REPORT

ON

“CAPITAL BUDGETING PROCESS”“CAPITAL BUDGETING PROCESS”

(A PROPOSAL FOR CONVERSION OF FIXED TO FLOATING ROOF - TANK NO .13)(A PROPOSAL FOR CONVERSION OF FIXED TO FLOATING ROOF - TANK NO .13)

PREPARED BYPREPARED BY

TRIVENI CHOUDHURYTRIVENI CHOUDHURY

AT

INDIAN OIL CORPORATION LTD.

(GUWAHATI REFINERY, NOONMATI)

YEAR 2010

A REPORT SUBMITTED

IN PARTIAL FULFILLMENT OF

THE REQUIREMENT OF

2 YEAR FULL TIME POST GRADUATE DIPLOMA IN BUSINESS MANAGEMENT

(PGDBM)

AT

SIVA SIVANI INSTITUTE OF MANAGEMENT

SECUNDERABAD

[1]

TABLE OF CONTENTS

PREFACE

ACKNOWLEDGEMENT

DECLARATION

SL. NO. PARTICULARS PAGE NO.

1.INTRODUCTION

 

Overall view of the organization

Brief introduction of IOCL

Indian Oil Corporate History

Navratna Status

Corporate Structure

Divisions

Refineries

Pipelines

Marketing

R & D

Major Petroleum products

Financial Subsidiaries

Refineries

Corporate Social Responsibility(CSR)

Mission and Obligation of the Company

[2]

Branded products of Indian Oil Corporation

Guwahati Refinery

2.Name of The Proposal

Brief description

Justification of the proposal

Advantages

Technical feasibility

Impact of proposal on manpower

Operating and Maintenance Cost

Requirements of Additional Working Capital

Economics

Class of Proposal

Level of Desirability

3. ANNEXURES

Annexure I

Annexure II

Annexure III4 FINDINGS

5CALCULATIONS

[3]

PREFACE

In today’s era of globalization and competition, coping up with

technological advancement, which is undergoing evolution at a very fast

rate, holds the key to the survival and growth of any organization. Installing

technology, well-equipped facilities or going for modification in the existing

ones are the means to the attainment of better performance and

efficiency and consequently the furtherance of value addition.

Indian Oil, the largest commercial enterprise of India (by sales turnover)

is India’s sole representative on Fortunes’ prestigious listing of world’s 500

largest corporations, ranked 105th for the year 2009. To maintain strategic

edge in the market place, Indian Oil has given importance to capital

budgeting because capital investment decisions often represent the most

important decisions taken by an organization, and they are extremely

important, they sometimes also pose difficulties.

The evaluation of projects should be performed by a group of experts

who have no axe to grind. It is necessary to ensure that an impartial group

scrutinizes projects and that objectivity is maintained in the evaluation

process.

A company in practice should take all care in selecting a method or

methods of investment evaluation. The criterion selected should be a true

measure of the investment’s profitability (in terms of cash flows), and it

should lead to the net increase in the company’s wealth (that is, its benefits

should exceed its cost adjusted for time value and risk). It should also be

seen that the evaluation criteria do not discriminate between the investment

proposals. They should be capable of ranking projects correctly in terms of

profitability. The NPV method is theoretically the most desirable criterion as

it is a true measure of profitability; it generally ranks projects correctly and is

consistent with the wealth maximization criterion.

[4]

ACKNOWLEDGEMENT

This training part of MBA programme taught me a lot to understand the

key of success in the organization. One of them is teamwork. Teamwork is

ability to work together towards a common vision. It is a fuel that allows

common people to attain results. Therefore, I would like to thank all

management team of Indian Oil Corporation Limited who help me to

achieve this result.

This project is not an individual effort but a collection of efforts by each

& every member associated with it. Working with Guwahati Refinery, IOCL

has been an educative, interesting and motivating experience.

I would hereby like to extend my gratitude to the following people

without whose cooperation and help at every stage, successful completion of

the project would not have been possible.

It is my privilege to express my deep gratitude to Mr. S. Gurumoorthy

(SFM at IOCL) who vouchsafed to me such a great opportunity of doing

this project .

I would like to express my profound gratitude & a sincere thanks to my

mentor , Mr. Ritesh Agarwal (ACO) and Mr. Niranjan Mukund

Bhalerao (Finance Manager) for their valuable time & educative

guidance. Their constant support, innovative ideas & practical approach

inspired me to make the project more objective.

TRIVENI CHOUDHURYTRIVENI CHOUDHURY

[5]

STUDENT DECLARATION

I hereby declare that the project report entitled, Capital Budgeting

“Conversion of fixed roof to floating roof tank no –13” submitted in

partial fulfillment of the requirement of the 2 YEAR FULL TIME POST

GRADUATE DIPLOMA IN BUSINESS MANAGEMENT (PGDBM) AT SIVA

SIVANI INSTITUTE OF MANAGEMENT is my original work.

Place TRIVENI CHOUDHURYTRIVENI CHOUDHURY

Date:

[6]

INDIAN OIL CORPORATION

[7]

[8]

History Of Indian Oil Corporation Limited

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. Nijalingappaas 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

Pt. Jawaharlal Nehru inaugurated Guwahati Refinery.

Construction of Barauni Refinery commenced.

[9]

1963

Foundation was laid for Gujarat Refinery. Indian Oil Blending Ltd. (a 50 – 50 Joint Venture between Indian Oil 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

Dr. S.Radhakrishnan inaugurated Gujarat Refinery, 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 Defence in 1965 War.

1966

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

1967 Haldia Baraurii Pipeline (HBPL) was commissioned. Bitumen and Marine Bunker business began.

[10]

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 Indian Oil 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 Defense

personnel, Freedom Fighters, etc. after 1971 War.

1972 R&D Centre was established at Faridabad. 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

Indian Oil. Marketing Division attained a new watershed with a market participation of

64.2%.

1975 Haldia refinery was commissioned.

[11]

Multipurpose Distribution Centers were introduced at 132 Retail Outlets pioneering rural convenience.

1976 Private petroleum companies nationalized. Burma Shell became BPC.

1977 R&D Centre launched Nutan wick stove.

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 Refinery and Assam Oil Company's (AOC) marketing operations were

vested in Indian Oil. It became Assam Oil Division (AOD) of Indian Oil

1982 Mathura Refinery was commissioned. Mathura-Jalandhar Pipeline (MJPL) was commissioned

1983 Massive augmentation of LPG storage and distribution facilities was

undertaken. Proposal for the 6 MMTPA Refinery at Karnal was submitted at an

estimated cost of Rs.1181Crore.

[12]

1984 Taluka Kerosene Depots (TKOs) were commissioned for improved

availability of kerosene in rural and hilly areas in addition to Multipurpose Distribution Centers.

Foreshore terminal at Kandla Port was commissioned.

Integrated Corporate Planning -ten year Perspective Plan and five year LRP initiated

1986 A new Foreshore Terminal at Madras commissioned.

1990 Kandla-Bhatinda Pipeline (KBPL) project was approved. The first LPG Bottling Plant of Assam Oil DiVision (AOD) at Silcher was

commissioned.

1991 Digboi Refinery Modernisation project was initiated. Bunkering facility at Paradip was completed

1992 Revamp of Vacuum Distillation Unit at Mathura Refinery was completed. Two of the IndianOil Table Tennis players represented the nation at

Barcelona Olympic Games.

1993 New era of Microprocessor based Distributed Digital Control System (DDCS)

replacing the pneumatic instrumentations began in Refineries, in phased manner.

1996 State-of-the-art LPG Import Terminal at Kandla with a capacity of

6, 00,000 tonnes per annum was commissioned. 1 million metric tonne per annum (MMTPA) new CDU at Haldia Refinery

was executed with in-house supervision.

[13]

1998 Panipat Refinery was commissioned. Haldia, Barauni Crude Oil Pipeline (HBCPL) was completed. The Administrative Pricing Mechanism (APM) was withdrawn from the

Refining Sector effective 1" April 1998. Phase-wise dismantling of APM began.

IndianOil Board was reconstituted under the Navaratna concept, with the induction of five part-time non-official independent Directors.

1999 Indian Hydrocarbon Vision -2025" was announced at PETROTECH-99,

organised by IndianOil on behalf of the oil Industry. India attained self-sufficiency in Refining. Diesel Hydro-desulphurisation Units commissioned at Gujarat, Panipat,

Mathura and Haldia Refineries. Manthan -- the IT re-engineering project was launched.

2000 IndianOil crossed the turnover of the magical mark of Rs 1, 00,000 Crore --

the first Corporate in India to do so. The IndianOil Foundation -- a non-profit trust -- the first of its kind in

Corporate India, was unveiled to protect, preserve and promote the country's heritage.

Y2K compatibility achieved. JNPT Terminal was commissioned. The Lube Blending Plant at Asoti and the Once through Hydrocracker Unit

at Mathura refinery were commissioned. IndianOil entered into Exploration & Production (E&P) with the award of

two exploration blocks to IndianOil and ONGC consortium under NELP-I.

2001 Digboi Refinery completed 100 years of continuous operation. Chennai Petroleum Corporation Ltd. (CPCL) and Bongaigaon Refinery and

Petrochemicals Ltd. (BRPL) were acquired. Fluidised Catalytic Cracker Unit at Haldia Refinery was commissioned.

[14]

Augmentation of Kandla-Bhatinda Pipeline (KBPL) to 8.8 MMTPA completed.

Eight Exploration blocks awarded to the IndianOilled consortium under NELP-II.

Two Coal Bed Methane (CBM) blocks awarded to the consortium of Indian Oil and ONGC under CBM-I.

The investment proposal for Integrated PX/PfA project at Panipat was approved.

2003 Lanka IOC Pvt. Ltd. (LIOC) launched in Sri Lanka. Gasahol, 5% ethanol blended petrol, was introduced in select states. INDMAX unit at Guwahati Refinery commissioned. IndianOil Technologies Ltd. for marketing intellectual properties of R&D

centre was launched. Maiden LPG supplies to Port Blair. SERVO became a Super Brand. IndianOil named as nodal agency by MoP&NG to undertake research in the

areas of production, storage, distribution and utilisation of hydrogen gas as an alternative fuel.

The foundation stone of IndianOil's Panipat Refinery expansion (6 to 12 MMTPA) project and PX/PTA plant (553 TMTPA) project laid at Panipat.

2004 IndianOil turned a Gas marketer by sale of regasified LNG. IndianOil Mauritius Ltd.’s 18 TMT state-of-the-art Oil Storage Terminal at

Mer Rouge commissioned.

2005 The year marked IndianOil's big ticket entry into the high stakes business of

E&P. The IndianOil and Oil India consortium signed its Exploration and Production Sharing Agreement (EPSA) with the National Oil Corporation of Libya for Block No. 86, in the Sirte basin of Libya.

IndianOil becomes the top oil trading company amongst national oil companies in the Asia Pacific region for the second consecutive year.

IndianOIl breached the Rs 150, 000 crore mark in sales turnover by clocking Rs 150, 677 in turnover in fiscal 2004.

[15]

IndianOil signed a JV agreement with GAIL to enter the city gas distribution projects in Agra and Lucknow.

2007 & 2008 IndianOil Refineries achieved highest ever output of 47.4 MMT during the

year 2007-08, registering a growth of 7.7% in crude processing over last year, surpassing 100% capacity utilisation. This feat has been achieved by the collective support of Corporate Office, Marketing Division and Pipelines Division through highest ever evacuation of the products.

During the year, three of our Refineries, namely Barauni, Gujarat and Panipat achieved highest-ever crude throughputs of 5640 TMT, 13715 TMT and 12830 TMT respectively.

The Commendable performance of the Refineries was suitably acknowledged with a number of awards during the year 2007-08, notably in the fields of Energy Conservation, Safety & Environment Management. IndianOil's Mathura and Panipat Refineries have won two prestigious awards for their Energy Conservation efforts from the Centre for High Technology(CHT).

[16]

[17]

History of Indian Oil

Indian Refineries Ltd.

19581958

Indian Oil Corporation

Ltd.

1st September1st September 19641964

Indian Oil Company Ltd. 19591959

MergerMerger

[18]

Navratna Status

Pre-requisites

Continuous overview of performance through Committee of Secretaries

Restructure Boards by

induction of non- official part- time

Directors

Develop

• Vision

• Strategies

• Internal Control

No Financial / Budgetary Support

w.e.f. 22.7.1997

[19]

Corporate Structure

Refineries (including AOD’s Digboi Refinery)

Pipelines

Marketing (including AOD’s Marketing)

R&D

BOARD

Divisions

Finance including

International Trade / Information Systems / Optimization / Corporate Affairs

Human Resource including Corporate Communications

Planning & Business Development

Corporate

[20]

Refineries Division

[21]

Refineries

Digboi (AOD)GuwahatiBarauniGujaratHaldiaMathuraPanipatBongaigaon

Refineries HQ, New Delhi

Projects

Materials M & I

Finance

S & EP

Technical HR

[22]

Indian Refineries

MUMBAI

(BPC 12.0)

(HPC 5.5+ 2.4)

MATHURA

(8.0)GUWAHATI

(1.0)

BARAUNI

(6.0)

HALDIA

(6.0+1.5)

KOCHI

(7.5 + 2.0)

BARODA

(13.7)

DIGBOI

(0.65)

NARIMANAM (1.0)

MANGLORE

(9.69 +5.31)

PANIPAT

(12.0+3.0)

VISAKH

(7.5+0.8)

NUMALIGARH

(3.0)

BONGAIGAON

(2.35)

CHENNAI (9.5+ 1.7)

JAMNAGAR

(RIL 33.0 + 29.0)

ESSAR 10.5+ 3.5)

TATIPAKA

(0.08 + 0.08)

PARADEEP

(15.0)

BHATINDA

(9.0)

OthersNew / Additions

BINA

(6.0)

Subsidiaries of IOC

Existing IOC

IOC

Operates 10 of India’s 19 refineriesGroup’s refining Capacity: 60.2 MMTPA

(1.2 mbpd) – Largest in the country 40.4% refining share in the country

(as of 1st Apr’08)

Total capacity :

149 MMTPA

(2.98 mbpd)

Refineries No. MMTPA

IOC Group 10 60.2

BPC group 3 22.5

HPC 2 13.0

ONGC/MRPL 2 9.8

RIL (Pvt.) 1 33.0

ESSAR 1 10.5

Total 19 149.0

[23]

Pipelines Division

[24]

Northern Region

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

Eastern

Region

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

Western Region

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

Southern Region

CTMPL (P)

Pipelines HO, NOIDA

Operations

MaterialsMaintenanceTechnical Services

Projects

[25]

Panipat

Guwahati

Koyali

Haldia

Mathura

BarauniKanpur

Bhatinda

Kandla

Vadinar

Chaksu

Ahmedabad

Jalandhar

Jodhpur

BudgeBudge

Kot

Delhi

BongaigaonSiliguri

Meerut

Sidhpur

Digboi

Tinsukia

Chennai

Navagam

Tundla Lucknow

Sanganer

Maurigram

Rajbandh

Najibabad

RoorkeeAmbala

Sangrur

Rewari

Ajmer

Chittaurgarh

Dahej

Sankari Asanur

Trichy

Madurai

Paradip

Mundra

ProductCrude Oil

IOC’s Pipelines (Existing)

ProductCrude Oil

IOC’s Pipelines (Ongoing)

Ratlam

Pipelines

Dadri

R -LNG Pipeline

LPG Pipeline

IOC Pipelines

(As on21.1.2009)

Crude: 4366 KM

(38.2 MMTPA,

100%)

Product: 5698 KM

(31.408 MMTPA, 53%)

Total: 10064 KM

(69.608 MMTPA, 71.4%)

Downstream Industry Pipelines

(As on 21.1.2009)

Crude: 4366 KM

(38.2 MMTPA)

Product: 9866 KM

(59.28 MMTPA)

Total: 14232 KM

(97.483 MMTPA)

Bangaluru

[26]

[27]

Marketing Division

Marketing HO, Mumbai

4 Regional Services

North/East/West/South

State Offices

Div./Area Offices

Field Force

Depots/Terminals/ BPs/SCFPs

AFSs

AOD International Marketing

&

Overseas Subsidiaries

[28]

Marketing Offices

[29]

Regional Offices : 4

State Offices : 17

Divisional Offices : 66

Indane Area Offices : 35

Patna

Delhi

Kolkata

Mumbai

Chennai

Jaipur

Bangalore

Trivandrum

BhubaneswarBhopal

Digboi

Ahmedabad

Guwahati

Chandigarh

Lucknow

Secunderabad

NOIDA

[30]

Lightest

Heaviest

Liquified Petroleum Gas (LPG)NaphthaMotor Spirit (MS)/ Petrol/ GasolineAviation Turbine Fuel (ATF)Superior Kerosene Oil (SKO)High Speed Diesel (HSD)Light Diesel Oil (LDO)Furnace oil (FO)Heavy Petroleum Stock (HPS)Lube oilsRaw Petroleum Coke (RPC)Petroleum WaxBitumen/ Asphalt

Major Petroleum Products

[31]

R&D Division

R&D Centre, Faridabad

Fuels &

Emission

Petrochem

& Biotech

Lube

Technology

Refining

Technology

Process DevelopmentProduct DevelopmentTransportation StudiesProjects

Others

FINANCIALS – IOC & SUBSIDIARIES

Subsidiary

Turnover

Profit After Tax

2006-07 2007-08 2006-07 2007-08

IOCL

CPCL

222826

29,349

249805

32,891

6963

565

7499

1,123

LIOC* 1,405 1,720 (29) 90

IOML* 427 535 8 14

IOC ME FZE* 18 41 (0.22) 1.3

[32]

It has refineries at:-

S.NO. NAME OF THE COMPANY LOCATION OF REFINERY

CAPACITY

(mtpa)

1. IOCL GUWAHATI 1.00

2. IOCL BARAUNI 6.00

3. IOCL KOYALI 13.70

4. IOCL HALDIA 6.00

5. IOCL MATHURA 8.00

6. IOCL DIGBOI 0.65

7. IOCL PANIPAT 12.00

8. IOCL BRPL 2.35

9. IOCL *CPCL 10.5

TOTAL 6O.2

[33]

IN EQUIVALENT INR

* In equivalent INR

RS. CRORES

*Subsidiary of IOCL

NOTE: MTPA – Million Ton Per Annum

The current Refining capacity stands at 60.2 million ton per annum.

Yet another refinery is being set up on the East Coast at Paradip(Orissa).

The outlay includes provision for Expansion of Barauni Refinery, Quality improvement for HSD at Haldia, Gujarat, Mathura, Grass Root Refinery in Eastern Sector, Residue Up gradation at Gujarat, and Implementation of Lube Quality improvement at Haldia etc.

Indian Oil’s countrywide network of over 22,000 sales points (as on 1st April, 2004) is backed for supplies by its extensive, well spread out marketing infrastructure comprising 167 bulk storage terminals, installations and depots, 94 aviation fuelling stations and 87 LPG bottling plants. Its subsidiary, IBP Co. Ltd. is a stand-alone marketing company with a nationwide network of over 3,000 retail sales points.

[34]

[35]

MISSION AND OBLIGATIONS

OF THE COMPANY

MISSION

To achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through value of products and services, and cost reduction

To maximise creation of wealth, value and satisfaction for the stakeholders

To attain leadership in developing, adopting and assimilating state-of-the-art technology for competitive advantage

To provide technology and services through sustained Research and Development

To foster a culture of participation and innovation for employee growth and contribution

[36]

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.

OBLIGATIONS

Towards customers and dealers

To provide prompt, courteous and efficient service and quality products at fair and reasonable prices

Towards suppliers

To ensure prompt dealings with integrity, impartiality and courtesy and promote ancillary industries.

Towards employees

Develop their capability and advancement through appropriate training and career planning.

Expeditious redressal of grievances.

Fair dealings with recognised representatives of employees in pursuance of healthy trade union practice and sound personnel policies.

[37]

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.

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

SOURCES OF DATA COLLECTION:

For collecting necessary data two sources have been used. They are

primary data & secondary data.

a) PRIMARY DATA:

Face to face discussion with the Finance Manager, Training Department personnel, Finance Department Personnel and the employees of Guwahati Refinery (a unit of IOCL).

b) SECONDARY DATA :

1. Data provided from the finance dept. regarding Cost of Investment, Cost

of Capital, Estimated cash inflows And other related information.

2. Journals and magazines published by I.O.C. Ltd.

[38]

3. Library: records and manuals.

4. Through Company websites i.e.

www.iocl.com

BRANDED PRODUCTS OF IOCL

[39]

INDIAN OIL

GUWAHATI REFINERY

Guwahati Refinery is one of the largest production based organization in the entire Northeast having 900 employees in total.

Guwahati Refinery, the first public sector refinery of the country, was built with Romanian collaboration and was inaugurated by the first Prime Minister of India, Pandit Jawahar Lal Nehru, on 1st January 1962.

Indian Oil commissioned India's first product pipeline, the Guwahati - Siliguri pipeline, in 1965. This 435-Km pipeline connecting Guwahati Refinery to different installations was designed to carry about 0.818 MMT of oil per year. As on 1st April 2003 Indian Oil operates the country's largest network of 7170 km of crude and product pipeline with a total capacity of 52.75 million metric tonnes per annum. From a small begining with a sale of 0.032 million kilolitres, IndianOil achieved sales of 10 million kilolitres with a turnover of Rs. 635 crore and profit Rs. 22.5 crore by the late 60's. From then on, the company has grown from strength to strength and presently the company sold 46.46 million tonnes of petroleum products in the domestic market during the financial year 2003.

Guwahati Refinery is amongst those Indian Refineries who have been rewarded with ISO-9001 certification of International Quality Standards as well as ISO-14001, for Environment Management System and Occupational Health and Safety Management System (OSHMS) which is also a stringent

[40]

International Standard which very few Indian Companies have achieved till date. Guwahati Refinery has been certified with International Safety Rating System (ISRS) level-6 certification by M/s DNV. These achievements show the deep commitment of Guwahati Refinery to Quality, Safety and Environmental Management System.

Guwahati Refinery came into operation in the year 1962 with an installed capacity to process 0.75 MTPA of Assam Crude. After debottling the operating process units, the total refining capacity was

subsequently enhanced in first stage to 0.85 MMTPA and now to 1.0 MMTPA.The Refinery has an elaborate pollution control system to ensure that water generated are adequately treated prior to discharge into the river Brahmaputra. More than 50 % of the treated effluent water is now reused in the refinery.

Wide Range of Products: With capacity of 1.0 MMTPA, Guwahati Refinery processes crude oil received from the upper Assam oil fields and caters to the requirement of the petroleum products of northeastern region.

Its product slate includes LPG, Motor Spirit (MS), Kerosene, High Speed Diesel (HSD), Light Diesel Oil (LDO), Straight Run Naphtha (SRN), Raw Petroleum Coke (RPC), and a special cut naphtha (RN) which is used as a feed stock for CRU of Digboi Refinery of Assam Oil Division. Keeping pace with changes in Industrial Environment, Guwahati Refinery is diversifying to produce specialty products like Premium MS & Needle coke etc. for gearing up the cleaner fuel requirements of the country in coming years.

Guwahati Refinery is the first refinery in India to produce Needle Coke.

Guwahati refinery set up with the expertise and technical assistance. From the Romanian Government was initially designed to process 7, 50,000 metric tones of crude oil per year and now has been upgraded to process 1.00 MMTA (million metric tones of crude per annum). The refinery process a mix of Oil (Oil India Limited) and ONGC (Oil & Natural Gasses Corporation Limited) crude received from Assam Oil fields through a 430 km long and 16-trunk pipeline.

[41]

BRIEF DESCRIPTION OF THE PROJECT:

Guwahati Refinery with an installed capacity of 1.0 MMTPA has Motor Spirit (MS), Superior Kerosene Oil (SKO), Aviation Turbine Fuel (ATF) and High Speed Diesel (HSD) as white oil products. These products are stored in various storage tanks at Oil Movement & Storage (OM&S). The various types of tanks at OM&S for above services are enumerated in Table - I:

Table – I

Sl. No.

Tank No. Service Capacity; KL

Type

01 9 MS 5000 FLOATING

02 10 MS 5000 FLOATING

[42]

03 11 MS 5000 FLOATING

04 26 MS 5000 FLOATING CUM FIXED

05 27 MS 5000 FLOATING CUM FIXED

06 83 MS-ISOSIVATE 2000 FLOATING

07 84 MS-ISOSIVATE 2000 FLOATING

08 00B2 MS-XP 200 FIXED

09 00B3 MS-XP 200 FIXED

10 00B6 MS-MULTISERVICE 500 FLOATING

11 00B7 MS-MULTISERVICE 500 FLOATING

12 13 SKO 5000 FIXED

13 94 SKO 5000 FLOATING

14 70 ATF 2000 FIXED

15 78 ATF 2000 FIXED

16 79 ATF 2000 FIXED

17 12 HSD 5000 FIXED

18 14 HSD 5000 FIXED

19 16 HSD 2000 FIXED

20 21 HSD 5000 FIXED

21 22 HSD 5000 FIXED

22 23 HSD 5000 FIXED

23 28 HSD 5000 FLOATING

24 29 HSD 5000 FLOATING

25 93 HSD 5000 FLOATING

26 00B5 HSD 800 FIXED

27 00B4 HSD 800 FIXED

From Table – I it can be seen that high capacity majority of SKO & HSD tanks are of fixed roof type contributing to fugitive emission loss resulting in high

[43]

fuel & loss of the refinery. Opportunity exits for reduction of loss by converting high capacity tanks of OM&S from fixed roof to floating roof.

The Floating roof facilitates the reduction of evaporative loss that occurred the vapour space of fuels that were stored in fixed – roof tanks. It has not only proved effective for reducing emissions from the storage of volatile organic compounds when compared to fixed – roof tanks, but also helped to reduce the potential for vapour space explosions that regularly occur in fixed – roof tanks. The floating roof also virtually eliminates the possibility of a boil over phenomenon that occurs in fixed – roof tank farms where crude oils are stored. Because of these advantages the floating roof is now used extensively throughout the industry to store petroleum and petrochemical substances in large quantities.

As per Benchmarking report of Shell Global Solutions International, Storage and handling Index of Guwahati Refinery for the year 2003-04 & 2004-05 are 429.4 and 458.8 respectively against Shell benchmark of 86.2 and this accounts to a gap of US$ 0.6 millions.

1. COST ESTIMATE : Rs. 151.6 Lakhs

- Price used are based on which year : 2008–09

- % of escalation amount : 10 %

- % of custom duty/other duties : N/A

Cost of conversion of roof from fixed to floating of Tank–13 is Rs. 151.60 Lakhs

only.

For cost estimation engineering services were asked to provide with basic cost estimation for various jobs of roof conversion from Fixed to Floating for tank-13. Based on cost estimation of engineering services detail cost estimation was prepared for the total job and material with 10 % escalation. As per total cost estimation Tank roof conversion of T-13 will cost Rs. 151.6 Lakhs.

[44]

2 .JUSTIFICATION OF THE PROPOSAL:

2.1 Fugitive emission loss from Tank – 13 has been estimated to be 59.9

MT of SKO per Annum respectively.

2.2 By conversion of Roof from fixed to floating roof of Tank – 13 Guwahati Refinery can save 60.0 MT of high valued petroleum products and earn extra revenue of Rs. 17.54 Lakhs/Annum with average 2005-06, 2006-07 & 2007-08 AOR prices of SKO @ Rs. 29281/MT.

2.3 Guwahati Refinery’s Fuel & Loss is second highest among Indian refining sector and this proposal is towards improvement in this area. Details of loss and crude processing of Guwahati Refinery for last four years are enumerated in Table – II as below:

Table – II

Sl. No. A O R Crude Processed; MT Loss; MT Loss on % of Crude

01 2003-04 890655 4269 0.48

02 2004-05 1002271 5250 0.52

03 2005-06 863911 5083 0.58

04 2006-07 839074 4364 0.52

[45]

05 Average 898978 4742 0.53

2.4 Tank – 13 is higher capacity which accounts to high fugitive emission. 2.5 The project will attract additional recurring benefit of Rs. 0.85 Lakhs/Yr under Clean Development Mechanism (CDM).

2.6 GR inspection recommended for replacement of tank roof in 2006.

2.7 Being refinery located in heart of the city, the proposed facility will contribute towards corporation’s social commitment for cleaner environment.

ADVANTAGES:

SHORT TERM:

As stated above in justification.

LONG TERM:

a) ALTERNATIVE OPTION CONSIDERED, IF ANY: N/A

b) CONSEQUENCE (ON PRODUCTION/ PROFIT/ EFFICIENCY ETC.,) IN CASE

THE PROPOSAL IS NOT ACCEPTED :

i) LOSS OF PRODUCTION : YES ii) LOSS OF PROFIT : NOiii) LOSS OF EFFICIENCY : YESiv) OTHERS (PLEASE SPECIFY) : N/A

1. TECHNICAL FEASIBILITY :

a) EFFECT OF ENVIRONMENT, IF ANY: Yes, high ongoing fugitive loss.

[46]

b) TECHNICAL CONSTRAINTS, IF ANY: No

2. IMPACT OF PROPOSAL ON MANPOWER:

a) WHETHER ADDITIONAL MANPOWER IS REQUIRED FOR RUNNING THE FACILITY. IF YES, PLEASE FURNISH THE DETAILS IN THE FORM OF AN ANNEXURE. No

b) IF ADDITIONAL MANPOWER IS REQUIRED, HOW THE SCHEME WILL BE MANNED : No

c) WILL THE PROPOSAL RESULT IN SAVING MANPOWER FOR DEVELOPMENT IN OTHER JOBS : No

3 . OPERATIONING AND MAINTENANCE COST: NO

4. REQUIREMENT OF ADDITIONAL WORKING CAPITAL, IF ANY: No

(DETAILS TO BE ATTACHED)

1. ECONOMICS:

a) NET SAVING : Rs. 17.54 Lakhs (Without CDM) Rs. 18.39 Lakhs (With CDM)

b) PAY BACK PERIOD : 9.893 Year (Without CDM) 9.493 Year (With CDM)

- AS PER PRICING NORMS

[47]

- CIF BASIS

c) INTERNAL RATE OF RETURN : 7 % (Without CDM)

8 % (With CDM

d) ANY OTHER CRITERIA USED : Reliability & Social Commitment

Details of economics calculation is enclosed as Annexure-II

2. COMPLETION SCHEDULE: By May, 2010

A detail of completion schedule is enclosed as Annexure –III.

3. PHASING OF EXPENDITURE:

YEAR Rs. (Lakhs)

2008 0

2009 151.6

4 .CLASS OF PROPOSAL:

PRIORITY MARKS

STATUTORY REQUIREMENT [ ] 20

SAFETY ITEM [ ] 20

ECONOMIC GROUNDS [ ] 18

OPERATIONAL NECESSITY [ ] 16

[48]

WELFARE / SOCIAL BENEFIT [ ] 14

REPLACEMENT / ADDITIONAL OF ASSETS [ ] 12

5. LEVEL OF DESIRABILITY:

PRIORITY WEIGHTAGE

ESSENTIAL [ ] 5

HIGHLY DESIRABLE [ ] 3

DESIRABLE [ ] 1.5

6. PRIORITY RANKING:

PRIORITY WEIGHTAGE TOTAL

DEPT. UNIT HEAD [ 20 ] [ 5 ] [ 100 ]

UNIT ED [ 20 ] [ 5 ] [ 100 ]

HEAD OFFICE [ ] [ ] [ ]

[49]

In view of the foregoing, it is proposed to convert roof of Tank–13 from fixed to floating at an estimated cost of Rupees 151.6 Lakhs. The expenditure towards conversion of to be booked under Additional facility budget of 2008-09 & 2009-10.

LIST OF ANNEXURES

ANNEXURE – I TOTAL COST ESTIMATION

ANNEXURE – II BENEFIT ANALYSIS

ANNEXURE- III COMPLETION SCHEDULE

[50]

ANNEXURE-I

TOTAL COST ESTIMATION

DESCRIPTION Value Unit

Equipment & Machinery 66.9 Rs Lakhs

Erection Charges 47.1 Rs Lakhs

Civil Works 23.8 Rs Lakhs

137.8 Rs Lakhs

Add: 10% Contingency 13.8 Rs Lakhs

Total Expenditure - 151.6 Rs Lakhs

[51]

ANNEXURE – II

Benefit Analysis

Benefit calculation for Roof conversion of Tank-13 Annexure II

Sl.No

Parameter Value Unit Remarks

1 Total loss from T-13 with fixed roof 66.0 MT/Yr

2 Total loss from T-13 with Floating roof

6.1 MT/Yr

3 Saving by conversion of roof from Fixed to Floating for T-13

59.9 MT/Yr

4 Average SKO price 29281 Rs/Mt As per Avg Priceof AOR 2005-06, 2006-07&2007-08

5 Monetary saving by conversion of roof from fixed to floating for T-13

1753881 Rs/Yr

6 Total annual monetary saving 1753881 Rs/Yr .

[52]

Estimation of CDM Benefit for Roof Conversion of Tank-13

Calculation for CO2 emission reduction & CDM benefit

Parameters Value Units

Projected fuel saving from Roof Conversion

59.9 MT/annum

Average density of Saved Oil 0.84 MT/m3

Calculated C:H ration of saved oil 6.47

Carbon content of saved oil 51.88 MT/annum

Reduction in CO2 emission due to saved oil(Considering 12 MT of C generates 44 MT of CO2)

190 MT of CO2

Equivalent Carbon credit (CER) 190 CERPrevailing price of CER(Based on inputs from M/S Ernst&Young)

8.00 Euro/CER

Prevailing conversion rate of Euro to INR

56.18 Rs/Euro

CDM benefit based on E&Y projection 0.85 Rs/Lakhs/annum

Parameters Value Units

Projected monetary saving in a year 17.54 SRFT/annum

CDM benefit based on E&Y Projection 0.85 Rs. Lakhs/annum

Total Investment cost for Roof Conversion System 151.58 Rs. Lakhs/annum

Annual Operating Cost for Floating Roof 0.00 Rs. Lakhs/annum

[53]

ANNEXURE- III

COMPLETION SCHEDULE

SL.No. Activity Time Schedule

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09 to Dec-09

Jan-09

Feb-09

Mar-09

1. Placement of Approval

2. AF Approval by Management

3. Placement of NIT

4. Placement of P.O.

5. Job for Conversion of Roof

6. Inspection & Final Painting

7. Commissioning

[54]

Findings

Although the hurdle rate calculated as per the Weighted Average Cost of Capital (WACC) method is found to be 5.66% ( done purely for self-exercise purpose ), the actual hurdle rate as per IOCL policy for approval of any capital budgeting Project is fixed at 13% p.a. The project will only be accepted if IRR is greater than 13%. In the given case though IRR is less than 13 % the project was still accepted on Safety & Environmental grounds.

Since IOCL is a Public Sector Undertakings one of its responsibilities is to safeguard the environment . Although the project is not viable from Financial point of view still its recommended to accept the proposal since it will reduce emission of volatile organic compound in the environment.

Moreover from the Operational Benchmarking of Indian PSU Refineries Executive Summary ( enclosed herewith ) , it is seen that the hydrocarbon loss at Guwahati Refinery is much above the approved global standards of energy and hydrocarbon loss . Thus in view of the need for control of hydrocarbon emission , it is suggested that this project be approved .

[55]