PROJECT REPORT ON“OIL ACCOUNTING EXCISE & CUSTOMS ”

AT

Mathura Refinery(A Unit of IOCL)

In the partial fulfillment for the award of degree ofMaster of Business Administration (2006-08)

Submitted To: Submitted By:Mr. Vinay Kandpal Dhruvesh SaraswatFaculty of Management MBA (Finance)IMS, Dehradun ID-MB06104

Institute of Management Studies, Dehradun (Affiliated to Uttarakhand Technical University)

DECLARATION

I, hereby declare that the project report submitted by me on ‘OIL ACCOUNTS

EXCISE & CUSTOMS’ is absolutely original and consists of true facts.

Dhruvesh Saraswat

MBA (IInd Sem)

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ACKNOWLEDGEMENT

At the onset we must bow down in reverence to the Almighty who blessed us with the understanding and perseverance that is needed in this kind of project.

I would like to thanks Mr. Vijay Mohan, Chief Manager (MS& TRG) IOCL (Mathura Refinery) for giving us the opportunity to work with them and providing me with necessary resources for our project.

I take this opportunity to extend my sincere thanks to Mr. L.P Bhattrai (Finance Manager) and my project guide in the company. Mr. Anshul Bansal (Accounts Officer), and Mr. Anivesh Prasad (Accounts Officer) Mathura Refinery without whose co-operation, carrying out this project would have been impossible.

I would also like to thanks the whole Finance Department & Internal Audit Department, IOCL Mathura Refinery for making me familiar with the intricacies of project development and ensuring that work is in a systematic way.

Also, I would like to extend our gratitude to Mr. Pradeep Suri (HOD, Management) and Mr. Vinay Kandpal (Faculty of Management) for giving us an opportunity to have a practical experience of job.

A warm thanks to all our Colleague Trainees for their cooperation and support throughout the development process of this project.

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CONTENTS OF THE PROJECT REPORT

INTRODUCTION OF RESOURCES.

INTRODUCTION OF IOCL.

PROFILE OF MATHURA IOCL.

OIL ACCOUNTING.

EXCISE AND CUSTOM DUTY.

GROSS REFINERY MARGIN. (G.R.M.).

SUGGESTION TO INCREASE (G.R.M.).

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INTRODUCTION

From the very starting of human development, energy has been primary need of human

being. As the human developed a lot of energy started consuming into various forms,

transportation, burning, industry, domestic use etc. It led to the development of many of

the sources for the fulfillment of its energy needs. But a discovery inform of crude oil in

18th century changed the complete outlook of energy sector.

Crude oil, which is a mixture of various hydrocarbons, sulfur, traces of metals etc.

This crude oil led to development of debatably most crucial industry in 21stcentury in

form of oil and gas industry.

Oil and gas, which caters to the more than half of the world energy needs, can be broadly

classified into two parts-

1. Upstream

2. Downstream.

While upstream deals with the exploration and production of oil and gas, downstream

involves refining of crude oil in various products, their marketing and petrochemical

operations

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The major players in upstream part of oil and gas industry in India are-

OIL (Oil India limited) and

ONGC (Oil and natural gas Corporation).

The major players in downstream sector are –

IOCL (Indian oil corporation limited),

HPCL (Hindustan petroleum corporation limited),

BPCL (Bharat petroleum corporation limited),

RIL (Reliance industries limited),

ESSAR OIL etc…

Among these only last two are private companies others are public sector units.

Oil industry is perhaps the most exiting industry in the history of civilization. Although

the history of oil traces back to seepages of oil as early as 3000 B.C., the real thrill of it

started with the oil boom in the USA. Oil business has been responsible for prosperity,

war intrigues and adventure. Search of oil and gas leads us to some of the most exotic

forests, deserts, and ocean. Perhaps some of the most beautiful man made sights in the

world are offshore platform in Deep Ocean, array of offshore rigs in remote desert or

jungle or an illuminated petrochemical complex at night.

Let us understand the importance of oil and gas industry by looking at its share in the

energy supply to the world is provided by oil and gas. More than 60% of the energy

needed in the world is provided by oil and gas.

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To understand oil and gas business, one needs to understand a whole spectrum of

activities from oil well to petrochemicals. It’s also important to understand the trend and

future of the industry in terms of technology, economics and pricing of energy resources.

Energy price is very important for the economy of any country. Oil prices have been

controlled from time to time to a high level by the petroleum is that now natural gas is

overtaking oil. During the year 2000, the increase in the energy consumption of the world

was 180 million tons of oil. Out this, share of oil was 20%, share of gas was 55% and

that of coal was 15%. It is expected that gas will replace oil as dominant energy provider

in near future. Its cleaner, cheaper and new discoveries and reserves of gas field are

coming up in many parts of the including India.

Very often the question comes up how long the hydrocarbon resources

(Oil and gas) will last. Many predict oil and gas will start depleting in another 20 to 30

years. It’s a fact that although the oil and gas industry will continue to dominate for

several decades from now, at some point of time other forms of energy will take over. So

its just the oil industry but its energy industry.

The first step is to understand what is oil? And what is gas? How it

originated and what we get out of it.

What is petroleum?

Petroleum is a word derived from the Latin words Petra (rock) and Oleum (oil). It

essential comprises of naturally occurring hydrocarbons i.e. compounds made of carbon

and hydrogen atoms. These hydrocarbons are trapped below of oil and gas.

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From where did the hydrocarbons come? There are various theories. The most accepted

theory is the organic theory:

It is now largely believed that generation of petroleum is an organic process.

Hydrocarbons came from remains of the bodies of prehistoric land based animals,

marine organisms (plankton) and vegetation, which were washed away and buried

below the earth during upheavals on the earth’s surface millions of years ago. It is

formed by decay of large masses in shallow swamps in deeper stagnant water

where no oxygen exists. (Anaerobic condition).

Under this condition, decay reduces organic matters into waxy residuum, which is

called “adipocere” rich in fatty acid. These are then attacked by bactreria, which

release the hydrocarbons. The organic matter is chiefly in the form of a

mineraloid called kerogen.

The hydrocarbons got trapped in the porous the rocks and were covered by hard

sedimentary rocks that formed over it. They acted as “cap” or seal to prevent

hydrocarbonds from escaping.

Crude Oil and Natural Gas

The first processing step in an oilfield is separation between crude oil, natural gas and

produced water.

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What is crude oil?

Crude oil is a mixture of about 500 organic chemicals, predominantly hydrocarbons

(molecules made of carbon and hydrogen). Its recovered from underground reservoirs,

normally 1000-5000 meters down the earth.

Crude oil can be of wide variety and characteristics. It could be very fluid, very viscous

or semisolid. The color could be black, dark brown, amber or light brown.

What is Natural Gas?

Natural gas is a mixture of the lightest hydrocarbons like methane, ethane, propane and

butane. It also contains water to its saturation limit.

When natural gas comes out of the well along with crude oil, it is called associated gas.

When the well produces mainly gas with very little liquids, it is called free gas.

Various Forms of Natural Gas

There often exists a lack of understanding regarding the various terminologies or

nomenclature used in the industry in describing components or forms of natural gas. The

most commonly used ones are NGL, LPG, LNG, and CNG.

Composition of Crude Oil

Crude oil is predominantly made of hydrocarbons.

It’s composed of three main hydrocarbon groups:

Paraffins

Naphthenes

Aromatics

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Commonly Used measurement Units in Petroleum Industry

Units weight or volume Conversion Factor

1 Metric Ton (Tonne) =7.33 Barrels

=1.165 Cubic Meters

1 Barrel (Bbl) =0.136 tonnes

=0.159 Cubic metres

1 Cubic Meter (CuM) =1 Kilo Liter (KL)

=0.858 Tonnes

=6.289 Barrels

1 Million Tonne of Crude = 1.111 Billion CuM of Natural Gas

= 39.2 Billion Cubic Feet Natural Gas

= 0.805 Million Tonnes LNG

1 Billion CuM of natural Gas = 0.90 Million Tonnes Crude Oil

= 0.73 Million Tonnes LNG

1 million Tonnes of LNG =1.38 Billion CuM of natural gas

=1.23 Million Tonnes Crude Oil

1 Million Tons Per Year of crude =20000 Barrels per standard day of crude

INDIAN OIL CORPORATION LIMITED

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INDIAN OIL CORPORATION LIMITED - PROFILE

Indian Oil Corporation Ltd. (IndianOil) was formed in 1964 through the Merger of Indian Oil Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958).

It is currently India’s Largest Company by Sales with a TurnOver of Rs. 2,20,779 Crore up by 20.53% as compared to Rs. 1,83,172 crore in 2005-2006 and Profits of Rs.7500 Crore as per the current financial results for the year 2006-2007.

Indian Oil is also the highest ranked Indian company in the prestigious Fortune ‘Global 500’ listing, having moved up 17 places to the 153rd position the year based on fiscal 2005 performance. It is also the 18TH largest petroleum company in the world and the # 1 petroleum Trading Company among the 15TH National Oil Companies in the Asia-Pacific region.

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India’s Downstream Major

Indian Oil and its subsidiaries account for 47% petroleum products market share among public sector oil companies, 43.5% national refining capacity and 74% petroleum products pipeline capacity. For the year 2005-06, the Indian Oil group sold 54.6 million tonnes of petroleum products, including 2.09 million tonnes through exports. The Indian Oil Group of companies owns and operates 10 of India’s 18 refineries with a combined refining capacity of 60.20 million tonnes per annum (1.2 million barrels per day). These include two refineries of subsidiary Chennai Petroleum Corporation Ltd. (CPCL) and one of Bongaigaon Refinery and Petrochemicals Limited (BRPL).The Company’s cross-country crude oil and product pipelines network spanning over 9,000 km meets the vital energy needs of the country. To maintain its competitive edge and leadership status, Indian Oil is investing Rs. 24,400 crore (US $ 5.5 billion) during the X Plan period (2002-07) in integration and diversification projects, besides refining and pipeline

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capacity augmentation, product quality up gradation and expansion of marketing infrastructure.

Network beyond Compare

As the flagship national oil company in the downstream sector, Indian Oil, together with its marketing subsidiary, IBP Co. Ltd., reaches precious petroleum products to millions of people everyday through a countrywide network of over 30,000 sales points. They are backed for supplies by 183 bulk storage terminals and depots, 97 aviation fuel stations and 88 Indane LPG bottling plants.

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Indian Oil, together with IBP, operates the largest and the widest network of petrol & diesel stations in the country, numbering over 15,000. It reaches Indane cooking gas to the doorsteps of 43.4 million customers in 2,546 markets through a network of 4,856 Indane distributors.

Indian Oil’s ISO-9002 certified Aviation Service commands a 64% market share in aviation fuel business, meeting the fuel

Needs of domestic and international flag carriers, private airlines and the Indian Defence Services. Indian Oil also enjoys a dominant share of the bulk consumer business, encoding that of railways, state transport undertakings, industrial, agricultural and marine sectors.

Indian Oil’s world class R&D Centre at Faridabad, Haryana is perhaps Asia’s finest. Besides pioneering work in lubricants formulation, refinery processes, pipeline transportation and alternative fuels such as bio-diesel, the Centre is also the nodal agency of the Indian hydrocarbon sector for ushering in Hydrogen fuel in the country.

Customer First

At Indian Oil, customers always get the first priority. New initiatives are launched round- the-year for the convenience of the various customer segments. Exclusive XTRACARE petrol & diesel stations unveiled in select urban and semi-urban markets

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offer a range of value-added services to enhance customer delight and loyalty. Similarly, large format Swagat brand outlets cater to highway motorists, with multiple facilities such as food courts, first aid, rest rooms and dormitories, spare parts shops, etc. Specially formatted Kisan Seva Kendra outlets meet the diverse needs of rural populace, offering a variety of products and services such as seeds, fertilisers, pesticides, farm equipment, medicines, spare parts for trucks and tractors, tractor engine oils and pumpset oils, besides auto fuels and kerosene

Financial Highlights of IOCL:-

First Indian Company to cross Turnover of Rs. 2,00,000 Crore.

Highest ever profit of Rs. 7499 Crore

Profit includes Rs. 3225 Crore from sale of ONGC/GAIL Shares

Completion of projects over Rs. 9000 Crore

Government of India Oil Bonds of Face Value of Rs. 6503 Crore (include of IBP

Rs. 519 Crore) were disposed off during the year

Financial of IBP has been merged with IOCL during the year

Holding of erstwhile IBP Co. Ltd is to be vested in the Trust and diminution in

value of Rs. 1319 Crore has been provided

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SALES

MMPT

IOCL INDUSTRY (PSU+Pvt.)

05-06 06-07 Var.(%) 05-06 06-07 Var.(%)

LPG 4.792 5.121 6.87 10.023 10.534 5.10

MS 2.986 3.994 33.76 8.646 9.295 7.51

HSD 17.394 22.624 30.07 40.093 42.866 6.92

SKO 5.615 6.105 8.73 9.372 9.381 0.10

Naphtha 2.363 2.288 (3.17) 10.831 10.222 (5.62)

LNG 1.297 1.482 14.26 4.885 6.456 32.16

FO/LSHS 7.184 6.631 (7.70) 12.252 11.794 (3.74)

ATF 2.118 2.534 19.64 3.298 4.008 21.53

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Bitumen 2.176 2.305 5.93 3.485 3.834 10.01

Others 1.589 1.761 10.82 8.964 10.041 12.01

Total 47.514 54.845 15.43 111.849 118.431 5.88

CORPORATE HISTORY OF IOCL

The Path of Growth

1958

Indian Refineries Ltd. was formed with Mr. Feroze Gandhi as Chairman.

1959

Indian Oil Company Ltd. was established on 30th June 1959 with Mr S. Nijalingappa

as the first Chairman.

1960

Agreement for supply of SKO and HSD was signed with the then USSR. M.V:

"Uzhgorod" carrying the first parcel of 11,390 tones of HSD docked at Pir Pau Jetty in

Mumbai on 17th August 1960.

1962

Guwahati Refinery was inaugurated by Pt. Jawaharlal Nehru.

Construction of Barauni Refinery commenced.

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1963

Foundation was laid for Gujarat Refinery

Indian Oil Blending Ltd. (a 50:50 Joint Venture between IndianOil and Mobil) was

formed.

1964

Indian Oil Corporation Ltd. was born on 1st September, 1964 with the merger of Indian

Refineries Ltd. with Indian Oil Company Ltd.

Barauni Refinery was commissioned.

The first petroleum product pipeline from Guwahati to Siliguri (GSPL) was

commissioned.

1965

Gujarat Refinery was inaugurated by Dr. S.Radhakrishnan, the then President of India.

Barauni-Kanpur Pipeline (BKPL) and Koyali- Ahmedabad product Pipeline (KAPL)

commissioned.

Indian Oil People maintained the vital supply of Petroleum products to Defense in 1965

War.

1966

The first long-term agreement was signed for harmonious employee relations.

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1967

Haldia Baraurii Pipeline (HBPL) was commissioned.

Bitumen and Marine Bunker business began.

1968

Techno-economic studies for Haldia-Calcutta, Bombay-Pune and Bombay-Manmad

Pipelines submitted to the Government.

1969

IndianOil undertook the marketing of Madras Refinery products.

1970

IndianOil acquired 60% majority shares of IBP.

The same was offloaded in favour of the President of India under a Directive in 1972.

1971

Dealership/reservation was extended to war widows, disabled Defence personnel,

Freedom Fighters, etc. after 1971 War.

1972

R&D Centre was established at Faridabad.

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SERVO, the first indigenous lubricant was launched.

1973

Foundation-stone of Mathura Refinery was laid by Mrs Indira Gandhi, the then Prime

Minister of India.

1974

Indian Oil Blending Ltd. (IOBL) became the wholly owned subsidiary of IndianOil.

Marketing Division attained a new watershed with a market participation of 64.2%.

1975

Haldia Refinery was commissioned.

Multipurpose Distribution Centers were introduced at 132 Retail Outlets pioneering

rural convenience.

1976

Private petroleum companies nationalised.

Burmah Shell became BPC.

1977

R&D Centre launched Nutan wick stove.

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1978

Phase-wise commissioning of Salaya-Mathura Crude Oil Pipeline (SMPL) began.

1979

Barauni Refinery and Bongaigaon Refinery and Petrochemicals Ltd. (BRPL) affected

by Assam agitation.

1980

The second Oil Shock was witnessed as a result of Iranian Revolution. Crude Oil price

flared to a new high of $32 per barrel.

1981

Digboi Refmery and Assam Oil Company's (AOC) marketing operations were vested

in IndianOil. It became Assam Oil Division (AOD) of IndianOil.

1982

Mathura Refinery was commissioned.

Mathura-Jalandhar Pipeline (MJPL) was commissioned.

1983

Massive augmentation of LPG storage and distribution facilities were undertaken.

Proposal for the 6 MMTPA Refinery at Karnal was submitted at an estimated cost of

Rs l,181 Crore.

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IOCL STRUCTURE

Indian Oil carries its activities through its five divisions namely:

1) Refinery Division

2) Pipe Line Division

3) Marketing Division

4) Assam Oil Division

5) Research and Development Division

REFINERIES

Refineries Year of commencementGuwahati 1962

Barauni 1964

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Gujarat 1965

Haldia 1975

Mathura 1982

Panipat 1999

Besides the above refineries, namely Digboi refinery is in AOD with installed

capacity of .5 million tones. One more proposed refinery Paradeep refinery is also

under construction with the capacity of 6.0 million.

SUBSIDARIES

Indian Oil Blending Limited

Indian Oil Mauritius Limited

Lanka IOC(P.) Limited

Chennai Petroleum Corporation Limited

Bongagian Refinery and Petro Chemicals Limited

IBP Co. Limited

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IOCL BRANDS

SERVO

With over 42% market share and 450 grades,

the SERVO range of lubricants is used in

Almost every application covering automotive,

industrial and marine sectors.

INDANE LPG GAS

Indian Oil Indane LPG gas is used in 40 Million homes as cooking fuel and

commands over 48% market share in India.

INDIAN OIL AVIATION SERVICE

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Indian Oil Aviation Services has a market share of 65% with a network of 95

Aviation Fuel Stations (AFS) Meets complete Aviation Fuel requirements of the

Defence services.

AUTO GAS

Autogas (LPG) has been introduced in Hyderabad, Bangalore and Mumbai markets.

PREMIUM FUELS

XtraPremium is, in fact, the only

petrol in India with 91 Octane

and doped with Multifunctional Additives.

XtraMile, Indian Oil's new generation High Speed Diesel with world-class additives

has taken a leadership position in the market.

XTRA POWER

IndianOil's XtraPower Fleet Card Program is a complete fleet management solution for

Fleet Owners / Operators and Corporates which facilitates cashless purchase of fuel &

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lubes from designated retail outlets of IndianOil through flexible prepaid and credit

facilities.

‘Swagat’ HIGHWAY FLAGSHIP RETAIL OUTLETS

There are 111 such ‘Swagat’ Flagship ROs planned across the country of which 45

‘Swagat’ Flagships have already been commissioned with a complement of fuel and non-

fuel. Non-fueling offering through ‘Best-in-class’ alliance on exclusive basis wherever

possible (communication, food/rest, healthcare, parking, vehicle care.)

XTRA CARE

The launch of XtraCare was the culmination of a series of plans in retail design, product

and service upgradation, capability training, automation, loyalty programme, retail site

management techniques all benchmarked to global standards. While the industry standard

is to take samples on a quarterly basis, IndianOil has moved several steps ahead by

introducing fortnightly random sampling with specific importance given to RON

(Research Octane Number) sampling which is truly the definitive test for quality and

quantity. So far over 400 XtraCare ROs have been set up; around 1500 XtraCare ROs

will be ready by end 2006.

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VISION

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“A Major, Diversified, Transnational, Integrated Energy Company, with National leadership and a Strong Environment Conscience, playing a National Role in Oil Security & Public Distribution.”

MISSION

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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 maximize creation of wealth, value and satisfaction for the stakeholders.

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.

REFINING

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Indian Oil controls 10 of India's 18 refineries - at Digboi, Guwahati,

Barauni Koyali, Haldia, Mathura, Panipat, Chennai, Narimanam and

Bongaigaon - with a current combined rated capacity of 54.20

million metric tonnes per annum (MMTPA) or one million barrels

per day (bpd).

IndianOil accounts for 42% of India's total refining capacity.

PIPELINES

IndianOil owns and operates India's largest network of cross-

country crude oil and product pipelines of nearly 7,7300 km,

with a combined capacity of 56.85 MMTPA.

IndianOil owns & operates 69% of India's downstream

pipeline throughput capacity.

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MARKETING

IndianOil's countrywide network of over 23,000 retail sales

points is backed for supplies by its extensive, well spread

out marketing infrastructure comprising 165 bulk storage

terminals, installations and depots, 95 aviation fuel stations

and 87 LPG bottling plants. Its subsidiary, IBP Co. Ltd, is a

stand-alone marketing company with a nationwide retail network of over 3000 sales

points.

IndianOil caters to over 56% of India's petroleum consumption.

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MATHURA REFINARY

LOCATION:  It is situated at 150 kms from Delhi on DELHI – AGRA

Highway (NH-2) At Mathura. 

NATURE: It is one of the 6 Refinery of IOCL, a Government of

India undertaking. 

BUSINESS:  Refining of crude oil and supply petroleum products.

CAPACITY: It has capacity of refining of 7.5 Million metric ton of crude

oil but in current year 8.2 million metric ton crude oil refined

in the plant.

ADAPTABILITY: It has capability of reeling of over 30 types of crude oil

imported as well as indigenous

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Introduction to Mathura Refinery:

The Mathura refinery was commissioned in 1982 with an original capacity of 6.0

MMTPA. The capacity was increased to 7.5 MMTPA by debottlenecking and revamping.

With its fluid catalytic cracking units, the refinery mainly produces middle distillates and

supplies them to Northern India though a product pipeline to Jalandhar, Punjab via Delhi.

The company commissioned a two-stage desalter in 1998 for improving the on-stream

availability of the crude distillation unit and a CCRU for production of unleaded Motor

Spirit. A DHDS Unit was commissioned in 1999 for production of HSD with low

Sulphur content of 0.25% wt (max). A hydro-cracker for increasing middle distillates was

also completed in 2000. The present capacity of the refinery is 8 MMTPA.

In order to meet future fuel requirements, facilities for improvement in quality of MS &

HSD are under installation and planned to be completed by 2005.

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ENVIRONMENT

Mathura Refinery becoming the first refinery in Asia and third in the World whose environment management system has been certified for ISO 14001/ Marching ahead on the growth path, refinery is implementing Eco-friendly projects like catalytic reforming unit, hydro cracking unit and diesel hydro-sulphurisation unit. These units will not only help in producing cleaner fuels but that also result on substantial reduction in refinery emulsions to a level of 200 kg/hr. 

In addition to this commitment towards preserving ecological balance and national heritage has always been the top of the agenda for the refinery. Ecological park and mini bird sanctuary frequented by 70 species of birds are a living testimony of harmony of refinery operations with ecology apart from the management techniques adopted for human resources, strategic planning, quality assurance. The major work has been done in the area of ecology preservation particularly for TajMahal.

“Green Refinery Clean Refinery Mathura Refinery”

- Motto of Mathura Refinery

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The Taj Mahal at Agra, one of the Wonders of the World, is a national pride and we in

Indian Oil share the same concern to maintain the white marvel. Emissions from the

Mathura Refinery have been controlled well below the prescribed standards. The Taj

Trapezium Zone follows strict emission standards from vehicular pollution and only low

Sulphur diesel (0.25% Sulphur) and unleaded petrol is supplied here.

Indian Oil regularly extends its efforts to better the environment by planting trees at

various places. More than 1,15,000 trees have been planted around the city of Agra (Taj

Reserve Forest) which holds the Taj Mahal.

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Ecological Parks

The Ecological Parks at IndianOil’s Mathura, Gujarat and Barauni Refineries attract a large number of migrating birds. The effort is already being replicated in other refineries of Indian Oil.

Indian Oil’s R&D Centre is engaged in the formulation of eco-friendly, biodegradable lube formulations. Seven operating refineries and the R&D Centre have been certified under ISO-14001:1996 Environment Management Systems.

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RECOGNITION / AWARDS

ENERGY CONSERVATION:  

National Energy Conservation Award - 1st prize in refinery sector of minister of power for the years 1991 and 1996.

Jawaharlal Nehru Centenary Award of MOP & NG - for achieving best improvement in energy conservation Compared to its past best performance for the year 1994-1995.

MOP & NG Award - for best performance in steam leak during the oil conservation week, 1996.

MOP & NG Award - for the best performance with regard to furnace and boiler instrumentation and control during the oil conservation week, 1993.

National Energy Conservation Award- 2nd prize in refinery sector of ministry of power for the year 1997 .

SAFETY :  

British Safety Council Award for the years 1990,1992,1993 & 1995.

National Safety Award under scheme II & I for the years 1993 & 1994.

QUALITY MANAGEMENT SYSTEM CERTIFICATION:  

ISO 9002 Certification for manufactures and supply of petroleum products.

IS0 9002 Certification for Support Services .

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ENVIRONMENT MANAGEMENT SYSTEM CERTIFICATION

ISO 14001 Certification for Environment.

TOTAL QUALITY CERTIFICATION

Golden peacock national quality award, 1996

Rajeev Gandhi National quality award, 1994,1997 

TRAINING  

Golden Peacock National Training Award for excellence in training, 1997.

.

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Improvement in Specifications

HIGH SPEED DIESEL

High Speed Diesel (HSD) of 0.5% sulphur was introduced in Metros from April 1996.

Low sulphur HSD of 0.25% sulphur was introduced in Taj Trapezium area in September

1996 and in Delhi from 15th August 1997.

Diesel Hydro desulphurisation units (DHDS) at Gujarat, Panipat and Mathura have

already been commissioned for the production of diesel with 0.25% max (by wt.). Diesel

with 0.05% sulphur content is being supplied in NCT, Delhi / NCR from 1st March 2001 /

30th June 2001. In Chennai and Calcutta it has been supplied from 1st July 2001. Further

plans are also on for increasing the Cetane number to 48 from 45.

MOTOR SPIRIT (MS) /PETROL

Low lead MS was introduced all over India w.e.f. December 1996. Prior to that it was

introduced in all metros in June 1994.

UNLEADED MOTOR SPIRIT (MS) /PETROL

Unleaded MS was introduced in all metros and radial routes in April 1995. ULP

(Unleaded Petrol) has been available throughout India from 1st February 2000.

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BENZENE IN MS

MS with 1% v/v benzene content is being supplied in NCT, Delhi / NCR from 1st

November 2000 and 28th February 2001 respectively. MS with 3% v/v benzene content is

being supplied to Kolkata and Chennai from 1st October 2000 and 1st July 2001

respectively.

POLLUTION CONTROL

It is the duty of humanity to preserve the earth for future generations, and to make it safe

for the present generation. Universal concern in this respect is shared by Indian Oil as a

responsible Corporate Citizen.

All refineries have been provided with elaborate facilities to control pollution from

different sources like: liquid effluents, gaseous emissions and hazardous wastes. The

liquid effluents from refineries meet the Minimal National Standards (MINAS) and the

typical compliance status for the treated effluents are enumerated below:

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REFNERIES PIPELINES & MARKETING SET UP

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Record output from Mathura Refinery

Sector, to be certified ISO-14001 for its efficient Environmental Management System.

S.No Name of the Pipeline Year of commissioning Length (km) Capacity

(MMTPA)

Mathura - Jalandhar 1982 763 3.70

Mathura - Tundla 2003 56 1.20

CRUDE OIL PIPELINES

Salaya-Mathura Pipeline (SMPL)

IndianOil operates the 1870 km long Salaya-Mathura Pipeline from Salaya (near

Vadinar) in Jamnagar district on the coast of Gujarat to bring crude oil to Indian Oil's

refineries at Koyali (Gujarat), Mathura (Uttar Pradesh) and Panipat (Haryana). Two

Single Point Mooring (SPM) systems are operated at Vadinar to unload the crude oil

received from tankers including Very Large Crude oil Carriers (VLCCs) with offshore

pipelines. At Vadinar, Indian Oil has a vast crude oil tank farm of 13 tanks with a total

capacity of 0.773 MMT. Indian Oil also has crude oil storage tank farm at Viramgam

with a total capacity of 0.331 MMT. Another storage tank farm at Chaksu has six tanks

with a total capacity of 0.219 MMT.

After traversing 435 km from Vadinar, the Salaya-Mathura Pipeline branches off at

Viramgam in Gujarat through a 148 km pipeline to Koyali (Baroda). Further, after 716

km, the pipeline branches off at Chaksu to Mathura and Panipat.

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Mathura-Jalandhar Pipeline (MJPL):

The Mathura-Jalandhar Pipeline was commissioned in 1984. It was designed by

IndianOil with in-house construction supervision. The 763 km long pipeline transports

petroleum products from Mathura Refinery to Jalandhar in Punjab with delivery enroute

at Bijwasan in Delhi and Ambala in Haryana. During 1997, the pipeline was connected to

Panipat Refinery, enabling transport of petroleum products from Panipat Refinery. The

pipeline has a branch line from Sonepat to Meerut and from Kurukshetra to Najibabad via

Roorkee.

Mathura-Tundla Pipeline (MTPL):

A 55 km long separate pipeline was also laid from Mathura to Tundla to transport

petroleum products from Mathura Refinery.

Crude oil comes from three places at Mathura Refinery:

1. Bombay High - Indigenous crude,

API = 38-40,

Sulphur content is 0.2%.

2. Nigeria - Bonny light crude ( sweet crude),

API = 35.7,

Sulphur content is 0.1%.

3. Middle east - High sulphur crude,

API= 31,

Sulphur content is 2.5%.

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There are three types of crude carriers-

a) ULCC (Ultra Large Crude Carrier) with a capacity of 330-370TMT (thousand

million tones). It comes to places like Kakinada and Jamnagar.

b) VLCC (Very Large Crude Carrier) with a capacity of 230-290 TMT (thousand

million tones). It comes to places like Vadinar,Mundra and Haldia etc… For

VLCC draft level is 25-30 meters.

c) LRII (long Range two) with a capacity of 120-140 TMT(thousand million tones).

It comes to places like Channai and Vizag etc except Coachin and Bombay.

d) LRI (Long Range One) with a capacity of 60-75 TMT (Thousand million tones)

e) MR (Medium Range) its used for petroleum products with a capacity of 25-

40TMT (thousand million tones).

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Manufacturing Process:

The crude oil is processed in different units to obtain different petroleum products. The

main processing units are as under:

1 Atmospheric Distillation Unit

2 Vacuum Distillation Unit

3 Vis Breaker Unit

4 Fluidized Catalytic Cracking Unit

5 Propylene Recovery Unit

6 Catalytic Reforming Unit

7 Diesel Hydro- Desulphurisation Unit

8 Hydrogen Generation Unit

9 Once Through Hydro Cracker Unit

10 Bitumen Blowing Unit

11 Diesel Hydro treater Unit

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OBJECTIVES AND OBLIGATIONS

OBJECTIVES

CLEAN REFINERY AND GREEN REFINERY

To ensure and maintain continuous and smooth supplies of petroleum

products by way of crude refining, transportation and marketing activities and

to provide appropriate assistance to the consumer to conserve and use

petroleum products efficiently.

To earn a reasonable rate of interest on investment.

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 and 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 to minimise foreign exchange outgo.

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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/Government approval.

To avail of all viable opportunities, both national and global, arising out of the

liberalisation policies being pursued by the Government of India.

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.

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OBLIGATIONS

Towards community

To develop techno-economically viable and environment-friendly

products for the benefit of the people.

To encourage progressive indigenous manufacture of products and

materials so as to substitute imports.

To ensure safety in operations and highest standards of environment

protection in its manufacturing plants and townships by taking suitable

and effective measures.

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

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Fair dealings with recognised representatives of employees in pursuance

of healthy trade union practice and sound personnel policies.

Towards Defence Services

To maintain adequate supplies to Defence Services during normal and

emergency situations as per their requirement at different locations.

Towards Shareholders

To ensure adequate return on the capital employed and maintain a

reasonable annual Dividend on its equity capital.

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STRUCTURE

Broadly Mathura Refinery apart from its Headquarter governed by following

departments namely:

Personnel and Administration Department

Training Department

Management Services Department

Vigilance Department

Finance Department

Internal Audit Department

Medical Department

Materials Department

Production Department

Fire and Safety Department

Power and Utilities Department

Maintenance Department

Process Project Department

Technical service Department

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SECTION OF FINANCE DEPARTMENT

MISCELLANEOUS SECTION

While the important functions of the department have been dealt with separately in the

earlier chapters, there are several miscellaneous jobs required to be carried out by the

department. The miscellaneous jobs can be broadly divided into following categories: -

Accounting of cash imprest & advance for company;

Passing of bills of miscellaneous nature;

Miscellaneous recoveries from outsiders;

Inter –sectional coordination.

CASH SECTION

Cash section shall be responsible for:

Receipts of cash, cheques and bank drafts

Payment by cash, cheques, bank drafts.

Handling of bank deposits/ withdrawals, custody of cash and transfer of funds.

Security arrangement for cash handling

Safe custody of valuables & documents

Petty cash Interest

Maintenance of subsidiary cash credit account & special cash

Credit accounts.

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PAYROLL SECTION

Appointments for vacancies are made either by recruitment or by departmental

promotion or by deputation from Govt./other Department. Against leave

vacancies officiating appointments are permitted in certain cases. All

appointments are made in accordance with the rules prescribed Manual.

The matter relating to recruitment, promotion, transfer, suspension, are dealt with

by the personal department In each case office order is issued by the personal

department. After observing the prescribe procedure and given the fixation copies

of these office orders are sent to the finance department for the drawing the pay &

allowance incumbents.

Rules for pay and allowances are prescribed by Head Office from time to time. The

eligibility for special types of allowances such as special allowances, shift allowance

etc. is determined by Personnel Department and the intimations are sent to Finance

Department for employees eligible for such allowances.

With a view to ensure easy identification each employee shall be allotted a Permanent

employee number by the Office where the employee first joins. This number remains

unaltered as long as the employee continues in service in the Corporation. This

number shall not be allotted to any other employee even if he/she leaves the

Corporation. This permanent number is allotted from the block numbers allotted to

various units as under : The annual increments are drawn quarterly on April 1st, July

1st, October 1st and January 1st each year. The eligibility of an employee for annual

increment with reference to a particular quarter of the year is determined as per rules

in the Personnel Manual.

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For all employees, annual increment is drawn automatically as and when it is due

unless there is an intimation from the Personnel Department to the contrary. Under

the present rules, the date of increment once fixed remains unchanged except for

leave without pay in certain cases when increment is shifted to next quarter by the

Office Order from Personnel Department.

Rules for various types of advances are prescribed in the Personnel/ Administration

Manual. Applications for various advances are received by the

Personnel/Administration Department through the department concerned. They

examine the eligibility of each applicant as per rules and sanctions are forwarded to

Finance. Based on the sanctions, payment is made by Finance and the recovery is

effected in installments as per rules.

Payments relating to leave travel concession advance, lump sum payment in lieu of

LTC facility, leave encashment etc., are made on the basis of advice received from

Personnel Department in each case. The eligibility relating to the LTC Block and the

number of tickets as well as leave encashed shall be examined by the Personnel

Department. The amount payable shall be determined by the Finance as per rules.

The authority for dealing with cases relating to termination of services, voluntary

retirement resignation, retirement etc rests with the Personnel Department. Payment

for retrenchment compensation, gratuity, terminal leave. Actual period of work

remaining unpaid etc. shall be made by Finance as per rules on receipt of advice and

No Dues Certificate from the Personnel Deptt. Claims for T.A., medical expenses

including post retirement medical facilities, conveyance reimbursement,

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Meal/Conveyance for additional and extended duties, etc. are settled by Finance in

accordance with the rules and procedure prescribed from time to time in each case.

Various statutory returns such as returns under Factories Act, ESI Act, Provident

Fund Act etc. are submitted by the Personnel Department. Monetary figures wherever

necessary are provided by Finance.

FUNCTIONS

Function of the Section dealing with Establishment can be broadly classified as follows:

Scrutiny and concurrence of proposals from Personnel Department

Payment of Salaries and Allowances

Advances to employees

Deductions from Pay Bills

Other Welfare Schemes including Gratuity

Personal Claims and other payments

Statutory and Statistical requirements

ACCOUNTING OF ASSETS

For all items of fixed assets such as buildings, plant & machinery, furniture &

fixtures etc. asset register shall be maintained by the Finance Department for

complying the various accounting provisions under the Companies Act and the

Income Tax Act.

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Adequate depreciation on the cost of fixed assets shall be charged to the Profit &

Loss Account before ascertaining the profit. The acquisition cost of assets should

include all expenses for bringing the asset into existence. Such cost, therefore,

includes purchase cost, erection cost, supervision cost etc. incurred up to the stage

the asset is ready for commissioning

The Companies Act prescribes the minimum quantum of depreciation which

should be charged to the profits of limited company before such profits are

distributed as dividend, Keeping in view the statutory requirements and the

effective life of the assets, the Board of Directors have prescribed the rates of

depreciation for various categories of assets on straight line method.

The rates of depreciation admissible under the Income Tax Act are based on

written-down value method and are different from the rates adopted by the

Company, for its annual accounts. As such for compliance of the income tax

requirements, details of depreciation at income tax rate are being maintained

separately by Marketing Division, Bombay.

In case any item of asset is discarded, sold or written off, the difference between

the sale price of such asset and the written-down value shall be adjusted in the

books of accounts as loss or gain.

Inter-unit and Inter-divisional transfer of movable assets shall be done through the

stores Department.

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After issue of the asset item the issue voucher as usual shall be sent to Finance,

who on the basis of the identification number available in the issue voucher shall

write the same in their asset ledger for future reference.

Physical verification of all assets shall be undertaken at least~ once in every three

years. The verification team shall start on the basis of the identification

FUNCTIONS

Following are the main functions in respect of accounting of assets:

Capitalization of the cost of acquisition of assets.

Accounting of depreciation

Transfers, disposal and discarding of assets

Maintenance of Asset Ledger

Arrangement for physical verification of assets.

Preparation of schedules for Balance Sheet.

OIL ACCOUNTING

The Oil Movement and Storage Section in the Refinery is responsible for

handling of receipt, storage and dispatch transactions for crude oil and oil

products. The receipt transactions comprise crude oil supplies and finished

products manufactured and/or procured from outside for blending, if any.

Dispatch of finished products is based on the advice from the Marketing Division.

FUNCTIONS

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Accounting of Crude Oil receipts

Accounting of Customs Duty on Crude Oil

Accounting of finished products receipts

Accounting of dispatch of products

Excise procedure and accounting

Material balance and production statistics

PURCHASE FUNCTION

The transactions relating to procurement of materials from the indenting stage to

the payment stage have been divided in various parts whereby each part of the

work is handled by an independent agency till the transaction is completely

closed. This division of work between various agencies operates.

Detailed procedure as prescribed in the Materials Management Manual is to be

followed for all purchases.

The authority to place indent for materials is subject to provisions in the approved

budgets. Indents for materials on capital account are raised against

capital/additional facilities budgets and on revenue account against purchase

budget.

The necessity for purchase of the required materials is to be determined solely by

the indenting department and approved by indent approving authority as provided

in Materials Management Manual. The indents are to be raised for the right

Quantity and at the right time. The indenting departments are answerable for any

stock outs or over-stocking of the materials.

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The Purchases are to be made in accordance with the Tendering Procedure

prescribed in the Materials Management Manual. The objective of the Tendering

Procedure is to ensure that right quality of materials are purchased from

competitive sources and on best available terms and rates, keeping in view the

delivery considerations. lt is also necessary to ensure that no undue advantage

accrues to any particular supplier while finalizing a purchase contract.

After the tenders are invited by the Materials Deptt. the selection of suppliers and

the placement of purchase order is done as per recommendations of the Tender

committee with the concurrence of Finance Deptt.

FUNCTIONS

The Section dealing with the accounting of purchases is responsible for:

Scrutiny and concurrence of purchase proposals;

Deposits and advance payments to suppliers:

Passing of bills for supplies received;

Pricing of Goods Receipt Notes;

Accounting of cash purchases made by the Materials Department;

Arrangement for insurance of transit risk;

Maintenance of books of accounts;

Sales Tax matters.

STORES SECTION

The Section dealing with accounting of stores in the Finance Department shall have

following functions:

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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.

AUDIT SECTION

TYPES OF AUDIT

There are five different types of audit in the Organization viz:

Statutory Audit;

Government Audit;

Internal Audit;

Technical Audit;

Tax Audit.

STATUTORY AUDIT

The Statutory Auditors/Branch Auditors (Chartered Accountants) are appointed by the

Company Law Board in consultation with the Comptroller and Auditor General of India

u/s 619(2) of the Companies Act, 1956 for conducting the audit in accordance with the

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provisions of the Companies Act. The DFM, In charge of the Main Accounts Section

shall coordinate the Audit work and supply of relevant information,/records/ documents

as required by the auditors. With a view to finalize the annual accounts well within the

prescribed time, it is necessary that all such information, documents are provided

expeditiously by the concerned Sections/Departments to the Auditors.

GOVERNMENT AUDIT

Normally the Government audit conducts audit of the following three types:—

Routine/Phase Audit;

Periodical review;

Balance Sheet audit under Section 619(4) of the Companies Act.

INTERNAL AUDIT

The Internal Audit is functioning under the Director (Finance) through the GM(Internal

Audit) at the Chairman's Office. The functions, duties, responsibilities and powers of

Internal Audit Department have been detailed separately in the Internal Audit Manual.

Internal Audit shall examine independently the final accounts and attached Schedules to

the Balance Sheet and Profit & Loss Account concurrently with finalization of annual

accounts. Any point of observation shade by the Internal Audit, which the Head of

Finance Department considers acceptable for modification of the accounts, may be

accepted and changes be made in Accounts. However, comments by Internal Audit

should be offered well before the finalization of the accounts at the Unit level.

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TECHNICAL AUDIT

The Technical Audit Cell has been organized in each of the Units as well as at Head

Office. This cell functions directly under the Head of Technical Services Department at

Unit level and under the GM/DGM at Head Office.

TAX AUDIT

Under Section 44 AB of the Income Tax Act, 1961, it is obligatory for every person

carrying on business, if his total sales, turn over or gross receipts, as the case may be,

exceed Rs. 40 lakhs in a year to get certain information/data relevant to Income Tax

assessment audited before the specified date by the Tax Auditors (Clattered Accountants)

and obtain report of the audit in prescribed form

TENDERING

For selecting suitable party for execution of a job or purchase of materials, a detailed

tendering system is provided . Tenders can be invited for various types of jobs as

detailed below:

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Piecework tenders.

Composite item rate tenders covering supply of materials and erection.

Erection comprising labor rates only.

Lump-sum tenders / turn key contracts.

Fabrication, supply and erection of plants and equipments.

Rate contracts for supply of materials.

Materials handling and transportation contracts.

Canteen services.

Transport contract etc.

TYPES OF TENDERS

SINGLE TENDER

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In case of exigencies or where items are proprietary nature or where only single known

party is available,tender/quotation can be obtained from one party who is capable of

executing the job. The offer should be reasonable.

LIMITED TENDER

Limited tender is a tender where only few known parties are invited to send quotations

This may be done in the following cases after obtaining approval of competent authority.

For jobs involving specialized know - how and patented process, where only few

dealers/contractors exist.

Where the work is of urgent nature and sufficient time is not available for inviting

press tender.

Where it is not in public interest to call for press tender.

0PEN TENDER / PRESS TENDER

Beyond a certain limit tenders are issued to all registered contractors and state vide

publicity through advertisement in local and one English newspaper is done.

I. TWO PART TENDER

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Where detailed engineering and design work have to be done by the contractors,tender

for work should be invited in two separate sealed covers, one for technical specification

and other for commercial bid.

GENERAL CONDITIONS OF CONTRACT

A copy of general conditions of contracts should be attach to the tender documents.

IOC has the standardized general conditions of contract, covering various conditions

regulating the procedure for execution of the contract.

TENDER OPENING

All tender papers received upto the date and time of opening tenders shall be dropped in

the tender box and the same shall be sealed thereafter. Any tender received after the time

and date of receipt, shall be marked late/delayed. Delayed tender is one, which is posted

on a date prior to the opening of the tender as may be evident from the postal mark .

Late tender is one , which as posted on or after the date of opening off the tender.

Tenders shall be opened by officer inviting tenders in the presence of Finance

representative and tendernes , if any. All tenders shall be serially numbered. All

corrections and cutting shall be initiated and circled. The total number of corrections

should be noted on the page. In case there is no correction, the word ‘No correction’

shall be written on the page.

EVALUATION AND ACCEPTANCE OF TENDER

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COMPARATIVE STATEMENT

After opening of tenders , a comparative statement shall be prepared by Engineering

Department/Materials Department in the prescribed form. All financial aspects should be

include 19th statement . If any rebate is offered, the same shall be taken care of. All

efforts shall be made to put the offers on a comparable basis. The engineer in-charge

shall evaluate the tender and give his recommendations for award of work. The papers

along with the recommendations shall be forwarded to the finance Department for

concurrence.

CONCURRENCE FOR AWARD OF WORK

While scrutinizing the evaluation of tender, the following points shall be

examined:

Quantities and rates have been correctly incorporated from the quotations;

Arithmetical accuracy;

Discounts, rebates, taxes etc. have been incorporated;

Whether prices are firm or subject to escalation clauses;

If there are escalations , the same should be clear and , must be subject to a

ceiling as far as possible;

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1) Other conditions having financial implications have been evaluated, such as

interest on advance if any , etc. . Payment terms should be clearly mentioned in

the comparative statement;

2) The evaluation is made on the basis of cost;

3) Whether comparative statement is signed by the department’s representatives;

4) Recommendations of the Engineering Department should be scrutinized with

reference to technical capability of the party, experience, financial standing etc.;

5) Where earnest money has not been deposited , the tenders shall normally be

rejected;

6) Where the tender is delayed ( Posted on a date prior to the opening of the tender)

may be considered;

7) A ‘late’ tender ( posted on or after the date of closing of the tender) shall not be

considered except in rare cases where it can be established beyond doubt that no

undue advantage is likely to accrue to any party by such consideration

8) Where other than lowest party is recommended , justification reasons for

rejecting the lowest tender should be furnished . Lowest means technically

acceptable lowest;

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9) There should normally be no negotiations with the parties. However, where the

rates quoted are higher than the estimate by more than 10% and negotiations are

considered desirable , either all the tenderness or minimum of three lowest

tenderness shall be called for negotiations. Record note of negotiations should

be placed in the files;

10) Tendering is in accordance with the laid down procedure. Corrections, over-

writings, cuttings etc. should be properly authenticated;

11) Budget provision for capital items exists;

12) Major deviations from our standard term and conditions should be clearly

mentioned;

After the proposal is scrutinized and found acceptable, concurrence shall be recorded

and the proposal is forwarded to the competent authority for approval.

SECURITY DEPOSIT

In order to ensure proper execution of the contract the contractor and also to cover the

defect liability period security deposit amounting to 10% of the contract value should

be provided.

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OIL ACCOUNTING

GENERAL OUTLINE

The Oil Movement and Storage Section in the Refinery is responsible for handling of

receipt, storage and dispatch transactions for crude oil and oil products. The receipt

transactions comprise crude oil supplies and finished products manufactured and/or

procured from outside for blending, if any. Dispatch of finished products is based on the

advice from the Marketing Division.

FUNCTIONS OF OIL ACCOUNTING SECTION

Accounting of Crude Oil receipts

Accounting of Customs Duty on Crude Oil

Accounting of finished products receipts

Accounting of dispatch of products

Excise procedure and accounting

Material balance and production statistics

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ACCOUNTING OF CRUDE OIL RECEIPTS

GENERAL

Indigenous crude is supplied by O.N.G.C. and O.I.L. On-shore crude supplies are

received through pipelines by the inland refineries as per crude intake programme

agreed upon with the supplier. The quantity is determined on the basis of dips of

the receiving tank.

Presently the off-shore indigenous crude supplied by ONGC is determined on the

basis of the dips of receiving tanks at Vadinar. The receipted quantity is escalated

for ocean transit loss as per the procedure advised by OCC/Government.

However, it is being contemplated that the quantity of Bombay High Crude

supplied by ONGC will be determined on the basis of loading at Butcher Island

from an agreed date.

The measurement and accounting of crude oil receipts is done as per mutually

accepted procedures with the suppliers and the payments are made on dry crude

basis.

Imported crude is received by tankers at Haldia and Vadinar. The payments are

made on the basis of bill of lading quantity or derived bill of lading quantity in

respect of part transfer or receipt of crude to/from other oil companies. The

difference between bill of lading/derived bill of lading quantity and the quantity

received in the refinery's/shore tanks is taken as ocean loss. The matter is required

to be taken up with the Shipping Department of Marketing Division/Shipping

Company for excessive ocean loss.

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Off-shore indigenous/imported crude is transported to inland refineries through

pipelines. The difference between the quantity pumped from shore tanks and the

quantity received in refinery tanks on dry crude basis is considered as pipeline

transportation loss.

MEASUREMENT

The quantity of crude oil received is determined by dips of the receiving tanks.

Before receipt of crude oil into the receiving tanks, dips and temperature of the

crude oil in the tanks shall be taken jointly by the representatives of crude

suppliers (for indigenous crude) and customs Department (for imported crude)

and the refinery. After receipt, dips and temperature are again taken after allowing

for the usual settling time.

The dip memos serve as a basic documentary evidence for the crude supplies

received. nip memos contain all necessary details such as tank dip, tank

temperature etc. and are sent to the Oil Accounting Section for volume

calculations.

Samples are drawn during the receipt of crude in receiving tanks either by

continuous dripping method or at frequent intervals (generally every 2 hours) so

as to make a composite sample. The samples are sent to laboratory for

ascertaining density, API and BS & W.

The volume of the crude oil received at 15°C shall be determined on the basis of

dip measurement and temperature recorded in the dip memos using tank

calibration charts and ASTM tables. The volume is converted into metric ton

quantity by taking into account density at 15°C duly corrected for weight/volume

conversion factor. To arrive at the net quantity of crude oil received, proper

deduction should be made on account of BS & W on the basis of laboratory test

reports.

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REPORTS AND STATEMENTS

Out-turn statement [Annexure XII(l)l shall be prepared for crude receipts on the

basis of dip memos and the volume calculations shall be checked and compared.

The out-turn statements shall be signed jointly by the Refinery and the suppliers'

representative for on shore crude and with representatives of pipelines for off

shore/Imported crude.

Fortnightly summary of out-turn statements shall be prepared. Where more than

one type of the crude is processed, separate reports shall be prepared for each type

of crude. These reports shall be forwarded to Production Accounts Section for

verifying the bills of the crude supplies and arranging payments through Head

Office.

Crude Oil Tank Operation Report [Annexure XII(2)] is prepared for operation of

the tank for receipt, Dewatering/Dormant variation or feed to unit on the basis of

dip merinos. This report is prepared for each tank. Similar report is to be prepared

for receipt of crude oil at Vadinar/Haldia for each tanker. In case of receipt of

crude at Vadinar, the line fill in sub-marine pipeline is assumed to be full of

crude. The displacement of water, if any, is observed only when the crude is

pumped from subsequent voyage. The inter-linking of the voyages becomes

inevitable in such cases to ascertain the net crude received against a particular

voyage.

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The Section shall prepare a daily crude reconciliation [Annexure-XII (3)] for 24

hours ending 0,00 hours each day. The reconciliation shall show the opening

stock, the crude receipts as reported in the receipt out-turns/crude tank operation

report, the crude processed and storage losses/gains, if any and closing stock.

ACCOUNTING OF CUSTOMS DUTY ON CRUDE OIL

In case of indigenous crude/BH Crude, customs duty is not payable. However, in

case of imported crude, customs duty is payable at the rates applicable from time

to time. P.L.A. should be maintained for payment of customs duty for exbond

clearance.

For imported crude, refineries should declare certain tanks as Bonded tanks for

the purpose of receipt and storage of non-duty paid crude oil.

For receipt of imported crude, a Bill of Entry for home consumption is required to

be filed with customs before arrival of the ships on the basis of Bill of Lading

quantity. In case Bill of Lading quantities are not available, anticipated quantities

are indicated. In case of crude received at Vadinar, the Bill of Entry shall be filed

by SMPL, Vadinar.

After completion of the receipt in the tanks and due settling time, crude oil tank

operation report (Annexure-XII(2) is prepared on the basis of dip memos. A copy

of the same is filed with Customs by Haldia/Vadinar.

Ocean loss subject of maximum ceiling of 1% is permissible for the purpose of

customs duty payment.

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In case of despatch of crude from Vadinar to Gujarat/Mathura Refinery, SMPL

Vadinar Office shall file Inter warehousing Bills of Entries (Form-33) for

clearance of quantities of non-duty paid crude.

Although crude received through a particular tanker may be partly dispatched to

Gujarat Refinery, partly to Mathura Refinery, the allocation of full tanker shall be

made to one refinery for proper accounting. The allocation of tankers will be done

by SMPL, Vadinar.

The Ex-bond Bills of Entry shall be filed by the respective refineries for clearance

of crude from bonded tanks.

If the local Customs and Excise officials insist, 'Inter Bill of Entry' can also be

filed by Gujarat/Mathura Refinery for receipt of imported crude in their tanks in

addition to Inter warehousing Bill of Entry filed by Vadinar Office. For

accounting 18 & purposes, Inter Bill of Entry should be linked to Inter

warehousing Bill of Entry on first in first out basis.

Re-warehousing certificates will be obtained by Gujarat/Mathura Refinery related

to each Inter warehousing Bill of Entry from local customs authorities and the

same will be sent to Vadinar for closing Inter warehousing Bill of Entry

The crude oil accounting in Refinery shall also be on first in first out basis for

imported crude processed with reference to Inter warehousing Bill of Entry/Inter

Bill of Entry related to the tankers allocated to a refinery.

Customs duty shall be paid for total quantity as specified in Inter Bill of Entirely

Inter warehousing Bill of Entry filed at Haldia/Vadinar port inclusive of BS & W

and crude loss in pipeline transportation in case of SMPL pipeline.

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In case of Gujarat/Mathura refineries, the ;'INTERFACE" quantity of Bombay

High Crude which gets into the imported crude stock shall be identified for

accounting purpose at the end of each quarter. The interface element shall be

identified by the quarterly reconciliation process and adjusted thereafter.

ACCOUNTING OF RECEIPT OF PRODUCTS

In certain cases, finished products are procured from outside for blending of

consumption requirements. Such supplies may be received under excise bond and

all excise formalities have to be complied with. The section shall maintain a

proper record of all quantity received. The re-warehoused certificate (AR3A)

shall be returned to the supplier promptly- For transit losses, claims shall be

processed with the carriers

DISPATCH OF PRODUCTS

The Marketing Division is responsible for handling the distribution of all Snished

products. Dispatch operations are taken up against loading advice from the

Marketing Division.

Based on the decisions of Supply Plan Meetings, a monthly programme for

dispatches is worked out for various products- Programmes for pipeline

dispatches is made in consultation with the Pipeline Office- Products are made

available by the Refinery according to this programme subject to marginal

adjustments as and when necessary

Indenting of the tank wagons from the Railways is the responsibility of the

Marketing Division. As and when the wagons are placed, the Marketing Division

gives a loading advice to the OM & S Section. The loading advice contains the

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tank wagon numbers, the height in centimeters upto which the product is to be

filled up, the volume at natural temperature for the given height, name of the

product, name of the party and destination On receipt of the loading advice, the

loading operations are taken up by the OM & S Section.

After the loading is completed and the dips and temperature are taken by the

Refinery operators, a representative from the Marketing Division checks all the

dips after which the wagons are sealed. For items like raw petroleum coke,

calcined petroleum coke, LPG etc. quantity determination is done on weight basis.

After the dip or the weight, gate passes are issued for the products to move out.

The gate pass is a basic document for recording the dispatch transactions. All

dispatches should be supported by gate passes. The form of gate pass (Annexure

XII (4) should be devised in such a manner that it serves the purpose of excise

requirements, security requirements, loading statement and also serve as basic

accounting documents. The Section shall receive a copy of the gate pass from the

OM & S Section giving the particulars of product, dips, temperature, volume at

natural temperature. Tank number, density and the volume conversion factors for

each tank wagon/tank lorry.

Separate series of gate pass books may be got printed for each product/tariff item

for smooth accounting of dispatches of various products. Name of the factory,

license number, name of the excisable product, tariff item/sub item number etc.

may also be got pre-printed on the gate passes to avoid manual labour.

It shall be preferable to maintain separate series of gate passes for duty

paid/bonded dispatches

.

76

Gate passes are forwarded to Oil Accounting Section for volume conversion at

15°C and in MT. After such calculations, a daily receipt and dispatches of

products Statement (DRIP)/out-turn statement (Annexure - XII (5)) is prepared

indicating the details of dispatches product wise, particulars of each wagon,

quantities dispatched at 15°C, 29.5°C and MT etc. Under the mechanised system,

this statement is prepared by Data Processing Section. These statements are

checked by the Marketing Division and are signed by the representatives of the

Refinery and the Marketing Division.

Dispatches through pipelines are arranged in accordance with the pre-determined

cycle for pipelines operation. The quantity of pipeline despatches is determined

on tank discharge system. For the excise requirements, separate pipeline out-turn

statements shall be prepared for each tank discharge operation (Annexure - XII

(6) Such out-turn statements shall be verified at the Pipelines Office. The pipeline

out-turn statement will also contain particulars of cycle number and batch number

12.5.10 Wherever the dispatch of products by tank lorries is controlled by

Marketing Division, the products are transferred from mother tank to batch tank

and quantity is determined on the basis of tank discharge system. A separate out-

turn statement (Annexure XII (6a) shall be prepared for each batch tank on the

basis of dip measurements taken jointly by Marketing/Refinery representatives.

Summary of daily dispatches shall be maintained in a dispatch register wherein

particulars shall be posted from DRDP (Annexure XII (5)), pipeline out-turn

statements (Annexure - XII (6)) and batch tank out-turn statements (AnnexureXII

(6A) wherever applicable. The summary figures shall be given for each product in

KL at 15°C, 29.5°C and MT with further break-up of duty paid dispatches,

bonded dispatches, pipeline dispatches, samples etc. Based on the daily dispatch

statements, a monthly summary shall be drawn (Annexure XII (7)) for raising the

77

debit on Marketing Division for dispatch of products. The monthly summary should be

reconciled with the local office of the Mkt Division and a joint reconciliation statement

signed before raising the bills.

EXCISE PROCEDURE AND ACCOUNTING

Procedure

Petroleum products come under the category of Exciseable goods under the

Central Excise and Salt Act, 1944. It is mandatory for the refinery to comply with

all the excise formalities prescribed under the rules.

The refinery is required to obtain license in form L-4 for manufacturing

exciseable goods before start of manufacture. License is required separately for

each tariff item. A classification list Form-l required to be filed with the Excise

and approval obtained

The Central Excise Department has prescribed the following type of procedures

for levy and collections of excise duty keeping in view the needs of different

industrial sectors :

1. Physical control over the manufacturing/processing unit.

2. Self removal procedure.

78

Petroleum products are covered under self removal procedure. Under this scheme, the

assess is free to clear the goods from the factory or receive them into the factory without

the physical supervision or verification by Central Excise authorities. Under this

procedure the manufacturer is required to pay duty voluntarily on the exciseable goods

manufactured by him on their clearance from the factory or in the context of their captive

consumption. Clearances are permitted against advance payment of excise duties.

Where excisable goods are liable to duty ad valorem, the licensee shall file

a price list for such goods to enable their valuation and computation of

duty payable.

Personal Ledger Account as per prescribed form (Annexure XII(8)) shall

be opened with the permission of Central Excise authorities before

delivery of any goods. Clearances are permitted against availability of

sufficient balance of excise duty deposit under the PLA. Consolidated

PLA for all the tariff items can be opened with the prior Permission of

Excise authorities

For storage of non-duty paid finished products, tanks shall be declared as

bonded tanks and got approved by Excise Authorities. These tanks will be

deemed to be warehouse licensed under the Excise Rules. For storage of

products like raw petroleum coke, LPG Cylinders, Bitumen drums, etc.

storage/stacking space will also be required to be similarly approved

Dispatches of products from one bonded warehouse to other bonded

warehouse is permitted against consignor's bond. It is the responsibility of

the consignor to obtain the reware housing report from the destination

warehouses and account the same to the satisfaction of Excise Authorities

79

within the prescribed time limit. The reware housing reports are required to be

maintained as per Form AREA (Annexure-XII (9). The consignee is required to

submit informations under Form CT-2 with regard to license number, bond

number etc. If reware housing certificates are not obtained within permissible

time limit, the duty becomes payable immediately.

The Excise duty is payable on tank discharge system by taking dips before

and after operation and not on the basis of the quantities delivered in

containers viz. tank lorries/tank trucks. In case of simultaneous loading for

duty paid dispatch and bonded dispatch from the same tank, quantity

dispatched under bond is to be determined on the basis of container's dip

and the duty is to be paid on the remaining quantity.

Samples may be taken by the Excise Department for testing with a view to

ascertain that the products dispatched correspond to the prescribed

specifications. Samples shall be taken in quadruplicate and shall be sealed

jointly by the Excise Department and the Licensee- One sample shall be

sent to the laboratory of the Excise Department and two samples shall be

retained by the Excise Department (one with Superintendent and another

with Assistant Collector) and one sample shall be retained with Licensee-

If the Licensee does not feel satisfied with the results of the first test, he

can seek a re-test within prescribed period on payment of requisite fee at

the Central Revenue Control Laboratory at Delhi. After the test reports are

received and accepted, the provisional assessments made earlier are

formally finalised. Where the test result reveals that the product belongs to

a classification different than the original, differential duty demands will

be raised by the Excise Department.

80

All demands for recovering excise duty have necessarily to be preceded by

a show cause notice. In case Excise Department considers that proper duty

has not been paid or duty has been paid short, unless show cause notice is

issued or any other action is started by Excise authorities to recover the

short levy, the same will become time-barred. Claims for refund of duty

paid in excess have similarly to be lodged within the prescribed time limit

from the date of payment so that it shall not become time-barred.

If the assess is aggrieved against an order passed by the Excise Officer, he

can file appeal to Appellate Collector/Central Board of Excise and

Customs within the prescribed time limits. Where an order passed on an

appeal does not satisfy the appellant, he can file revision application to the

Government of India within the prescribed time limit.

There are number of exemptions or concessions available in the rate of

duty for petroleum products consumed for the specified purposes, such as

product consumed within the refinery as fuels or solvents and products

utilised in accordance with the Chapter 10 of the Central Excise Rules

Procedure for a specified industrial purpose. These concessions keep on

changing from time to time. Changes are intimated by the Adviser (Excise

and Customs), Chairman's Office to all concerned. These concessions are

to be kept in view at the time of duty assessment on the petroleum

products.

EXCISE ACCOUNTING

81

All receipt and dispatches in and out of the tank are to be accounted properly. The

dip memos are sent by OM&S Section containing following details

I) Tank Number

ii) Nature of operation

iii) Gross dips separately for opening and closing

iv) Water dips separately for opening and closing

v) Tank temperature.

All dispatches should be supported by gate passes. In case of duty paid

dispatches, gate pass No. I/pass out voucher is prepared. In case of bonded

movement of products gate pass No. 2 is prepared.

Out-turn statements/Daily Tank Operation Report (Annexure—XII (10) shall be

prepared for each product separately giving tank-wise details. The following

points shall be kept in view while preparing the out-turn statements :

i) All dip memo particulars shall be posted in the out-turn statements. Density shall be

given by the Laboratory.

82

ii) Gross volume and water volume in kilolitre shall be calculated at the tank temperature

and the differences shall be taken as net oil. The calculation shall be done by opening and

closing dip separately.

iii) Net oil at tank temperature shall be converted into kilo litre at 15@C by multiplying it

by the volume conversion factor as Der ASTM tables.

iv) Care shall be taken where the tanks are provided with floating roofs. In such cases

volume displaced by the floating roof shall be deducted from the volume at 15°C by

volume weight conversion factor.

v) Quantities in Metric Tonnes shall be ascertained by multiplying the volume at 15°C by

volume weight conversion factor.

vi) The aforesaid operations shall be carried out for opening as well as closing dips. The

difference between the two figures shall indicate the quantity of net oil.

vii) Duty paid clearances and bonded clearances shall be indicated separately.

viii) The- out-turn statements shall contain at the bottom, a summary of the total quantity

received, total quantity delivered as duty paid and total quantity delivered under bond

separately.

ix) Reference of gate pass numbers shall be furnished in the out-turn statements.

x) The out-turn statement should be prepared by one person and should be thoroughly

checked by another person.

83

As the dispatches under excise rules are allowed only against advance payment,

anticipated dispatches for the next 24 hours shall be advised by the Marketing

Division through OM&S Department indicating the requirement of duty deposit.

The duty payments are made by means of Letter of Authority and/or cheque in

favour of the State Bank of India. After the receipted TR6 Challan is obtained

from the Bank, credit can be taken in PLA.

BONDED DISPATCHES

For bonded dispatches goods should be moved under gate pass 2 and AREA on

the basis of CT-2. AREA forms shall be filled up for each consignment. The form

shall be prepared in five copies. The first three copies shall be dispatched to the

consignee who will complete the reware housing certificate on the reverse form.

After the certificate is recorded, the original shall be forwarded by the consignee

to the excise authority at destination who in turn forwards it to the excise

authority at the dispatch point. The duplicate shall be dispatched to the consignor.

The third copy shall be retained by the consignee for his record. The 4th copy

shall be forwarded by the consignor to the excise authority and the 5th copy will

be retained as office copy by the consignor.

According to the excise rules, the reware housing certificates (AREA) should be

received by the consignor within 90 days from the date of dispatch. If the reware

housing certificate is not received within the prescribed time limit, the consignor

is liable to pay duty on the entire consignment by making a debit entry in the

PLA. If the reware housing certificate is received after 90 days, refund of the duty

so paid shall be claimed from the excise authorities by submitting AREA. Claim

for refund shall be lodged as per excise rules.

84

It is the duty of the section to keep close watch on the reware housing certificates

and follow up the same with Marketing Division in cases of delay. If the

Marketing Division advises that any AREA is likely to be delayed due to some

specific reasons, a request in writing should be made to the Collector of Central

Excise for extension of time limit beyond 90 days.

In cases where reware housing quantity is short of the quantity cleared under

bond, the excise authority serves a show-cause notice on the consignor for the

transit loss. Such show-cause notices shall be replied within the prescribed time

limits by Excise Officer at refineries. Where the losses are high due to specific

reasons, these reasons shall be mentioned clearly in the replies to be furnished to

the Excise.

On the basis of out-turn statements/Daily tank operation reports, the daily stock

accounting as required under excise rules shall be maintained in a register as per

proforma RG-1 (Annexure XII(ll).

In case of receipt of products such as Benzene and Toluene where concessional rate of

excise duty is applicable, we are required to give intimation to Excise under Form D-3.

The information as per AREA may be given within the permissible time. The goods so

received also require to be entered under RG-16.

In case of export of petroleum products information shall be submitted under

Form AREA. In case of export to Nepal, goods shall be moved under Nepal

Invoice.

On budget day, the Self Removal Procedure shall remain suspended. Therefore,

all operations shall be supervised by Excise Officers. In case of duty paid and

bonded dispatches information shall be filed under prescribed forms within

prescribed time limit.

85

ASSESMENT

On the closing of each month, a return shall be filed under Form RT-12 for the

assessment of excise duty on finished products. In case of receipt of goods for the

industrial use at concessional rates, the return shall be filed as per Form RT-ll.

LOSSES

There are no mandatory percentages prescribed under excise rules for condoning

storage/handling losses, and the transit losses. The condonation of loss is granted in each

case on merits.

The Oil Accounting Section should keep a dose watch on Excise duty,

Assessment and additional demands raised by Excise authorities. Cases where

demand of Excise authority is to be contested or refund is to be obtained, shall be

brought to the notice of Excise Officers at the refinery or the Officers of

Production Department as the case may be. The Section is responsible to furnish

all necessary data which may be required connection with the excise appeals.

On matters pertaining to excise procedure and the accounting, Oil Accounting

Section should take appropriate actions in consultation with Excise Officer at the

refinery,

MATERIAL BALANCE AND PRODUCTION STATISTICS

The statistical requirements at each refinery shall be varying depending upon the

complexity of operations involved. The various statistical needs shall be assessed

at the initial stages jointly by the Production Department and Finance Department

and a suitable system of record keeping shall be prescribed. Care shall be taken to

minimise paper work and avoid duplication.

86

The basic requirements for statistics in a Refinery relate to the day-to-day account

ing of production, dispatches, stocks and losses/gains. For raw materials and

finished products, these statistics are normally available from the various excise

records The excise rules do not prescribe for any detailed accounting of inter

mediate products though the same is necessary for ascertaining the day-to-day

production figures.

Daily production of intermediate products shall be recorded on the basis of the

dips taken at 7 A.M. with adjustments for transfers in and out. A daily production

report for intermediate and finished products separately shall be prepared in

appropriate form. The Section shall also be responsible to send daily TPM to

Head Office giving a summary of 24 hours operations in the prescribed manner.

The Section shall prepare a monthly material balance for all products giving

production, transfers and dispatch details after accounting for the storage

losses/gains. The form of material balance shall be prescribed at the unit level.

The Section shall prepare a statement of average stock held for each product

during the month and forward the same to Production Accounts Section for

arranging declaration statements to be furnished to the Insurance Company

against fire policy for the oil stock

87

PRATICALLY THAT WE HAVE LEARN IN OIL ACCOUNTING.

OIL ACCOUNTING

Oil account section of a finance department in a refinery is responsible for correct

depiction of quantitative and financial records pertaining to the crude oil and petroleum

products.

The focus or key area of oil account that differentiate it from normal account is the

quantitative accounts and correct payments of duties on finished products and on crude

oil and keeping stock of crude oil .

Crude oil stock can be maintained by seeing ROP (re- order point), EOQ (economic order

quantity), and safety stock.

Five major steps can be broadly located in oil accounting.

88

1. Account of crude oil receipt and duty implications:

Imported oil comes from Gulf countries that are from Arab, Nigeria, Iran, Iraq etc. The

oil first comes at Vadinar (in case of Mathura refinery) from where it is taken to Salaya

and then piped to Gujarat refinery and SMPL (Salaya Mathura pipe line) and further to

Panipat. At port first bill of landing along with Yellow bills of entry (into-bond) is filled

before the custom authorities at Vadinar port in Jamnagar District of Gujrat.Bill of

landing shows the entire quality of crude oil imported by IOCL for all these

refineries .Yellow bill of entry (into-bond) is filled on provisional basis because of non-

availability of correct cost, insurance and freight at the of receipt of crude. On

importation the entire quantity of crude warehoused at custom bounded warehouse of

IOCL at Vadinar.Shipping bills are seeing, filled and issued by IOCL in Vadinar at

Custom house Jamnagar for the movement of imported through pipeline to different

Refineries location under the bond .The entire quantity shown in the said shipping bills

are being re-warehoused at Refinery location under Yellow Bill of entry (into-bond).

The re-warehoused crude is cleared for home consumption after filling of Green bills of

entry (Ex-bond) and a payment of duty at Refinery era. As the parent Yellow bill of entry

(into-bond) is filled provisionally, thereafter all the subsequent documents like Shipping

bills, Green bill of entry (Ex-bond) etc. are filled for purpose of payment of duties, the

assessable value is provisional.

Consequent upon finalization of parent Yellow bill of entry (into-bond) by customs

authorities at Vadinar.It is sent to respective Refineries. An application is filled before

superintendent along with original copy of finally assessed parent Yellow bill of entry

(into-bond) for finalization of Green bill of entry (Ex-bond). After receipt of assessment

order, refund application /claim for the excess amount is filled in the office of Assistant

89

commissioner, custom and central excise.

The importer/CHA after having received the assessed Bill of Entry from the Detach

Clerk, will pay the duty in the designated bank after getting TR-6 Challan signed by the

said dealing assistant (Detach Clerk) who will ensure that the duty is paid within interest

free period under Section 47 of the Customs Act, 1962 or challan for due interest and

bank drafts for the same is produced. The duty paid Bill of Entry will be deposited at the

counter of the said dealing assistant (Detach Clerk) for cancellation of Challan. At this

stage the original Bill of Entry will be taken and entered in a register giving back the

remaining copies to the importer/CHA who will take it to Import Shed.

Duty on crude oil is said paid at Vadinar w.e.f. 15/2/05 and above are the formalities as

followed at Vadinar.

Calculation of custom duty under (Custom Tariff Act):

90

FOB (free on board) + freight + Insurance = Basic

* 5% Basic( Ad- volerum)

* CIF (Cost Insurance Freight),Demurrage (if any),Landing charges.

* Rs.50/Metric Ton NCCD (National Calamity Contingency Duty)

(Basic + NCCD) 2%+1% = Education Cess

2. Account of manufactured Petro. Products and than payment of Excise for

91

blending:

Rule

2.

Definitions .- In these rules, unless the context otherwise requires,

(a) “Act” means the Central Excise Act, 1944 (1 of 1944);

(b) “assessment” includes self-assessment of duty made by the assessee and provisional

assessment under rule 7;

(c) “assessee” means any person who is liable for payment of duty assessed or a producer or

manufacturer of excisable goods or a registered person of a private warehouse in which

excisable goods are stored and includes an authorized agent of such person;

(d) “Board” means the Central Board of Excise and Customs constituted under the Central

Board of Revenue Act, 1963 (54 of 1963);

(e) “duty” means the duty payable under section 3 of the Act;

(f) “notification” means the notification published in the Official Gazette;

(g) “Tariff Act” means the Central Excise Tariff Act, 1985 (5 of 1986);

(h) “warehouse” means any place or premises registered under rule 9; and

(i) Words and expressions used herein but not defined and defined in the Act shall have the

meanings respectively assigned to them in the Act.

92

Products which are manufactured in land of India and come under the rule of SETA

(Sales Exchange Trade Act) have to pay Excise duty under Excise Tariff Act 1985 Act.

Excise duty is payable on each finished goods on removable goods and is done by 5 th date

of every following month for any month (For March it is by 31 st March).Return is done

by 10th day of next month of sale.

Excise is different for different products of refinery.

3. Dispatch of finished petroleum products:

Assess met to Central Excise duties is invoice based whether the goods removed or duty

paid or under bond. The Excise duty liability is determined at the time of removal from

the Refinery warehouse with the invoice being the document in support of Cenvat Credit

claims that the invoice/application for duty free removal is the compulsory for correct

Excise assessment of removal.

4. Maintain of record

Under Central Excise rule 2002.Rule no.10

* DSA (Daily Stock Account)

* PSA (Personal Ledger Account)

These are compulsory for the Refinery. It is done from 7A.M. till the next morning. Cash

payment is done through TRVI i.e. Treasury Challan at bank. And deposited credit is to

utilize in accordance with the invoice issued for clearance of opening balance,

production, dispatch and closing balance of all certificate finished products of Refinery

93

5. Material Balancing, Production Statistics and Periodical returns and Statements:

Pipeline balance is taken by Linefill.Linefill is the measurement method of judging the

amount quantity in pipeline.

Dip measurement is taken for the purpose of the measurement of tanks

Two types of tanks are there:

Floating Roof.

Fixed Roof.

A straight pipe thus through the tank for the measurement .The measurement is done in

C.M. Towards the bottom Gate wall is there for sample rating as well as temperature

reading . Radal is there to check level of tank. FIFO (First in First Out) method is follows

in refinery in Inventory management

94

TAXATION

INTRODUCTION In determining the levels & structure of fuel taxation, important

compromises have to be made between the effects on government revenue generation,

income distribution, the efficient use of roads, & environmental pollution. In so doing,

attention must be accorded to the relative importance of each objective, Efficiency of fuel

taxation as an instrument for achieving the objectives, & Magnitude of any perverse

effects in relation to other aims. Let’s look at some General principles of tax theory A

fundamental principle of tax theory is that taxes should, as a rule be levied on final

consumption goods rather than on intermediate goods. A complementary principle is the

well-known inverse elasticity rule. Tax rates on consumer goods should be so set as to be

inversely proportional to the goods own-price elasticity’s of demand, to minimize the

overall loss of welfare. The generalized Ramsey rule extends these principles to allow for

substitution among commodities. Application of this principle in its pure form is likely to

be distribution ally perverse. Because demand for most basic necessities (such as staple

foods) is inelastic, while that for nonessential goods are likely to be more elastic. Tax

rates on goods that have external costs should be adjusted upward to reduce their

consumption to a social optimum. Where commodity taxes are not needed for other

purposes, Pigovian taxes should be applied in such a way that the tax on the item creating

the negative externality is proportional to the marginal social damage. Thus goods for

which demand is least sensitive to price increases should tend to bear the highest tax rate.

Goods that are close substitutes should be taxed at similar rates to prevent demand

switching. If equity is important, goods accounting for a larger share of budgets for the

rich than for poor should be taxed more heavily. Obviously enough, goods that produce

large externalities should also be taxed at high rates.

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THE APPLICABILITY

For fuels, these principles do not always work in the same direction. Thus the relative

importance of each principle needs to be evaluated in each case. For example, emissions

from diesel fuel are more harmful than those from gasoline, but encouraging the use of

diesel-powered mass transit may be desirable as a way of relieving congestion. Kerosene

is particularly problematic in developing countries, since it can be used to adulterate both

gasoline & diesel. As a result, setting lower taxes on kerosene (to reduce the cost of

lighting & cooking fuels for the poor) can erode the total collected (necessitating an

increase in the general tax level to produce given revenue). And where kerosene replaces

gasoline, lower taxes lead to higher emissions & worse vehicle performance. Higher

taxes on kerosene can hurt poor households, however, which tend to spend a larger share

of their budgets on this fuel than do better-off households. But this also means that if

governments wish to offset the effect of higher kerosene taxes on poor household, they

can do so through targeted assistance rather than across-the-board kerosene subsidies.

SETTING TAXES ON TRANSPORT FUELS: ISSUES FACED

In setting fuel taxes, the goals of taxation, & the trade-offs among them need to be

considered. Fuel taxation is important for generating government revenue. Particularly in

low-income countries with poorly developed direct taxation systems. In these countries,

taxes on hydrocarbons can account for as much as one-fifth of all tax revenue. Fuel taxes

are also a reliable revenue source because fuel has a low overall elasticity of demand, &

the tax can be collected cheaply. Furthermore, fuel taxation can have attractive

distribution characteristics.

96

The main danger that the tax can be inflationary because of its pervasive impact on wide

range of basic consumption goods applies to most forms of indirect taxation. It should be

kept in mind that, where inter-fuel substitution is technically possible(as between diesel

& gasoline for light-and medium duty vehicles), widely different tax rates are likely to

distort transport fuel demand. Under this taxation should concentrate on gasoline more

than say diesel. But as a producer good that creates negative environmental externalities,

it should be taxed or not subsidize. A number of factors need to be taken into account in

determining the extent to which diesel should be taxed. Thus diversion & perverse inter-

fuel substitution should be avoided. A fuel tax or surcharges on the fuel tax, may be the

most obvious & acceptable proxy for direct charging. However there are shortcomings

with regard to this objective. Taxes do not reflect accurately the road deterioration caused

by different vehicle categories. They also provide inefficient signals on vehicle size &

weight. Even within the automotive diesel fleet, a tax on diesel needs to be supplemented

by some charge on vehicle axle loadings. This should preferably levied on the basis of

distance traveled. A fuel tax is not efficient as a charge for congestion. Variations in

congestion over time & space are only weakly reflected in variations in fuel consumption.

Moreover, fuel tax is usually determined by & accrues to the central government.

Whereas control of urban congestion is a municipal responsibility. The transport sector

contributes up to 25 percent of worldwide greenhouse gas emissions.

The transport-related pollutants of greatest concern in developing countries, however, are

health-threatening emissions of fine particles & lead (from the combustion of leaded

gasoline).

97

Fuel taxes are not very efficient in reducing externalities from emissions. Emissions &

their environmental externalities also depend on vehicle technology, vehicle

maintenance, the vehicle driving pattern, & the location & time of emissions. The high

degree of differentiation of environmental damages from the same fuels across various

users, technologies, & locations limits the effectiveness of fuel taxes for controlling air

pollution. Given the concentration of car ownership & use in the upper-income groups, a

high incidence of taxation on gasoline makes for a very progressive tax. By the same

token, diesel taxation is found to be mildly regressive. That is , the total expenditures of

poor households rise more in percentage terms than those of the rich when the price of

diesel is increased. This is one reason why a number of governments rely primarily on a

high tax on gasoline to raise revenues from oil products.

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TAXATION IN THE INDIAN CONTEXT

We should thus have a taxation structure that broadly falls in line with the tax theory.

Thus we should see a high taxation regime for goods with high inelastic demand. Or to

bring out the concept of progressivism; some sectors should bear higher taxation.

TRANSPORT

FUELEXCISE DUTY CONSUMERS

Petrol Rs. 13/L+6% Mainly Cars & two wheelers

Diesel Rs. 3.25/L+6%Trucks, public transport, railways, farmers

ATF 8%Airlines

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The tax component or non-fuel component which comprises customs duty, excise duty,

sales tax & additional excise duty/cess forms quite a high proportion in the retail pricing

of petroleum products. We have a build up of prices in which more than fifty percent of

the price is taxes. Out of the total price, 57 percent is taxes for petrol; for diesel it is 35

percent. So, if Rs. 40 is the petrol price, then 57 percent, that means nearly Rs. 22 will be

tax & Rs. 18 will be petrol price. It the price of diesel is Rs. 30, then one-third, that

means Rs. 10 is tax & Rs. 20 is the price of diesel.

PECENTAGE OF TAX ON PETROL IN METROS

PERCENTAGE OF TAXES ON DIESEL IN METROS

Delhi Chennai kolkata Mumbai

Price

without

taxes

17.87 17.28 17.60 17.54

Prices

with

taxes

37.84 41.25 40.89 43.23

Total

taxes19.97 23.97 23.29 25.69

Total

taxes in

(%)

53 58 57 59

100

Delhi Chennai kolkata Mumbai

Price

without

taxes

18.39 18.29 18.31 18.28

Prices

with

taxes

26.28 29.30 28.72 32.83

Total

taxes7.89 11.01 10.41 14.55

Total

taxes in

(%)

30 38 36 44

PERCENTAGES OF TAXES ON DIFFERENT PRODUCTS

CURRENT ISSUES OF THE TAXATION REGIME

Product Central taxes State taxes Total taxes

Product 38% 17% 55%

Diesel23% 11% 34%

Domestic

LPG11% 11%

PDS

Keronene4% 4%

101

1. Restructuring the excise levy

2. Restructuring the sales tax levy

3. Are taxes really high

Currently the excise levy on petrol & diesel is combination of ad-valorem & specific

rates. This structure has increasingly being coming under pressure. Recollect that ad-

valorem taxes are based on the value, as opposed to specific that are based on volumes.

The wisdom of imposing ad-valorem duties during a time of persistent price increases is

debatable. Not only do ad-valorem levies exacerbate the burden on the consumer, but

they also result in the government benefiting through higher tax yields. Thus what we

say; “profiting at the expense of Indian consumers”. There is, therefore, need for both

softening & smoothing the impact on the consumers of international price variations. And

conversely for the government sacrificing windfall gains’ in revenue. Thus the R

Committee suggested the need for shifting from the current mix of specific & ad-valorem

levies to a pure specific levy. Another important issue pertains to the differential excise

on petrol & diesel. This situation where levy on diesel is significantly less than n petrol

creates unnecessary distortion. No wonder our refining industry is geared towards

producing more & more diesel; with its resultant consequences.

This is contrary to world wide trends where the excise levies on both the products are

more or less equal. In fact in some countries, levies on diesel is costlier than petrol. This

is merely leading to inefficient substitution of one fuel for another; with its resultant

consequences.

SALES TAX

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State level taxes too have been responsible for the pressure on prices of petroleum

products. Sales tax collection from oil sector have consistently been contributing to a

third or more of the total sales tax collections of the states. Last three years data shows

that on an average sales tax revenue from the oil sector constitutes around 34 percent of

the total sales tax revenue of the states. This burdens the consumers as well as building an

undesirable dependency at the state level too for revenues on a single sector. Moreover

the rates of taxation vary widely-from a minimum of 20% to a maximum of 34% in the

case of petrol. On diesel from a minimum of 9% & a maximum of 38%. Remember all

this comes on top of what is considered a large incidence of excise duties, heavy sales tax

levies only lead to a high degree of cascading. Tax levels as a percentage of the retail

price in India for petrol & diesel are similar to the levels prevailing in the developed

countries.

FORM

103

Application for Registration to cure/produce/manufacture/conduct wholesale trade/act as a broker or commission agent/obtain excisable goods, for industrial purpose etc.

[ Rule 9 ]

(Delete the letters and words not applicable)

To

The Superintendent of Central Excise,

Sir,

I/We_____________________________Son/Daughter(s) of___________________ residing at ____________________ hereby request that I/We _______________________ may be issued a registration certificate under Rule 9 for the purposes indicated in the schedule. Other details required are also furnished in the schedule.

2. I/We___________________ agree to abide by all the terms and conditions of the registration which may be imposed from time to time.

3. I/We_________________________ agree to abide by all the provisions of Central Excise (No.2) Rules, 2001 and any orders issued thereunder.

4. I/We_________________ declare to the best of my/our knowledge and belief the information furnished herein is true and complete.

Place:

Date

Signature of the applicant

PRODUCTS DUTY(cenvat) RATE OF DUTY RATE OF DUTY(specific)

1.NAPHTA Cenvat 16% Adv.Ecess 2%Ecess 1%

2.MS Cenvat 6% Adv.+Rs.5P/LTR.Addl.E Rs.2.00 per ltrSpl.Addl.E Rs.6.00 per ltr

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Ecess 2%Ecess 1%

3.SKO-PDS Cenvat NILL SKO-NON PDS Cenvat 16% Adv.

Ecess 2%Ecess 1%

4.ATF Cenvat 08% Adv.Ecess 2%Ecess 1%

5.HSD Cenvat 6% Adv.+Rs.1.25P/LTR.Addl.E Rs.2.00 per ltrEcess 2%Ecess 1%

6.FO Cenvat 16%Ecess 2%Ecess 1%

7.PROPYLENE Cenvat 16% Adv.Ecess 2%Ecess 1%

8.LPG(INDUSTRY)Cenvat 08% Adv. LPG(DOMESTIC)Cenvat NILL

Ecess 2%Ecess 1%

9.BIT(BULK+PKD)Cenvat 16% Adv.Ecess 2%Ecess 1%

10.HPS/RFO Cenvat 16% Adv.Ecess 2%Ecess 1%

11.LSHS Cenvat 16%Ecess 2%Ecess 1%

PERCENTAGE OF EXCISE DUTIES ON PRODUCTS

CENVAT CREDIT UTILIZATION

CENVAT Credit Rules, 2001 (hereinafter referred to the ‘ Credit Rules’) has been notified with effect from 1st July, 2001 as an independent rule under the Central Excise

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Act, 2001. These rules seek to introduce simplified CENVAT provisions and procedures for allowing credit of duty paid on specified inputs and capital goods used in or in relation to the manufacture of specified final products, whether directly or indirectly and whether contained in the final product or not (inputs) and used (capital goods) in the factory of the manufacture of the final product. The credit of duty so allowed can be utilized for payment of duty leviable on the final product subject to the conditions laid down in the rules.

Salient features

1. Certain definitions have been incorporated in Rule 2 of the Credit Rules itself. It may be noted that the definition of ‘capital goods’ is comprehensive and would include components, spares and accessories as also other capital goods like moulds and dies, refractories and refractory materials, etc. It has been clarified that the components, spares and accessories may fall under any Chapter but they should be components, spares and accessories of the final products. Storage tanks have been added to the list of capital goods w.e.f 1.3.2001. An explanation has been added to clarify the scope of inputs i.e. Inputs include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. Among other expressions, ‘Exempted goods’ and ‘final products’ have also been defined.

2. Rule 3 of the Credit Rules provides type of duties to be taken as credit with Explanation, which clarifies to allow CENVAT credit of additional duty leviable under Section 3 of Customs Tariff Act on goods falling under 98.01 of First Schedule to Customs Tariff Act. This Rule also provides manner of utilization of CENVAT credit in a different situation. It also provides the manner of utilisation of credit. It also provides the manner when inputs/capital goods are removed as such.

3. Rule 4 of the Credit Rules provides for different conditions for allowing CENVAT credit in different situations for inputs and capital goods.

4. Rule 5 of the Credit Rules of the Credit Rules is regarding refund of CENVAT Credit.

5. Rule 6 of the Credit Rules explains obligation of manufacturers of dutiable and exempted goods, especially the details of taking credit of final dutiable products and exempted products.

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6. Rule 7 of the Credit Rules specifies documents on which CENVAT credit can be taken. An explanation to this Rule provides the meaning of "first stage dealer" and "second stage dealer". It also provides for maintenance of accounts by first and second stage dealer. Maintenance of records of manufacture of final products. The burden of proof regarding admissibility of CENVAT credit shall lie upon manufacturers taking such credit. The manufacturer of Final Product shall submit monthly return in specified proforma (Annexure 10) within 5 days from the close of each month. In respect of manufacturers availing exemption on value or quantity based in a Financial year, he shall submit by the 5 th of the following quarter.

7. Under rule 8 of the Credit Rules, it has been provided that the manufacturers shall be allowed to transfer CENVAT credit lying unutilized in his accounts to such transferred, sold, merged, leased or amalgamated factory on account of shifting his factory to another site or factory transferred due to change in ownership on sale, merger, amalgamation, lease or transfer of a factory to joint venture with specific provision for transfer of liabilities of such factory. This is being allowed only if stock of inputs as such or in process or capital goods is also transferred to new site and the same is duly accounted for to the satisfaction of the Commissioner.

8. Transitional Provisions are specified in rule 9 of the Credit Rules. Any amount of credit earned by manufacturers under this Rule and remaining unutilized on that day shall be allowed as CENVAT credit under these Rules and allowed to be utilized. However, certain restrictions are imposed in this Rule.

9. Provisions for special dispensation in respect of inputs manufactured in factories located in specified areas of North-East region are contained in rule 10 of the Credit Rules.

10. Power of Central Government to notify goods for availment of deemed credit are contained in rule 11 of the Credit Rules. Accordingly, certain inputs have been so notified on which the duties of Excise or additional duties paid shall be deemed to have been paid at the prescribed rate and allow credit of such amount subject to certain conditions.

11. Recoveries of credit wrongly taken are governed by rule12 of the Credit Rules. Where CENVAT credit has been taken or utilized wrongly or on account of fraud, willful mis-statement, collusion or suppression of facts etc., the same along with interest shall be recovered from manufacturers and the provision of Section 11-A, 11-AA and 11-AB of the Central Excise Act, 1944 shall apply for effecting

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recoveries. In case of fraud etc., the manufacturers shall also be liable to pay penalty under provision of Section 11-AC.

12. Provisions for confiscation and penalty, for contravention of the Credit Rules are contained in rule 13 of the Credit Rules.

PERCENTAGE OF CENVAT CREDIT TAKEN ON GOODS.

On Imported goods when C.V.D. has been paid :

On input goods we can get 100% Cenvat credit

On capital goods we can get 50% Cenvat credit in same year and 50% Cenvat

credit in next year.

On Input goods when Excise has been paid :

On Input goods we can get 100% Cenvat credit.

On Capital goods when Excise has been paid :

On Capital goods we can get 50% cenvat credit in same year and 50% Cenvat

credit in next year.

WHAT IS C.V.D.(COUNTER VEILING DUTY):

C.V.D. is the tax imposes on Imported goods to make the cost of the product equivalent

to the cost of product which is manufacture in India. Its rate is equivalent to the Excise

rate.

108

Refinery Economics

1. Refinery costs

2. Margins

Refinery Costs

Obviously the refinery costs can be divided under tow broad heads:

1. The capital Investment costs

2. The Operation costs

The capital investment cost of a totally new refinery depends on its:

1. Size

2. Complexity

3. Location

When the capital investment cost is known, refinery’s Operating casts must be

considered. Usually they are broken done under three heads:

1. The variable costs

2. Cash fixed costs

3. The cost of capital

Variable Cost:-These are directly proportional to the volume of crude oil processed.

These are costs of chemicals, catalysts, fuel & power.

Cash Fixed Cost:-It includes manpower, maintenance, insurance, taxes, among others

the level of these costs are virtually independent of the volume of crude oil processed.

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The Cost of Capital:-Where all investments are has been covered by loan capital, the

cost of capital is the annual capital cost, i.e interests & loan repayment.

Factors Influencing Refining Costs

1. The level of capacity utilization

2. The refinery size

3. The complexity

4. The locality

The level of capacity utilization or stream factor is the fundamental parameter. It is

essential for a refinery to operate at close to full throughput: not just to atmospheric

distillation. Lower the stream factor; higher would be the fixed costs. It has to be

remembered though that the rate of utilization is not the only sufficient parameter to

guarantee higher margin. For any given rate of utilization, refining costs per tone would

fall with increasing refinery size. Thus invariably we would see that refineries are built

usually above a threshold level. This is intuitive as the level of manpower costs & general

overheads are largely independent of the size of the refinery.

Moreover maintenance cost & the cost of capital increase at less than the rate of increase

in refinery size. More complex a refinery; higher its processing costs per tone of crude

increasing complexity mainly results in increased cost of capital, maintenance cost & fuel

consumption. But, a complex refinery will obviously generate a higher margin than a

simple refinery, assuming all other factors are same. It is absolutely critical that the

design of the refinery is carefully matched to the types of crude it is intended to process.

Cost of a refinery can be increased by construction in a location far from the equipment

suppliers.

Extreme climatic conditions can also increase operating costs per tone of crude.

Moreover the geographic choke of an inland or coastal location can also be very

significant.

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Margins

Oil refining is primarily a margin-based business. Refiner’s goal is to optimize the

refining processes & yields of all products in relation to feedstock’s used. In a simple

refinery, a greater percentage of the end products are less valuable heavy products such

as fuel oil, long residue & bitumen. Complex refineries generally produce a lower

percentage of these heavy products. They produce a higher percentage of light products

such as LPG, naphtha & gasoline 7 middle distillates such as kerosene & diesel; which

command higher margins. Indian PSU refineries have higher yields of heavier ends,

whereas private sector refinery has a capacity to maximize lighter ends & middle

distillates. Consequently refinery margins of the private sector refinery are far superior to

that of public sector refineries.

Gross refinery margin:-

The total value of the finished products less the cost of crude oil & other feedstock is

commonly referred to as the gross refining margins (GRMs). GRMs of complex

refineries are higher than those of simple refineries because complex refineries are able to

generate a higher yield of light & middle distillates from lower cost heavier & sourer

crude oils. In addition, lower proportion of lower value heavy products are produced in a

complex refinery. This is because they have secondary processing facilities available to

convert theirs products into the higher value light products.

Crude oil typically accounts for 90% to 95% of the total cost of refining. Because other

operating expenses are relatively fixed, the goal of refineries is to maximize utilization

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rates, the yields of higher value-added products & minimize feedstock costs & minimize

operating expenses.

Usually petroleum analysts use 4 different variables that are described as margins.

1. A spread

2. Gross refining margin

3. Refining cash margin

4. Downstream profits

A spread is the difference between petroleum product price (s) & crude price. For

example, gasoline spread in the difference between gasoline price & a specific crude oil

price. In addition to single product spreads, theirs are multiple product spreads. for

example, a-3-2-1 crack spread assumes 3 barrels of crude oil can be used to produce 2

barrel of gasoline & 1 barrel of distillate. It has to be pointed out that spread does not

taken into account all product revenues & excludes refining casts other than cost of crude

oil. GRM is similar to a crack spread, but takes into consideration all product revenues &

all raw material input costs (i.e., crude oil, oxygenate, butanes, catalysts, etc.) GRM

represents all product revenues deceived by a company per barrel of product sold minus

all raw material casts & products purchased per barred of product sold. Cash margin

considers all product revenues & cash operation costs to produce the products. Like gross

margins, cash margins can be calculated at a refinery level, company level or industry

level. The distinction between the gross refinery margin & net refinery margin is

impotent the former is a very crude methodology to assess the profitability of a venture.

Moreover it dies not also reflect accurately the profitability of a venture. Downstream

profits are also sometimes estimated on a per barrel of product sold or per barrel of crude

oil input. Operating net income includes both cash costs & non cash casts such as

depreciation. Downstream “net income” includes financing costs, income taxes & other

non operating costs as well as non-operating revenues.

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Factors that affect the refinery margins

As is evident from the discussions above, there are too many factors that affect refinery

margins. Among others, they would entail:

Aggregate demand & supply fro crude oil, other feedstock’s & refined petroleum

products. Changes in the demand & supply of all the above constituents. Fluctuations in

cost of crude, changes in differential between light & heavy. So also the price differential

between the crude oil & prices for the refined petroleum products. Aggregate refining

capacity at the global & regional level. Pricing & other actions taken by suppliers &

competitors that impact the overall market. Exemptions on taxes/levies on purchase &

supplies for products. Price differential for products between different geographical

markets. changes in the cost & availability of shipping & other logistics services for the

products. Mandatory changes in the product specifications for refined petroleum

products. Governmental actions that restrict exports or fix prices of petroleum products.

General political & economic conditions.

Margins in the Indian context

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Since 1998 the profitability of Indian stand-alone refineries has been a function of: spread

between international product & crude prices, exchange rate movements, duty protection

levels & refinery complexity. The first three are external factors & therefore

uncontrollable. Individual refineries can have significantly differing refining margins &

consequently profitability based on its complexity. The GRM of almost all the refineries,

except of RIL, showed a decline in 2005-06. This was largely because of the decline in

duty differential between products & crude oil. Also refineries had to offer some

discounts to the OMCs as part of the subsidy sharing mechanism.

Effective rate of protection

It is the rate of change in the domestic value added as a result of the commercial policy.

in general this is different from the tariff ERP = (V’-V)/V, V = domestic value added in

free trade, V’ = domestic value added after tariffs

The VA in the refinery averaged about 27 percent since 2000 & ranged from 17 percent

to 36 percent over last 6 years. This is a gain accrued to the country for every ton of

product produced. Domestic price of output good minus cost of imported inputs gives us

the domestic value added. If he tariff on finished goods exceeds the tariff rate on

imported inputs, ERP will exceed the tariff rate. If however the tariff on imported inputs

exceeds the tariff rate on finished goods, the ERP falls below the tariff rate.

ERP

ERP = (V’- V)/V

Actual Petrol CrudeDomestic Value

addedERP

50% tariff

on petrol180 70 110 120%

50% tariff

on both180 105 75 50%

50% tariff

on finished

& 100% on

input

180 140 40 -20%114

Gross refinery margin—

Gross refinery margin is the difference between total realized value of products from

refinery and the cost of crude oil (landing cost)

Net refinery margin—

Net refinery margin is the gross refinery margin less operating cost.

Down stream profits—

These are the net refinery margin less establishment cost and other fixed cost

associated with refinery operations.

Now let us develop a model for calculation of margins at Mathura refinery.

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Let us suppose overall cost of crude oil processed by refinery during any year is X

Also suppose refinery produces m products (p1,p2,p3……pm) with realization

respectively r1, r2,r3,…..rm.

Now our total realization will be—

R1 +R2 +R3 ……………+RM =R (say)

Our gross refinery margin would be

g.r.m. =R-X

Now let us suppose operating cost incurred including power and fuel, chemical& catalyst,

spares etc. is Y

So our net refinery margin would be

n.r.m. =(R-X)-Y

Also suppose administrative expanses as Z .

Our down stream profits would be

d.s.p. = R-(X+Y+Z)

NOW consider example of mathura refinery for the year 2006-07

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Calculation of grosss and net refinery margins at mathura refinery

1.crude oil(a total of 8.7 mmt processed)

TypePercentage of total crude processed during the year

Price rs.per metric tonnes (avg.)

bombay high(indeginious) 17% 23400low sulfur(nigeria) 20% 23000high sulfur(arab gulf) 63% 20500

Total cost of crude oil for year 2006-07 18698.9 crores

Product wise realizations

Product(group) name Percentage of total output Price rupees per metric tonn

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L.P.G. 3.6 27300

Naphtha 5.1 27900

Motor Spirit 12.4 29700

A.T.F. 8 29000

H.S.D. 37.6 28300

S.K.O. 5.7 24200

Fuel Oil +L.S.H.S. 15.1 15500

Bitumen+sulphur 8 9700

Fuel and Losses 5.7 0

Total realization 20519.12 crore

G.R.M. (2-1) 20519.12Crore-18698.9crore=1820.22 crore

Considering $1 = 41Rs. And one metric ton=7.33 barrel,

G.R.M == 6.96 $/Barrel

GRM TRENDS FOR INDIAN REFINERIES

2001-02 2002-03 2003-04 2004-05 2005-06

IOC(7refinaries) 2.00 4.10 5.30 6.21 4.60

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HPCL-Mumbai 1.81 2.84 4.30 5.60 3.22

HPCL-Vizag 1.67 4.40 4.60 5.06 2.56

BPCL-Mumbai 2.40 3.73 4.64 4.56 1.64

CPCL 1.93 3.86 4.39 5.33 4.37

KRL 2.40 4.20 4.00 5.90 3.20

MRPL 2.91 4.20 3.90 5.68 5.27(H1)

RIL NA NA NA 8.80 10.30

GRM-IOC Ref. 2006-07 vs. 2005-06

Actual 2006-07 Actual 2005-06

Guwahati 10.48 10.17

Barauni 1.92 2.91

Gujarat 5.28 3.75

Haldia 3.38 3.06

Mathura 4.61 5.68

Panipat 2.62 5.36

Digboi 19.10 19.84

IOC Refineries 4.19 4.60

SUGESTIONS FOR OPTIMIZATION OF REFINERY MARGINS,--

On the basis of study of refinery margins, its trend over years and practices at IOCL corporate level and Mathura refinery there are few suggestions to improve the marginsAs under—

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1.CENTRALIZED PURCHASE – There could be a central body for purchase of crude oil, chemicals and additives for all the oil marketing companies in India particularly for all the PSU’s .as the practice was done earlier ,IOCL use to purchase crude for BPCL,HPCL also. Now it can be done by a committee comprising of officers from all psu’s and may be few from ministry of petroleum and natural gas.

This can give better values for crude purchase, more importantly it will reduce the cost of transportation thus reducing overall cost of crude. Same may be case with chemicals and additives. This will in turn improve the refinery margins.

2.PIPELINE GRID – A nation wide pipeline grid for transportation of products and crude within India is also very crucial for the improvement in the margins.

This could substantially reduce the cost of both crude and product transportation. Moreover we can import our crude at single destination instead of many (thus reducing the cost).This is however costly in initial stages as the capital investment is very high. but this is very beneficial and also strategic in nature due to energy security point of view.

3.FLEXIBILITY IN PURCHASE. Flexibility is in terms of type of crude purchased at any special market condition .for example in the last few months rupees has been stronger against dollar in the currency exchange market considerably .in the present scenario we can reduce the use of indigenous crude i.e. Bombay high. Instead we can purchase more of imported crude and can keep Bombay high in reserve for the time.Similarly when dollar is strong we can minimize the import as much as we can under the circumstances. It can improve refinery margins by virtue of benefit from exchange rate movement

4.BIGGER STORAGE SPACE----More storage space for crude oil is very strategic in nature because it can be observed that most of the time in the oil market crude prices are high but sometimes they are considerably low .

Take the case of fiscal year 06-07. in first half prices went up to 70$/barrel and going high suddenly prices started dropping and came to around 55$/barrel in second half of that year. If we have a big storage space for crude oil we can take advantage of it during rising prices. This space can be in India or abroad near oil market. As the way prices of crude are going up over the last two decade (especially last 4-5 years) ,the inventory

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carrying cost is possibly much less than reorder cost at new prices. This will as well be strategic reserve for unforeseen interruption in supply.

5. EXPORT OF PRODUCTS—Export can exponentially increase the margins .we are into the age in which the refinery capacity in India is more than demand and gap is growing .in next 7-8 years the capacity will be 100 mmtpa surplus. Clearly we are heading towards a petro product exporting country. But for this we would have to make the products of international standards. This will not only give the much better prices for products but also bring good amount of foreign exchange. that will be utilized while purchasing crude oil !

6.BLENDING OF BIO-FUELS—Ethanol may be used up to 5% of permissible limit in every variation of petrol similarly bio-diesel can also be utilized in diesel in prescribed proportion. As these products are cheaper then main products so we will have better margins. The environmental benefits are additional.Apart from these benefits our dependency on imported crude will also reduce. That will help in tackling energy security issue save foreign exchange, better balance of payment, and conditions of farmers with the help of these crops

7. INTEGRATION—As already started by IOCL in form of involvement in upstream activities like bidding in NELP and also in foreign blocks through joint venture/consortium. This is a type of backward integration.IOCL can as well integrate its Refineries forward into petro-chemical plants. The result will be enhanced margins specially with both backward and forward integration.

8. CARBON TRADING—Under the Kyoto protocol, reduced emission level of carbons under the prescribed level by any industry can be traded. Considering Mathura Refinery here we have eco-friendly products and process. ( Due to Taj trapezium zone ) Carbon emission level from Mathura Refinery is thus much below prescribed government law. We can sell these reduced carbon credits to environmentally more polluted industries to get the money.

First step in this regard will be energy efficiency because it doesn’t cost much. It will give double benefit –Apart from in house reduction of fuel and energy cost it will help in gaining carbon credit.

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9. SWAPPING—IOCL do swapping of heavy and high sulphur crude with low sulphur and light crude in case of high difference in there prices.

Vice-versa can as well be done that is in times of less difference between prices of high sulphur and heavy crude and low sulphur and light crude, IOCL can increase purchase of better crude to get better products and yield with comparatively less operating cost this will finally enhance the Refinery margin.

10. GENERAL FACTORS—These includes adding new units for more product, product enhancement, better capacity utilization, future trading and other cost minimization tools.

PRODUCT MANUFACTURE BY MATHURA REFINERY

SL. No. Description of goods

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1 NAPTHA

2 MS

3 SKO

4 ATF

5 HSD

6 LDO

7 FO

8 PROPYLENE

9 LPG

10 BITU

11 HPS.RFO

12 LSHS

13 SULPHUR

GLOSSARY

123

1. MS - Motor Split.

2. SKO - Super Kerosene oil.

PDS - Public Distribution System (Domestic

Purpose).

NON-PDS -Non-Public Distribution System (Industrial

Purpose)

3. ATF - Aviation Turbine Fuel.

4. HSD - High Speed Diesel.

5. FO - Furnish Oil.

6. LPG - Liquefied Petroleum Gas.

7. BIT (BULK+PKD) - Bitumen (Bulk + Packed).

8. HPS/RFO - Heavy Petroleum Stock/Residual Furnish

Oil.

9. LSHS - Low Sulphur Heavy Stock.

BIBLIOGRAPHY

124

Financial Management I. M. Pandey

Financial Management M. Y. Khan & P. K. Jain

Balance Sheets of IOCL Mathura Refinery (2005–06 & 2006-07)

Profit & Loss Accounts of IOCL Mathura Refinery (2005–06 & 2006-07)

Website of IOCL (www.iocl.com)

Intranet of IOCL (galaxy)

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