INSTITUTE OF MANAGEMENT TECHNOLGY

PGDM 2010-12

SUMMER INTERNSHIP AT INDIAN OIL CORPORATION LTD.

A Project Report on

LPG - Operations
Submitted to MR. P.K. JHA CHIEF MANAGER (LPG OPERATIONS) Submitted by ANUJ GOYAL 2010276 CHANDRA SEKHAR K. K 2010064 SHISHIR AGARWAL 2010215

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INDEX
Acknowledgement ..................................................................................................................... 4 Glossary ..................................................................................................................................... 4 Introduction to IOCL................................................................................................................ 5 Introduction to Fossil Fuel ........................................................................................................ 6 Liquefied Petroleum Gas .......................................................................................................... 7 Properties of LPG .................................................................................................................... 7 Advantages .............................................................................................................................. 8 Comparison between LPG and CNG ........................................................................................ 8 LPG marketing in Indian history .............................................................................................. 9 Types of sales ........................................................................................................................ 10 Our project scope .................................................................................................................... 11 Methodology ............................................................................................................................ 11 IOCs LPG market statistics................................................................................................... 12 IOC market share in LPG ...................................................................................................... 12 Sector LPG consumption ....................................................................................................... 13 LPG supply demand balance .................................................................................................. 13 Demand forecast of LPG ....................................................................................................... 14 Supply Chain of LPG .............................................................................................................. 17 Logistics of LPG ...................................................................................................................... 23 Our study/analysis ................................................................................................................... 25 Concentration of production .................................................................................................. 25 Mangalore case (supply to Hazarwadi) .................................................................................. 28 Mangalore case (pipeline) ...................................................................................................... 28 Under/Over recoveries ........................................................................................................... 30 Maharashtra ....................................................................................................................... 31 Rajasthan ........................................................................................................................... 34 Punjab................................................................................................................................ 37 Himachal Pradesh .............................................................................................................. 40
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Haryana ............................................................................................................................. 43 Uttar Pradesh ..................................................................................................................... 46 Summary of Under/Over recoveries analysis ......................................................................... 49 Profit centers at IOCL ............................................................................................................ 50 Advantages ........................................................................................................................ 51 Disadvantages .................................................................................................................... 52 Recommended performance measure ................................................................................. 52 Challenges ......................................................................................................................... 52 Things a plant manager can do ........................................................................................... 53

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ACKNOWLEDGEMENT

Our summer internship though was of short duration, it would not have been a great learning experience without the able guidance of Mr. P.K. Jha. We take this opportunity to thank Mr. Jha and his team Mrs. Kavita Tickoo, Mr. Thakur, Mrs. Radha, Mr. Satish, Mr. Pankaj and Mr. Brijesh. Mr. Jha with his vast amount of knowledge, practical take on events and a hard stint to increase profitability of IOCL was a source of direction and motivation for us. We would specially like to thank Mrs. Kavita for her prompt support, guidance and valuable suggestions during our internship.

GLOSSARY

MT- Metric Tons TMT- Thousand Metric Tons MMT- Million Metric Tons MMTPA- Million Metric Tons Per Annum Km- Kilometer

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INTRODUCTION TO IOCL
Indian Oil Corporation (IOC) is an Indian state-owned (PSU) oil and gas company which was started way back in the year 1964. It was named as Indian Oil Company. With the merger of Indian Refineries Ltd., it was renamed to Indian Oil Corporation. It is Indias largest commercial enterprise, ranking 125th on the Fortune Global 500 list in 2010. IOC and its subsidiaries account for a 47% share in the petroleum products market, 34.8% share in refining capacity and 67% downstream sector pipelines capacity in India. IOC owns and operates 10 of India's 19 refineries with a combined refining capacity of 65.7 MMTPA. IOC operates the largest and the widest network of fuel stations in the country, which are about 17,606. It supplies LPG gas for domestic purposes (INDANE) to over 47.5 million households through a network of 4,990 distributors. In addition, IOC's Research and Development Center (R&D) at Faridabad supports, develops and provides the necessary technology solutions to the operating divisions of the corporation and its customers within the country and abroad. Later, IndianOil Technologies Ltd. - a wholly owned subsidiary, was set up in 2003, with a vision to market the technologies developed at IndianOil's Research and Development Center. It has been modeled on the R&D marketing arms of Royal Dutch Shell and British Petroleum. The products of IOC include: Indane Gas Auto Gas Natural Gas Petrol Diesel Jet Fuel Lubricants & Greases Marine Fuels Kerosene Bulk/Industrial Fuels Bitumen Petrochemicals Special Products Crude Oil

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INTRODUCTION TO FOSSIL FUELS

When the remnants of trees and animals get buried in the earths crust they are subjected to high pressure and temperature for a prolonged period of time and get converted to a fuel which is rich in carbon and hydrogen content. This is called as fossil fuel. Fossil fuels are naturally found in the earths crust and are not unlimited. Crude oil, the most common fossil fuel, is processed to remove impurities to produce fuels of different carbon content. As the carbon and hydrogen contents vary in the fuel the calorific value, i.e. the energy the fuel produces, of the fuel varies.

A COMPARISION OF CALORIFIC VALUE OF FOSSIL FUELS

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LIQUEFIED PETROLEUM GAS (LPG)

Liquefied petroleum gas is one of the most common and an alternative fuels used in the world today. Liquefied petroleum gas is also called as LPG, LP Gas, or Auto gas. The gas is a mixture of hydrocarbon gases used as a fuel for various purposes. This is mainly used in heating appliances and vehicles and is replacing chlorofluorocarbons as an aerosol propellant. It is also used as a refrigerant mainly to reduce damage to the ozone layer. The main reason behind this being the soaring in the prices of the oil, LPG has emerged as much preferred choice. LPG is a fossil fuel and can be refined from oil and natural gas. LPG is basically a hydrocarbon with propane and butane as main constituent. LPG is a by-product of natural gas processing. It is the product that comes from crude oil refining when carried with the smaller amounts of propylene and butylenes. LPG is largely propane and thus the characteristics of propane are sometimes taken as a close approximation to those of LPG. LPG or Liquefied Petroleum Gas has become the most preferred fuel when it comes to domestic and certain industrial uses. LPG is used for: Cooking Domestic and Industrial Heating Automotive Fuel Propellant for aerosols Feedstock for production of petrochemicals

Properties of LPG: Flammable Volatile Vaporizes readily Liquid forms lots of vapor one volume forms 250 volumes of vapor Liquid expands with temperature Vapor heavier than air : 1.5-2 times Colorless and odorless (unless odorized) Not much heat needed to vaporize No lubricating qualities Liquid is light weight: half as that of water Can cause asphyxiation

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There are many advantages which can be associated with LPG: 1) The most important advantage of using LPG is its effect on the environment. It is certainly a more environment friendly way and this is also another reason why many Asian Countries are also switching to LPG run cars and other vehicles. 2) LPG offers clean burning and this is also another reason why it is not very detrimental to the atmosphere in comparison to other fuels. 3) LPG equipments and burners do not demand a high maintenance because the burners have a longer life due to no soot deposits. 4) LPG is also considered highly efficient in comparison to many other fuels. It is good to be used in direct firing system. 5) LPG provides instant heat and is ideal when you require faster warm up or cooling down in any process. 6) With usage of LPG, corrosion effects are also reduced to a great extent. 7) Using LPG also avoids the parts of the equipments to get decarburized. At the same time, it also avoids scaling to a large extent. 8) The flame temperature resultant from LPG is instantly controllable and this is what is required when it comes to domestic uses of LPG. 9) LPG is indeed a greener and cleaner fuel since it has a low carbon content.

Like LPG, CNG is also a clean gaseous fuel which gives a tough competition to LPG. So we compare the properties of both to find out the better of the two.

A COMPARISION BETWEEN CNG AND LPG:

S.NO.
1. 2. 3. 4. 5. 6. 7.

CNG
Requires higher initial investment. Lower running costs. Lesser calorific value Bulkier and heavier storage tanks. Limited availability. Safer: It is lighter and has a higher ignition temperature. More popular with commercial vehicles.

LPG
Lower initial investment. Higher running costs. Higher calorific value Smaller and lighter storage tanks. Far better availability. Heavier and has a lower ignition temperature. More popular with private vehicles.

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WHY LPG IS BETTER:

LPG MARKETING IN INDIAN HISTORY LPG marketing started in India in the mid-fifties by the multinational oil companies (Burmah Shell / Stanvac) The bottling operations were then mainly confined to Refinery plants and marketing was limited to nearby areas Though IOC started functioning in the month May 1959, it actually started marketing of LPG in the year 1965 with brand name `INDANE. Demand started picking up from 1980s with (a) its acceptability as clean and safe product (b) additional availability from refineries and gas fractionators Till 1993, only government oil companies were permitted to market LPG The LPG (supply and distribution) Order was revised in 1993 to allow Private entrepreneurs to import, bottle, distribute and market LPG within the country under PMS.

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In the earlier eighties, the total number of customers in the country was about 30 Lakhs. After 3 decades, there is a multifold increase in number of customers/sales. LPG sales on account of IOC stood at 6600 TMT during 2010-11 as against Industry sale of 13911 TMT LPG waiting list stands fully liquidated

GRADES MARKETED/TYPES OF SALES Domestic LPG o Packed product in 14.2kg, & 5kg cylinders, home delivered through distributors Non domestic LPG o Packed product 19kg and 47.5 kg delivered supply through distributors. Exclusive distributorships in offing Bulk LPG o Delivered to storage tanks of customers o Business associates to garner customers Auto LPG o Through retail outlets and stand alone outlets at distributor premises.

Sales (YR. 2010-11)

2% 2% 7% DOMESTIC NON-DOMESTIC 89% BULK AUTO

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OUR PROJECT SCOPE

Study of IOCs LPG market share, all India supply and demand of LPG and present LPG demand and forecasting future demand. Study of supply chain of LPG including road, railway and pipeline distribution network and suggesting improvements. Study of under and over recovery at the bottling plant and identifying ways to reduce under recovery and thus optimizing the revenues. Study of profit center feasibility at IOCL.

METHODOLOGY
Collected and organized the data for LPG demand and supply, sources of LPG and modes of distribution with their details like costs, capacities etc. For ease and detail of analysis, we have divided India into four regions namely North, South, East and West.

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IOCS LPG MARKET STATISTICS

IOC MARKET SHARE IN LPG

Presently, there are three Oil Marketing Companies (OMC) in India Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited. IOCL has been enjoying the major market share of the three since 2004-05.

MARKET SHARE OF IOCL WRT. HPCL, BPCL

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SECTOR-WISE LPG CONSUMPTION IN INDIA (2010-11)

DEMAND FORECAST OF LPG

Every plan starts with a demand forecast. So with the past eight years data of actual LPG demand of the country we have forecasted the future demand of LPG. It is only a quantitative demand forecast. The actual demand values for the past 7 years are as follows:

Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

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Demand (in MT) 9877712 9922338 10531270 11335750 11779150 12745550 13911850

By visual inspection we can see that the demand has been increasing every year. So this made us choose the trend analysis method for forecasting demand.

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The forecasted demand for the next 12 years is as under:

Year 2011-12 2012-13 2013-14 2011-13 2012-14 2013-15 2011-14 2012-15 2013-16 2011-15 2012-16 2013-17 2011-16

Forecasted Demand (in MT) 14157190 14835640 15514090 16192550 16871000 17549450 18227910 18906360 19584810 20263270 20941720 21620170 22298630

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Other data: The trend equation: Y = 8729560 + 678453.3 X X = time Y = demand Mean Absolute Deviation (MAD) = 257947.9 The demand figures we have drawn are not accurate even. We tried to reduce the error by avoiding rounding off. The values for the first couple of years may get closer to the actual demand but as the forecasted values go further into the future the more unreliable the value gets. It is because there may be many unforeseen or unanticipated events that may increase or decrease the demand. As mentioned earlier, the method used is only a quantitative technique.

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SUPPLY CHAIN OF LPG

SUPPLY CHAIN OF LPG

LPG is obtained from three sources:

Refineries- Crude oil, when heated, emits vapors which when liquefied form LPG. Here, LPG is a by-product. Crude oil is imported from Saudi Arabia. Fractionators- Natural gas/ Shale gas, which is extracted from the earths crust, is processed into LPG. Imports- LPG is directly imported from other countries (Saudi Arabia, Iran, Malaysia, etc).

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The contribution of each source of production is under:

2010-11
IMPORT 32%
PSU REF. 29%

FRACT. 16%

PVT. REF. 23%

GEOGRAPHICAL VIEW OF LPG SOURCES

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CONSIDERATION OF EACH SOURCE INDEPENDENTLY:

REFINERIES: At present, out of a total of 19 refineries in India, 10 are owned by IOC, 3 by BPC, 2 by HPC, 2 by ONGC and 2 are held by private companies Reliance and Essar.

Region wise production capacity of refineries

Installed capacity of all the refineries as on 1-04-2010 is 235598 MT and IOC share of this capacity is 112900 MT.

FRACTIONATORS:
These are owned by ONGC and GAIL only and at present there are 12 fractionators 5 of ONGC, 6 of GAIL and 1 of OIL Duliajan. The total installed capacity is 2096 TMTPA.

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Region wise production capacity of fractionator

IMPORT: IOC imports LPG (Butane and Propane, which are the major constituents of LPG) from various countries like Saudi Arabia, Qatar, Malaysia, etc. There are 4 ports handling LPG imports Kandla, Haldia, Vizag and Mangalore. The countries from where IOC imports LPG are as under:
Others 2% Qatar 20%

Malaysia 4%

Saudi Arabia 37%

Abu Dabi 22%

Kuwait 15%

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The imports are consistently rising to satisfy the rising demand of LPG. Following is the trend for the recent past:

IOC uses either Time Chartered (TC) or Voyage chartered (VC) ships for import. TCs are hired on a yearly basis or for a certain time period like 2-3 years. VCs are hired for a particular voyage only as and when there is a sudden increase in demand these are used. Moreover, these are also used in coastal movement transport of LPG along the coast line of India. The prices of Butane and Propane fluctuate on the monthly basis.

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IN $/MT

THE TREND FOR LAST COUPLE OF YEARS

IMPORT PROPORTION OF BUTANE AND PROPANE

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LOGISTICS OF LPG

LPG is transported to the bottling plants in any of the three modes: PIPELINE- Pipeline is the easiest way to transport LPG but establishing it is a tedious task.

Once established, it is not possible to change the capacity of the pipeline. Currently, there are three pipelines in India: Jamnagar- Loni pipeline: 1200km, 2.5MMTPA Vizag- Secunderabad pipeline: 600km, 0.6MMTPA Panipat- Jalandhar pipeline: 275km, 0.7MMTPA

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RAIL- It is the cheapest way to transport LPG but availability of the tracks and stations are in the governments hands. At the source (refinery/fractionator/port) LPG is loaded into containers called as tank wagons which have a capacity of 37.5 MT (for 8-wheeler tank wagons) and unloaded at the bottling plant. To unload LPG from the tank wagon, bottling plants should install separate machinery. Not all bottling plants have this feature because not all bottling plants have rail facility.

ROAD- Trucks of 18MT capacity is used to carry bulk LPG. It is the most costly mode of transportation of bulk LPG and should be minimized as much as possible.

COASTAL MOVEMENT- This is the movement of LPG by ships along the coast. Whenever there is an excess of production at RIL, Jamnagar the material is moved from Jamnagar to other coastal areas like Kandla, Mangalore, Vizag and Haldia.

BOTTLING PLANTS:
When LPG is produced at the refinery/fractionators, it is transported to a bottling plant where LPG is bottled in cylinders of 14.2kg and 5kg for domestic/cooking consumption. These cylinders are sent to the distribution centers (markets) by trucks. The distribution centers sell the cylinders to the public. Bulk LPG for industrial and auto consumption is not bottled. LPG is stored at the industry site in tankers. Once LPG is bottled in cylinders, it is transported to the distribution centers by road.

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OUR STUDY/ANALYSIS

Concentration of production
Earlier, we have seen that the production of LPG is from three sources viz. refineries, fractionators and imports. The sources are distributed across the country and so are the markets. We learnt that most of the imports are from Saudi Arabia which is near to the west of India. So obviously, LPG is imported to the ports at the west coast of India and later distributed to the other parts by land. Similarly, even crude is imported from Saudi Arabia and so imported at the ports on the west coast. Observing these points, we wanted to analyze the distribution of sources across India and if they are meeting the demands of their locality. Broadly, we divided India into four major regions viz. North, East, West and South and categorized all the sources of LPG (IOC, BPC, HPC, RIL, ONGC) into the four categories. On doing so, we found a very huge imbalance in the production and demand of LPG in the corresponding regions.

(2010-11)

NORTH EAST WEST SOUTH

IN TMT 1051 697 6352 1388

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(2010-11)

NORTH EAST WEST SOUTH

IN TMT 4399 1760 3514 4240

The maximum consumption is at the north region (32%) followed by the south region (30%) where the production is only 11% and 15% respectively. So the difference is 21 percentage points at north and 15 percentage points at south which is equivalent to 3348 TMT and 2852 TMT respectively. The maximum production is at the west (67%) where the consumption is only 25%. So, the material has to move from west to north and south. These imbalances infer that the material, a total of 6200 TMT, has to be transported from the source to the markets to meet the respective demands. With such huge imbalances, a lot of material has to be transported which will cost millions of dollars. Rs. 1480 is the average price to transport 1 MT of LPG for 1km and if the average distance between the reference points of north (Delhi) and west (Kandla) is 1100 km then the average cost of transporting 3348 TMT is 1480 * 3348 * 1000 * 1100 = Rs. 5,450,544,000,000 per annum

Similarly, the average transportation from west (Kandla) to south (Bangalore) is 1480 * 2852 * 1000 * 1800 = Rs. 7,597,728,000,000 per annum

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OUR ANALYSIS AND SUGGESTION: 1. IOC uses time chartered vessels to import. So, based on the demand, if a part of the ship tankage is unloaded at Kandla (which is the nearest port to Saudi Arabia) and another part is unloaded at Mangalore (south), the transportation cost through road/ rail is avoided. But there is an additional terminal charge at the Mangalore import port location. Even then, we would still be at an advantage because the average cost by rail is Rs. 1.13 per km/MT and the average terminal cost does not exceed 340/MT. The distance between Kandla and Mangalore is around 1750km. So the cost for transporting by rail (assuming that there is rail facility) is 1750*1.13= 1980/MT. So the savings here will be the amount of LPG unloaded at Mangalore instead of Jamnagar times the difference between the costs incurred. So for every 1000 MT (1 TMT), we can save 1000*(1980-340) = Rs. 16, 40,000

2. Fractionators produce LPG from the natural gas available in the earths crust. We cannot change the location of availability of natural gas in India. So, where ever we get the resources we have to extract it at that location itself. According to Hart energy, USA www.hartenergy.com, there are natural gas resources at Krishna-Godavari (KG) basin at Andhra Pradesh (south), which is being extracted by RIL, and also at the coasts of West Bengal (east). The availability of the resources is at ideal locations to balance our production and demand imbalances. So we can tap these resources to increase our production and also to balance the difference.

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THE MANGALORE CASE (SUPPLY TO HAZARWADI):

After studying the supply chain of LPG across the country, we have observed that the LPG that is being transported from Mangalore is actually arriving from Jamnagar port. LPG is being transported from Mangalore to various other parts in that region. One of the places Mangalore is supplying to is Hazarwadi (Miraj) which is 783km away by rail. It costs Rs. 888/MT to transport LPG from Mangalore to Hazarwadi by rail. OUR ANALYSIS/SUGGESTION: Hazarwadi is located in Maharashtra and is just 190km from Ratnagiri which has a port. So, instead of transporting LPG from Jamnagar to Mangalore passing Ratnagiri and again from Mangalore to Hazarwadi, it is better to unload some quantity of LPG at Ratnagiri port and transport it to Hazarwadi depending on the demand at that region. The savings: The average quantity Hazarwadi plant takes per month is 4600MT. (783-190) * 1.13 * 4600 * 12 = Rs 3, 69, 88,968

THE MANGALORE CASE (PIPELINE):

Mangalore gets its share of LPG from HPC refinery, direct imports and through coastal movement. The actual LPG supply to Mangalore for the year 2010-11 from all the above sources are listed below1. Production- 281460 MT 2. Imports- 1641000 MT 3. Coastal movement- 302069 MT TOTAL- 2224529 MT The actual upliftment capacities of the various modes are as follows1. Railo Hazarwadi- 55200 MT o Coimbatore- 124200 MT

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o Cherlapalli- 13800 MT o Devangunthi- 207000 MT o TOTAL- 400200 MT

2. Pipeline: Not available

So, the balance amount of LPG (1824329 MT) is transported by road which is the most costly mode of transportation.

OUR SUGGESTION: A Mangalore Bangalore Karur pipeline. Bangalores requirement is high and Karur is geographically in the centre of those areas to which LPG is to be distributed. The savings: The average cost of transportation of road and that of pipeline are nearly Rs. 4/MT/km and Rs. 1.6/MT/km. The distance between Mangalore and Karur via Bangalore is 654km. Assuming that the new pipeline has a capacity of 1 MMTPA, the savings would turn out to be 10, 00,000 * (4-1.6) * 654 = Rs. 156, 96, 00,000

Capacity (MMTPA)

Savings till Bangalore (Rs.) per annum 84,96,00,000 59,47,20,000

Savings till Karur (Rs.) per annum 156, 96, 00,000 109, 87, 20,000

1 0.7

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MOVEMENT OF LPG IN CENTRAL INDIA:

In central India most of the movement of LPG is primarily moved by road. Only one bottling plant at Bhopal has rail facility. As lying out of rail is not possible for IOC we have suggested a pipeline to reduce the transportation cost. A Kandla-Indore-Jabalpur pipeline. The savings will be the reduction in the transportation cost calculated below: Average road transport cost: Rs. 4/MT/km Average pipeline transport cost: Rs. 1.6/MT/km Distance from Kandla to Jabalpur via Indore: 950km If capacity of pipeline = 1 MMTPA So, savings = 950 * (4-1.6) * 1000000 = 228, 00, 00, 000 Capacity (MMTPA) 1 0.7 Savings (Rs. per annum) 228, 00, 00, 000 159, 60, 00, 000

The cost of installation of a pipeline is expected to grow to Rs. 1.4 crores per km. So, the cost of laying 1 MMTPA pipeline = 1, 40, 00, 000 * 950 = 1330, 00, 00, 000 Hence, we can reach the break even in 5yrs 10months.

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UNDER/OVER RECOVERIES

The bottling plants bottle the gas and transport the cylinders to various distribution centers by road. The transportation cost for the same is borne by the government under some conditions. The distance from the bottling plant to the distribution center determines the amount the plant gets per cylinder from the government. The slab break-up is as follows:

DISTANCE (in km) 0-80 81-110 >110

PAYMENT (Rs. per cylinder) 10 12 14

The actual transportation cost might actually be different than the price government pays. Even if the distance from the bottling plant to the market is 40 km (0-80km slab) and the plant incurs a transportation cost of Rs. 12 per cylinder the government pays only Rs. 10 per cylinder. So the Rs. 2 is the under recovery of the plant. If the plant incurs Rs. 8 for the same then Rs. 2 is the over recovery. The bottling plants and the distribution centers are scattered over the country in a random manner. So it is important to identify those plants which suffer under recoveries and suggest measures to minimize or eliminate the under recoveries by suggesting a new bottling plant at a feasible location or altering the capacity of an existing bottling plant etc.. The analysis was done state wise and suggestions with the possible savings are given below.

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MAHARASHTRA ANALYSIS
EXISTING BOTTLING PLANTS Akola (Dhanaj) 60 TMTPA Manmad 30 TMTPA Pune (Chakan) 30 TMTPA Since now all three Bottling Plants Akola, Manmad, Pune has under-recovery of -41.805, 15.886, --22.248 lakh per months approximately. Overall recovery of IOC from their plants in Maharashtra is -79.939 lakh. EXISTING CAPACITY AND RECOVERY RECOVERY CAPACITY IN IN TMTPA LAKHS/month 60 60 30 150 -41.805 -15.886 -22.248 -79.939

STATE MAHARASTRA MAHARASTRA MAHARASTRA

LOCATION AKOLA (DHANAJ) MANMAD PUNE SUB TOTAL

PLANTS WE PROPOSE Nagpur 60 TMTPA - Monthly volume in Nagpur region 2021.72 MT - Yearly volume in Nagpur region 24260.64 MT or 24.26 TMTPA - Nearest Source of LPG Bina BPC refinery in Madhya Pradesh Beed 30 TMTPA - Monthly volume in Beed region 966.72 MT - Yearly volume in Beed region 11600.64 MT or 11.6 TMTPA - Nearest source of LPG ONGC Fractionators at Ussar in Maharashtra Satara 30 TMTPA - Monthly volume in Satara region 732.5 MT - Yearly volume in Satara region 8790 MT or 8.8 TMTPA - Nearest source of LPG ONGC Fractionators at Ussar in Maharashtra By analyzing the each market and their monthly demand we find out many under recovery areas which can be improve by proposing a new plant close to these markets. So a new Bottling plant
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at Nagpur is proposed having capacity of 60 TMT annually. Nagpur plant can cover North East part of Maharashtra. Nagpur plant will get Bulk LPG from BPC refinery at Bina in Madhya Pradesh. There is also a need of a 30 TMTPA capacity plant in or around Beed (Bid) which will cover south east part of Maharashtra. This plant will fed by ONGC fractionators at Ussar in Maharashtra. One more plant can be installed for cover the under recovery market in south Maharashtra. A 30 TMTPA capacity Bottling plant will be sufficient to be installed at or around Satara which will cover south Maharashtra. This plant will fed by ONGC fractionators at Ussar in Maharashtra. AFTER INSTALLATION OF NEW PLANTS RECOVERY CAPACITY IN IN TMTPA LAKHS/month 60 60 30 150 -17.542 -15.886 -11.315 -44.743

STATE MAHARASTRA MAHARASTRA MAHARASTRA

LOCATION AKOLA (DHANAJ) MANMAD PUNE SUB TOTAL

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Manmad

URAN

BPC Ref

Mahul add

USAR

Proposed Plant

Existing Plant

As we have seen there is change in recovery of Akola (Dhanaj) plant from Rs. -41.805 to Rs. 17.542 lakhs and from Rs. -22.248 to Rs. -11.315 lakhs in Pune (Chakan) plant. So the overall change in recovery from the state would be from Rs. -79.939 to Rs. -44.743 Lakh. There is a savings of Rs.35.2 LAKHS per month & Rs. 4.22 CRORE per year.

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RAJASTHAN ANALYSIS
EXISTING BOTTLING PLANTS Ajmer 60 TMTPA Bikaner 30 TMTPA Jaipur 90 TMTPA Jhunjhunu 15 TMTPA TOTAL CAPACITY 195 TMTPA CAPACITY IN TMT 60 30 90 15 195 RECOVERY IN LAKHS/month -32.23 -6.79 4.37 4.52 -30.13

STATE RAJASTHAN RAJASTHAN RAJASTHAN RAJASTHAN

LOCATION AJMER BIKANER JAIPUR JHUNJHUNU SUB TOTAL

PLANTS WE PROPOSE Jodhpur 60 TMTPA - MONTHLY VOLUME 2871 MT - YEARLY VOLUME 34452 MT or 34.4 TMTPA - SOURCE OF LPG Jamnagar to Loni Pipeline at Ajmer in Rajasthan Udaipur 60 TMT - MONTHLY VOLUME 2371 MT - YEARLY VOLUME 28452 MT or 28.4 TMTPA - SOURCE OF LPG Any nearest Jamnagar Loni Pipeline Tap point By analysing the each market and their monthly demand we find out many under recovery areas which can be improve by proposing a new plant close to these markets. So a new Bottling plant at JODHPUR is proposed having capacity of 60 TMT annually. Jodhpur plant can cover central and Western Rajasthan. Ajmer is the nearest source of LPG which is Tap off point for JamnagarLoni Pipeline. There is also a need of a 60 TMTPA capacity plant in Southern Rajasthan and Udaipur is preferred location for installation of plant. This plant will feed by nearest Tap Off Point on Jamnagar-Loni Pipeline.
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AFETR INSTALLING NEW PLANTS RECOVERY CAPACITY IN IN TMTPA LAKHS/month 60 -1.79 30 -4.24 90 4.37 15 4.52 195 2.86

STATE RAJASTHAN RAJASTHAN RAJASTHAN RAJASTHAN

LOCATION AJMER BIKANER JAIPUR JHUNJHUNU SUB TOTAL

As we have seen there is change in recovery of Ajmer plant from Rs. -32.23 to Rs. -1.79 lakh and from Rs. -6.79 to Rs. -4.24 in Bikaner plant. So the overall change in recovery from the state would be from Rs. -79.939 to Rs. -44.743 Lakh. There is a savings of Rs.35.2 LAKHS per month & Rs. 4.22 CRORE per year.

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Proposed Plant 37 | P a g e

Existing Plant

PUNJAB ANALYSIS

EXISTING PLANTS Jalandhar 180 TMTPA Nabha 120 TMTPA Total Existing capacity 300 TMTPA

STATE PUNJAB PUNJAB

LOCATION JALANDHAR NABHA (PATIALA) SUB TOTAL

CAPACITY IN TMTPA 180 120 300

RECOVERY IN LAKHS/month -1.04 15.82 14.78

Since now Jalandhar has under-recovery of -1.04 lakh per months approximately while Nabha plant has over-recovery of 15.82 lakh per month. Overall recovery of IOC from their plants in Punjab as whole is 14.78 lakh.

PLANTS WE PROPOSE Bathinda 60 TMTPA - Monthly volume 2611 MT - Yearly volume 31332 MT or 31.3 TMTPA - Source of LPG HPC refinery in Bathinda Pathankot 30 TMTPA - Monthly volume 1871 MT - Yearly volume 22452 MT or 22.4 TMTPA - Source of LPG Jalandhar Pipeline in Jalandhar By analyzing the each market and their monthly demand we find out many under recovery areas which can be improve by proposing a new plant close to these markets. So a new Bottling plant at Bathinda located in south Punjab is proposed having capacity of 60 TMT annually. Bathinda plant can cover south Punjab, western Haryana, north Rajasthan. Hence Bulk LPG transportation cost from Refinery to Bottling Plant is minimal. Also in north Punjab, Himachal Pradesh and south Jammu & Kashmir all market is fed by Jalandhar plant. Due to high RTD there are under recovery in these areas. By analysing monthly demand in each under-recovery market there is need of a new bottling plant close to these markets. So Pathankot is chosen as location for new bottling plant with a capacity of 30 TMTPA
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AFTER IMPLEMENTATION OF BATHINDA AND PATHANKOT PLANT

STATE PUNJAB PUNJAB PUNJAB

LOCATION JALANDHAR NABHA (PATIALA) BATHINDA SUB TOTAL

RECOVERY CAPACITY IN IN TMTPA LAKHS/month 180 12.42 120 60 300 20.68 12.91 46.01

As we have seen there is steady change in recovery of Jalandhar plant from -1.04 to 12.42 and in Nabha plant change in recovery would be from 15.82 to 20.68. So the overall recovery from both these plants would be Rs. 33.10 Lakh. There is a savings of Rs.33.10 LAKHS per month & Rs. 3.9 CRORE per year. And recovery from Bathinda Plant will be minimum 12.9 lakhs per month or 1.6 crore per year. Total recovery from Punjab State will be Rs. 5.52 crore every year.

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PATHANKOT

Proposed Plant

Existing Plant

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HIMACHAL PRADESH ANALYSIS

EXISTING PLANTS Baddi 30 TMTPA Una 30 TMTPA TOTAL CAPACITY 60 TMTPA

EXISTING CAPACITY AND RECOVERY RECOVERY IN LAKHS/month -27.64 -30.88 -58.52

STATE HP HP

LOCATION BADDI UNA SUB TOTAL

CAPACITY IN TMT 30 30 60

TOTAL STATE UNDER RECOVERY IS Rs -58.42 LAKHS PLANTS WE PROPOSE Pathankot 30 TMTPA - Monthly volume 1871 MT - Yearly volume 22452 MT or 22.4 TMTPA - Source of LPG Jalandhar Pipeline in Jalandhar By analysing the each market and their monthly demand we find out many under recovery areas which can be improve by proposing a new plant close to these markets. So a new Bottling plant at Pathankot located at north Punjab is proposed having capacity of 30 TMT annually. Pathankot plant will cover north Punjab, western HP, and south JK. AFTER IMPLEMENTING PATHANKOT PLANT RECOVERY CAPACITY IN IN TMTPA LAKHS/month 30 -27.64 30 -22.07 60 -44.71

STATE HP HP

LOCATION BADDI UNA SUB TOTAL

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TOTAL STATE UNDERRECOVERY IS Rs. -44.71 LAKHS As we can see there is change in recovery pattern after implementing a new plant in Pathankot in Punjab. Rs. 14 lakh per month will be reduced from the existing under recovery and Rs. 1.7 crore will be saved.

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Existing Plant Proposed Plant

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HARYANA ANALYSIS
EXISTING PLANTS Gurgaon plant has over recovery of Rs. 5.98 lakh per month while Karnal plant has over recovery of Rs. 1 lakh per month.
STATE HARYANA HARYANA
LOCATION GURGAON KARNAL SUB TOTAL CAPACITY IN TMTPA 60 120 180

RECOVERY IN LAKHS/month 5.98 1 6.98

PLANTS WE PROPOSE Mahendragarh - 30 TMTPA Monthly volume 1680 MT Yearly Volume 20154 MT or 20.15 TMT Hissar 20 TMTPA Monthly volume - 1579.35 MT Yearly Volume 18952MT or 18.95 TMT Nearest LPG source Panipat refinery

AFTER IMPLEMENTATION
CAPACITY IN TMTPA 60 120 180

STATE HARYANA HARYANA

LOCATION GURGAON KARNAL SUB TOTAL

RECOVERY IN LAKHS/month 6.77 7.25 14.02

By analyzing the each market and their monthly demand we find out many under recovery areas which can be improve by proposing a new plant close to these markets. So a new Bottling plant at Hissar and Mahendragarh located at West Haryana and central Haryana is proposed having capacity of 30 TMT and 20 TMT annually respectively. Hissar Plant will cover western Haryana and Mahendragarh plant will cover central and south Haryana.

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Existing Plant Proposed Plant

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TOTAL STATE RECOVERY IS Rs. 14.02 LAKHS per month As we can see there is change in recovery pattern after implementing new plants at Mahendragarh and Hissar. Rs. 14.02 lakh per month will be reduced from the existing under recovery and Rs. 1.7 crore will be saved.

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UTTAR PRADESH ANALYSIS

EXISTING PLANTS
UNDER RECOVERY/ OVER RECOVERY/month -1.18 3.308 -2.708 3.705 -5.475 0.425 10.95 -3.09 1.968 7.903

STATE UP UP UP UP UP UP UP UP UP

BOTTLING PLANT ALIGARH ETAWAH FBD KANPUR KASHIPUR LPK LONI MATHURA SJP SUB TOTAL

CAPACITY IN TMTPA 15 23 30 120 23 23 120 120 45 740

PLANTS WE PROPOSE Bijnor 30 TMTPA - Monthly volume 1982 MT - Yearly volume 23.784 TMT By analysing the each market and their monthly demand we find out many under recovery areas which can be improve by proposing a new plant close to these markets. There is need of a new bottling plant at Bijnor plant with a capacity of 30 TMTPA. This will cover markets of north UP.

STATE UP UP UP UP UP UP 47 | P a g e

BOTTLING PLANT ALIGARH ETAWAH FBD KANPUR KASHIPUR LPK

CAPACITY IN TMTPA 15 23 30 120 23 23

UNDER RECOVERY/ OVER RECOVERY/month 1.38 3.308 0.71 3.705 -2.229 0.425

UP UP UP UP

LONI MATHURA SJP BIJNORE SUB TOTAL

120 120 45 20 539

12.35 2.14 2.81 8.29 32.9

TOTAL STATE RECOVERY IS Rs. 32.9 LAKHS As we can see there is change in recovery pattern after implementing a new plant in Bijnor in. Rs. 25 lakh per month will be reduced from the existing under recovery and Rs. 3 crore will be saved.

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Existing Plant Proposed Plant

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SUMMARY:
After analyzing and proposing new plants in these states following savings have been calculated: Old capacity in TMT 740 120 195 420 180 300 60 35 150 2200 New Old New Capacity in Recovery in Recovery in Total TMT Lakhs Lakhs/month savings 830 7.903 32.9 25 120 -49.964 -49.964 0 315 -30.13 2.86 32.99 420 54.28 54.28 0 220 6.98 14.02 7.04 390 14.78 46.01 31.32 60 -58.52 -44.71 13.81 35 -29.62 -29.62 0 270 -79.939 -44.743 35.196 2660 -164.23 -40.178 145.552

State UP UTTRANCHAL RAJASTHAN DELHI HARYANA PUNJAB HP JK MAHARASTRA TOTAL

Total Savings from all these states from existing plants will be Rs.1.45 crore per month or Rs.17.4 crore (approx.) every year.

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PROFIT CENTRES AT IOCL

PROFIT CENTERS A profit center is a unit in which the manager has the authority to make decisions on the sources of supply of the raw material and also the choice of markets. The managers have almost complete operational decision making responsibility and are evaluated by a profit measure. The costs and returns, and hence profits, for a unit are measured individually It helps the organization realize the profit making units and the non-profit units The unit managers are held responsible and evaluated based on the profits they make. They are in a position to optimize the performance of their centers.

THE CURRENT SCENARIO: A large corporation like IOCL contains many diverse productions, logistics, purchasing and distribution activities that are headed by a central unit. IOCL currently operates 89 bottling plants pan India. Most of the major decisions like modes to draw bulk LPG from various sources and to supply to the various distribution centers (markets) are taken by the main central unit of the organization. Understanding and considering every little hassle for all 89 bottling plants and to draw a plan/solution will be very hectic. Each bottling plant provides LPG for the domestic markets without having a control on the profit it makes as all the decisions are controlled by the central body. So the burden of increasing the performance of every plant in the country falls on the central body.

THE SOLUTION: DECENTRALIZATION It means to give the authority to the plant managers to take decisions for their respective plants. Decentralizing all the decision making authority for the functioning of the bottling plants removes load off the central unit and makes use of the talent and knowledge of the plant managers who have a better understanding of the local scenarios.

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ADVANTAGES: 1. Conservation of central management time: As the decisions are made by the plant managers, central management can spend time and resources to focus on other things 2. Computational complexity reduced drastically: The local plant managers have a better idea of the local scenario than anyone else in the central unit which is far off. So they are at a better position to tackle the issues or make use of the resources 3. Motivation for local managers: Good managers who are ambitious do not want to just carry on instructions but want to take decisions on their own and apply their talent. When they have such a freedom, they feel empowered and perform much better 4. It encourages local decision making and initiatives: Plant managers have the freedom to take new initiatives. Their main aim is to improve the performance of the individual plants. 5. A new insight to problems: When the profitable and non profitable units are identified, the central unit can look into the matter easily and solve the problem accordingly.

DISADVANTAGES: 1. Recruiting and training of plant managers may be harder 2. Not supplying LPG to all markets: If a plant suffers losses by selling LPG to a particular distribution center (market), the manager might not continue selling to that market to not affect his/her performance. So, the plant shows profits on the reports but may not supply LPG to all markets. 3. Region: The transportation rates, taxes and the demand are not equal in all states. So, it is not justified to assess a plant manager based on the profit he gets for the organization.

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THE RECOMMENDED PERFORMANCE MEASURE: As the taxes vary from state to state, it is not wise to calculate the profit after tax (PAT) to assess the manager. Instead, operating profit makes a better performance measure in this case. As the demand varies from state to state or market to market it is not right to assess the plant managers on the profit they make in numbers. So the performance measure to be used here is a ratio. The ratio should be:

CHALLENGES WHILE IMPLEMENTING: As mentioned before, a profit center empowers the plant manager to choose his/her supply sources and also his markets or price of the material to maximize the profits of his plant. But as the price of LPG is fixed by the government the plant manager has to reduce the cost as much as possible. Pricing factors of LPG: To know what measures a plant manager can take to reduce the price of LPG it is necessary to study how LPG is priced. Free/Fuel-On-Board (F.O.B.) price: This is the actual price of LPG at the time of loading into the ship at the port of the country exporting it. Ocean freight: It is the cost of transportation of LPG from the exporting country to the importing country by ship. Insurance: It is the cost of shipping insurance. Ocean loss: A small portion of loss (0.305%) is considered during the shipping. LC charges: Letter of Credit charges the bank levies for its services. Marketing cost and margin: The cost of marketing the product and some margin over it. Port dues & Wharfage: The price the import port charges for disporting the material. Import Parity Price (IPP): The sum of all the costs listed above. Even if the plant manager wishes to procure LPG from any fractionator or refinery, he has to buy LPG at IPP of the nearest port. Terminal charges: The charge for using the terminals at the port to store LPG. Freight charges: The cost of transportation of bulk LPG to the bottling plant. Fill cost: The cost of bottling. CVR depreciation: The cost of depreciation of Cylinder, Valve and Regulator.

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All these prices sum up to the cost of a cylinder ex bottling plant. As we can see, all the factors that contribute to the pricing of LPG are either fixed or market driven or government driven. A plant manager cannot alter any of the above costs except fill cost. THINGS A PLANT MANAGER CAN DO: As the plant manager cannot decide his vendor or his distribution market, he should stress more on reducing the operational cost of the plant. Here are some of the things he can do: Use double shifts: the capacity of the plant doubles without affecting the fixed costs. Form contracts with the transport services in his region to reduce the transport costs. Use only contract labour where required. Make use of the green belt in the plant area like planting cash crops or producing bio diesel etc.

So basically, the plant manager has the freedom to use his own creativity to increase both fuel profit and non-fuel profit.

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