODUCTION

INSTRUMENT

VIGILANCE INT.AUDIT

Resource ED: GM (T):


`

Executive Director; General Manager (Technical) Deputy General Manager (Human)

DGM (HR):

N.B.:

A Chief Manager or a Senior Manager heads each function

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INSPECTION

MATERIAL

PROJECT

MEDICAL

FINANCE

HR

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

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ED GM DGM CFM SFM FM DFM SACO ACO

EXECUTIVE DIRECTOR
GENERAL MANAGER DEPUTY GENERAL MANAGER CHIEF FINANCE MANAGER SENIOR FINANCE MANAGER FINANCE MANAGER DEPUTY FINANCE MANAGER

SENIOR ACCOUNTS OFFICER


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
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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.
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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

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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
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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
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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.

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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.

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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
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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
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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
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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.
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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

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PAY BACK

Simplest

method

to Ignores

subsequent

use and calculate IRR

cash outflows

Ranks projects by rate Projects can have more 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.

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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 c) Terminal Cash Flows b) Operating 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
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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
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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
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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.
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(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. act. Terminal cash flow to be taken in 16th year. Capital gains shall be taken as terminal value minus written down value as per income tax

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:

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(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.

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(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 However, the income, expenses and net revenues may be stated in constant prices or values based on todays investment price levels. 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)
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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.
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(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.
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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.

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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.

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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. 01 02 03 04 05 06 07 Tank No. 9 10 11 26 27 83 84 Service MS MS MS MS MS MS-ISOSIVATE MS-ISOSIVATE Capacity; KL 5000 5000 5000 5000 5000 2000 2000 Type FLOATING FLOATING FLOATING FLOATING CUM FIXED FLOATING CUM FIXED FLOATING FLOATING

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08 09 10 11 12 13 14 15 16 17 18 19 20

00B2 00B3 00B6 00B7 13 94 70 78 79 12 14 16 21

MS-XP MS-XP MS-MULTISERVICE MS-MULTISERVICE SKO SKO ATF ATF ATF HSD HSD HSD HSD

200 200 500 500 5000 5000 2000 2000 2000 5000 5000 2000 5000

FIXED FIXED FLOATING FLOATING FIXED FLOATING FIXED FIXED FIXED FIXED FIXED FIXED FIXED

21 22 23 24 25 26 27

22 23 28 29 93 00B5 00B4

HSD HSD HSD HSD HSD HSD HSD

5000 5000 5000 5000 5000 800 800

FIXED FIXED FLOATING FLOATING FLOATING FIXED 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
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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 - % of escalation amount - % of custom duty/other duties : : :

Rs. 151.60 Lakhs

200809 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.

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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. 01 02 03 04 05 AOR 2003-04 2004-05 2005-06 2006-07 Average Crude Processed; MT 890655 1002271 863911 839074 898978 Loss; MT 4269 5250 5083 4364 4742 Loss on % of Crude 0.48 0.52 0.58 0.52 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.
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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:
ALTERNATIVE OPTION CONSIDERED, IF ANY: N/A CONSEQUENCE (ON PRODUCTION/ PROFIT/ EFFICIENCY ETC.,) IN CASE THE PROPOSAL IS NOT ACCEPTED :
i) ii) iii) iv)

a)

b)

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.
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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 : Rs. 17.54 Lakhs (Without CDM) Rs. 18.39 Lakhs (With CDM)

b)

PAY BACK PERIOD

: 8.6 Year (Without CDM) 8.2 Year (With CDM)


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c)

AS PER PRICING NORMS CIF BASIS 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 2008
2009

Rs. (Lakhs) 0
151.6

8. CLASS OF PROPOSAL:
PRIORITY MARKS

STATUTORY REQUIREMENT SAFETY ITEM

[ [

] ]

20 20

ECONOMIC GROUNDS

18

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OPERATIONAL NECESSITY WELFARE / SOCIAL BENEFIT

[ [

] ]

16 14

REPLACEMENT / ADDITIONAL OF ASSETS

12

9. LEVEL OF DESIRABILITY:
WEIGHTAGE ESSENTIAL [ ] 5

HIGHLY DESIRABLE
DESIRABLE

[
[

]
]

3
1.5

PRIORITY RANKING:

PRIORITY MARKS DEPT. UNIT HEAD UNIT ED HEAD OFFICE [ 18 ] [ 18 ] [ ]

WEIGHTAGE MARKS [3 ] [3 ] [ ]

TOTAL

[ 54 ] [ 54 ] [ ]

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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 ANNEXURE II ANNEXURE- III ANNEXURE-I TOTAL COST ESTIMATION TOTAL COST ESTIMATION BENEFIT ANALYSIS COMPLETION SCHEDULE

DESCRIPTION

Value

Unit

Equipment & Machinery Erection Charges Civil Works

66.9 47.1 23.8

Rs Lakhs Rs Lakhs Rs Lakhs Rs Lakhs Rs Lakhs Rs Lakhs

137.8
Add: 10% Contingency 13.8

Total Expenditure

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151.6

Benefit Analysis

Benefit calculation for Roof conversion of Tank-13 Annexure II


Sl.No 1 2 3 4 Parameter Total loss from T-13 with fixed roof Total loss from T-13 with Floating roof Saving by conversion of roof from Fixed to Floating for T-13 Average SKO price Value 66.0 6.1 59.9 29281 Unit MT/Yr MT/Yr MT/Yr Rs/Mt As per Avg Priceof AOR 2005-06, 200607&2007-08 Remarks As per Annexure-III As per Annexure-III

5 6

Monetary saving by conversion of roof from fixed to floating for T-13 Total annual monetary saving

1753881 1753881

Rs/Yr Rs/Yr 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 59.9 0.84 Units MT/annum MT/m3

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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 51.88 190 190 8.00 56.18 0.85 MT/annum MT of CO2 CER Euro/CER Rs/Euro Rs/Lakhs/annum

Parameters Projected monetary saving in a year CDM benefit based on E&Y Projection Total Investment cost for Roof Conversion System Annual Operating Cost for Floating Roof

Value 17.54 0.85 151.58 0.00

Units SRFT/annum Rs. Lakhs/annum Rs. Lakhs/annum Rs. Lakhs/annum

IRR Calculation

Case-I Without consider ing CDM benefit

Case-II With CDM benefit

Units

Projected Annual Benefit (Benefit due to Loss reduction) Total investment cost for Roof conversion of Tank-13 & 14
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17.54 151.58

18.39 151.58

Rs.Lakhs/annum Rs.Lakhs

Annual maintenance /operating cost Pay back period Cash outflow in 2009 (100% of investment cost) Cash inflow in 2009 (considering 0% benefit in1st year) Cash inflow in 2010 (considering 75% benefit in 2nd year) Cash inflow in 2011 Cash inflow in 2012 Cash inflow in 2013 Cash inflow in 2014 Cash inflow in 2015 Cash inflow in 2016 Cash inflow in 2017 Cash inflow in 2018 Cash inflow in 2019 Cash inflow in 2020 Cash inflow in 2021 Cash inflow in 2022 Cash inflow in 2023 Internal rate of return (without considering financial cost)

0.00 8.6 -151.58 0.00 13.15 17.54 17.54 17.54 17.54 17.54 17.54 17.54 17.54 17.54 17.54 17.54 17.54 17.54 5.8%

0.00 8.2 -151.58 0.00 13.80 18.39 18.39 18.39 18.39 18.39 18.39 18.39 18.39 18.39 18.39 18.39 18.39 18.39 6.5%

Rs.Lakhs/annum Years Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs Rs.Lakhs %

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
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