Description
document is complete organization analysis of MRPL including organization structure, factors that led to its growth, expansion and decline.
1
Organizational Analysis
A Case Study on Mangalore Refinery and Petrochemicals Ltd
Contents
An introduction to the Organization ............................................................................................................. 3 Structure & Norms of the Organization ........................................................................................................ 4 Core Values of MRPL .................................................................................................................................. 5 Vision and Mission MRPL: .......................................................................................................................... 5 Process Flow Diagram .................................................................................................................................. 6 History .......................................................................................................................................................... 6 Share holding pattern ................................................................................................................................... 7 Share Variation .......................................................................................... Error! Bookmark not defined. Corporate Social Responsibility ................................................................................................................... 8 Conducive Factors Identified…………………………………………………………………………………………………………………8 The Decline of the organization .................................................................................................................. 10 Reasons for Growth .................................................................................................................................... 11 Further expansion of MRPL and factors involved ...................................................................................... 12 Certifications ............................................................................................................................................... 12 Awards & Accolades .................................................................................................................................. 13 Conclusion .................................................................................................................................................. 14 Learning from the project ........................................................................................................................... 15 Reference sources ....................................................................................................................................... 15
2
An introduction to the Organization
Mangalore Refinery and Petrochemicals Ltd well known as MRPL is a state of the art grassroot refinery which is located in the vicinity of Mangalore city. It is the third largest refinery in India. The refinery now has a capacity to process 9.7 million metric tonnes per annum of crude oil. The refinery has got a versatile design with high flexibility to process crudes of various API and with high degree of automation. It is the first refinery in the country to produce Motor Spirit and diesel meeting Euro-III norms. Company produces every possible product from the crude oil. MRPL produces products like Motor Spirit (Petrol), High Speed Diesel (HSD), Aviation Turbine Fuel (ATF), Naphtha, Bitumen, Sulphur, Furnace Oil, Liquid Petroleum Gas (LPG), Kerosene, Tar etc. MRPL supplies Aviation Turbine Fuel to Mangalore and Bangalore Airports; it supplies Petrol, Diesel, Kerosene and other products to Indian Oil Marketing Companies (OMCs) like IOCL, HPCL, BPCL etc. It is also the only refinery in India to have 2 CCRs producing unleaded petrol of High Octane.
3
Structure & Norms of the Organization:
BOD Chairman
President (OPS)
Assistant President (Refinery)
Assistant President (Breakdown)
President (Projects)
President (Marketing)
GM (Projects) AVP (HR) DGM (ADMIN) GM (Mech) DGM (Inst) DGM (Elect) DGM (Plant) VP (Finance) VP (Maintenance) VP (OPS) VP (TS) VP (Marketing)
As running a refinery is a high risk job, with potential for an accident very high, it has a highly mechanistic structure with all tasks and operations of the employees guided by SOP’S & Manuals. The Company has well defined procedures and guidelines for discharge of various functions. These are highlighted below:
1) Delegation of Powers: The M.D and Functional Director’s of the Company at various levels discharge their functions & responsibilities within the powers delegated to them by the Board of Directors under Delegation of Powers.
4
2) Laid down Policies and Guidelines: MRPL has laid down policies and guidelines governing major activities of the Company. While discharging the functions the officers need to follow these laid down policies and guidelines.
3) Manuals MRPL has procedural manuals covering all important activities. Manual ensues carrying of activities in a systematic and standardized manner and eliminate the scope of exercise of discretion. While discharging the functions covered by these Manuals, the officers need to follow the provisions of these Manuals.
Core Values of MRPL:
? ? ? ? ? Efficient use of resources Care for environment and safety Respect and value for employee Continuous improvement in growth Enhancing values for end consumer Teamwork Innovation
?
Vision and Mission of MRPL:
5
Process Flow Diagram:
History:
As the government had liberalized the petroleum industry, MRPL was incorporated on 7th March, 1988 pursuant to a Memorandum of Understanding (MOU) dated 26th June, 1987 executed between the President of India representing the Government of India (GOI), Hindustan Petroleum Corporation Limited (HPCL) and Indian Rayon & Industries Limited (IRIL) of AV Birla Group, for the purpose of setting up a refinery at Mangalore in the state of Karnataka. The Company obtained the Certificate of Commencement of business on 2nd August 1988, from the Registrar of Companies, Karnataka and subsequently the Letter of Intent from the Government of India; it was the first joint venture Oil Refinery in India.
6
It had an initial processing capacity of 3.0 Million Metric tonnes per annum. It is also the only Refinery in India to have 2 Hydrocrackers producing Premium Diesel (High Cetane) and also to have 2 CCRs producing Unleaded Petrol of High Octane. In March 2003 AV Birla group sold its 37 per cent stake in MRPL to ONGC. AV Birla group announced that it wants to exit the refinery project as it does not form part of its core competency. ONGC, with the core business of exploration and production of oil and gas, MRPL acquisition would take it one step further in forward integration.
Share holding pattern as on March31, 2008e 97: MRPL Percentage ONGC HPCL Banks/financial institutions/insurance companies Corporate bodies Foreign institutional investors Mutual funds/UTI Individual shareholders Total 2007-08 71.62 16.95 1.65 0.97 0.47 0.04 8.31 100.0
Source: CRISIL Research
Share Variation in 2007-08
7
Corporate Social Responsibility:
Samrakshan, MRPL's CSR program is committed to the well being of the communities around the refinery area. As an endeavor to empower women, the company took lead in organizing a skill development program for women from surrounding villages are trained in tailoring & stitch craft. A skill development center for women from fishermen community under women empowerment program has been also built. As a measure of goodwill to the project- displaced families, the company is also providing a overhead water tank to ease the drinking water problem of the rehabilitation colony. The internal roads of this colony are being asphalted. MRPL has donated medical equipments such as laser, dialysis machine and maternity equipments as well as establishing a Pediatric Ward to Government Hospitals. MRPL has constructed an Art Center, public park and is providing Mid Day meals in 11 schools covering 2,600 students. To educate regarding the water conservation and preservation among school children, Rain Water Harvesting Projects have been implemented in five schools of neighboring villages. With a view to provide better education to Government School children, the company has provided Teaching Aids, Sports Materials, benches & desks, water coolers to 70 schools of neighboring villages. MRPL has been providing scholarship assistance to students securing first two ranks in all the classes of the above schools.
Conducive Factors Identified:
India’s key advantages for developing itself as an export refining hub includes cost competitiveness and location advantage. India has significant lower cash operating costs on account of cheaper power and labor costs. The capital costs are also lower by as much as 25 to 50 percent over other Asian counterparts. Geographically, MRPL is strategically located en route of Middle East crude for East Asian and Pacific-rim markets. In fact, India possesses surplus refining capacity and has already turned into a net exporter of products. By 2010, the expected worldwide deficit in refining capacity would be around 112 MTPA because of shutting down of some of the smaller refineries in developed
8
economies. Smaller refineries in North America and Europe are finding it uneconomical to invest in cleaner fuels because of high compliance cost and cleaner fuel norms. In Japan and Australia, oil majors have rationalized their refining assets because they are becoming uneconomical to operate. Thus the potential for exports is huge and with their expansion plans MRPL hopes to capitalize on this opportunity.
MRPL is close to NMPT (New Mangalore Port Trust), so the import and export cargo of MRPL takes place here. MRPL Oil Jetties are located inside the NMPT (New Mangalore Port Trust). There are 6 lines running from Refinery to coastal terminal out of which four are White Oil lines and 2 are Black Oil lines. Out of 2 Black Oil lines one is a Crude receipt line of 36” diameter and other one is used for Furnace oil/ LSHS service. From coastal terminal hook up is taken for supplying products to IOCL and BPCL. Petronet Mangalore Hassan Bangalore Pipeline Limited (PMHBPL) is used transfer supplies to Bangalore. Oil comprises about 36 per cent of India’s primary energy consumption at present, and driven by India’s overall economic growth, it is expected to grow both in absolute and percentage terms. The growth in demand is projected to catapult the overall demand to 196 MMT in 2011-12 and 250 MMT in 2024-25.
Environment:
? Suppliers: Crude oil is the main raw material for Refinery. To ensure stability of supplies the company has a MOU with Iran an OPEC member to supply 1,20,000 barrels of crude per day. MRPL has planned to process 4,000 bpd of Cairn India's Rajasthan crude this year to reduce its dependence on imports of crude.
? International Factors:
MRPL’s forex transactions in a financial year towards payment of crude oil and receipts from export of petroleum products involve approx. US $ 6 billion. Company therefore faces the challenge to manage the fluctuation in forex market arising out of depreciation/appreciation of US $ vis-a-vis Indian Rupee. Considering that MRPL exports about 40-50% of its products and its domestic sales are also linked with US $ (trade parity price), there is a natural hedge to a large extent.
9
? Political Factors: Most of the known oil reserves are in one part of the world, i.e. West Asia (or the Middle East). The other major petroleum exporting countries are Russia, Nigeria, Indonesia and Venezuela. These countries have been politically unstable in the recent past and this has also led to the oil traders demanding a premium. ? Customers: MRPL and Shell Gas B. V., Netherland entered into a Joint Venture agreement on 5th Feb 2008 to form a joint venture company "Shell MRPL Aviation Fuel and Services Private Limited" for marketing of Aviation Turbine Fuel (ATF) to both Domestic and International airlines at Indian airports. The Promoter Companies will bring in respective services and strengths together to the JV. MRPL will bring its expertise and high quality products and Shell Aviation will bring its global brand, network and customer base in addition to stringent quality control procedure. The company continues to lay more emphasis on developing export potentials to sell its
surplus production capacity. The company has been supplying approx. 1.0 MMTPA of petroleum products to State Trading Corporation, Mauritius under the 3 year term contract, signed in July 2007. Discussions with other National Oil Companies of few other countries are in progress for long term tie ups for export of Petrol, Diesel, ATF & Fuel oil.
Decline of the organization:
Excessive debt, low capacity utilization and management conflicts are the reasons for decline between 1998-2003. Deregulation of the industry financial year 1999 coincided with firming oil markets, as the Organization of Petroleum Ex porting Countries (OPEC) initiated production cuts to revive sagging oil prices. Sharply rising feedstock prices eroded operating margins/profits. Further, high (fixed) interest cost put pressure on cash flows and wiped out post-tax profits. Starting FY99, the company also initiated work on expanding refining capacity from 3 m metric tonnes per annum (MMTPA) to 9 MMTPA. The 10
unfortunate turn in industry environment in addition to squeezing internal accruals and delayed completion of project expansion, which is likely to have come on-stream in FY 2002. The same is reflected in the dramatic rise in interest and depreciation costs for FY 2002. During this period, the scrip fell from Rs 21 to Rs 5 levels. MRPL's profit margins were restricted to that on refining. Marketing carries a higher margin in the oil industry, compared to refining but MRPL did not enjoy that benefit as it did not have a network of its own. Refining margins are thin at the best of times and subject to a lot of volatility based on the prevailing global oil prices. Being a new refinery and with a huge financial commitment, the thin margins took their toll. The problem was compounded by the inability of the Government to revise retention margins for the administered products. MRPL was already exposed to global crude price volatility with the government taking it out of the ambit of the administered pricing mechanism. It found its margins squeezed. The last straw came when global oil prices started their upward journey in mid-1999 pushing MRPL's margins into the negative territory. With deregulated product prices not keeping pace with the rise in oil prices and the Government failing to revise margins on the controlled ones, MRPL's finances started their downward journey last year. What actually made things miserable for MRPL was that its capacity expansion programme coincided badly with the above developments. The company found itself in the midst of a massive capital generation and management exercise exactly at one of the most trying time for its business.
Reasons for Growth:
Organization Restructure:
After ONGC acquired MRPL, it made efforts to slash costs at every turn and bring a new marketing focus to a company, which with accumulated losses of Rs 412 crore (Rs 4.12 billion) and underutilized capacity was lost in the now defunct Board of Industrial and Financial Restructuring heap. Infusion of cash and streamlining of management .Under ONGC, the refinery (designed capacity of 9.69 MMTPA) also achieved more than 100 per cent crude run for the first-time (highest-ever crude run of 104 per cent); After takeover ONGC pumped in Rs 600 crore (Rs 6 billion) and restructured MRPL's Rs 5,500 crore (Rs 55 billion) debt (which pushed its equity to 71.62 per cent).De-bottlenecking of the existing facilities was planned to improve capacity utilization and cut costs. ONGC delisted MRPL from Ahmedabad, Bangalore, Calcutta, Delhi and Madras Stock Exchanges because trading volumes were low and listing fees payable to the stock exchanges was being a burden. ONGC targeted at making MRPL energy efficient through administration of energy incentive schemes. Within a year it attained a composite 11
energy factor of 5.04 and the energy performance of the refinery was 68.98 MBTU/BBL/NGRF/
for the year 2003-04.
Further expansion of MRPL and factors involved:
The Company is implementing Phase III Refinery Project at a cost of Rs.7,943 Crore. This will enhance the refining capacity from the existing 9.69 MMTPA to 15 MMTPA and also increase the distillate yield (Petrol, Diesel, LPG, Propylene, Naphtha etc.) by about 10% eliminating the low value Black Oil (FO/ Bitumen) even while using more of low Price High Sulphur Heavy oils and high acid crude oils.
The establishment of a 7.5 MMTPA Refinery at the wellhead at Barmer would largely depend on the availability of crude oil from Rajasthan blocks at an economically viable price as well as adequate fiscal incentives from the State Government, for which the company is still in discussion with Rajasthan State Government.
A separate Company promoted by ONGC and MRPL in the name of ONGC Mangalore Petrochemicals Ltd. (OMPL) has begun implementation of the Aromatics Project, estimated to cost about Rs.4852 Crore, to produce Paraxylene and Benzene value added products, using Naphtha feed stock from MRPL.
MRPL is planning to setup a 15 MMTPA refinery at Kakinada for which a draft feasibility report has been prepared. These draft reports are presently being reviewed and a final decision for implementation or otherwise will be taken shortly.
Certifications:
MRPL is ISO 14001:2004 certified.
12
Awards & Accolades:
o MRPL has won the First Prize in the prestigious ‘Jawaharlal Nehru Centenary Award for Energy conservation in refineries’ for the year 2006-07, instituted by the Ministry of Petroleum & Natural Gas (MoP&NG) for the fourth consecutive year o o o State Gold award for excellence in exports (Non –SSI) for 2000-2001 , 02,05
IS0 14001 certification on September 2, 2002.
ISO: 9002 certification on December 1999 and was re-certified ISO 9001:2000 on January 2003.
o o
Oil Conservation Award from Ministry of Petroleum and Natural Gas on January 31, 2003.
Accredited Five Star rating by British safety council, UK in the year 2003 for its best Health and Safety Management Systems.
o
Green Tech Gold award for Environment Excellence in November 2004. 13
o o
National Safety Award for the year 2004 from Ministry of Labour, GOI.
Certificate of Excellence from New Mangalore Port Trust for handling highest Quantity of Crude in the year 2004-2005.
o o o o
Green Tech Gold Safety award for Health and Safety Management Systems in 2005.
Golden Peacock Environment Management Award for 2005 Overall Safety performance – runner - up award for the year 2005-06 by Ministry of Labour.
MRPL receives "Best Boilers" Award for the year 2005-06.
Conclusion:
1. The organization has a functional structure & tall hierarchy of authority with employee actions highly standardized through SOP’s and manuals. 2. Since then with ONGC’s expertise MRPL has adopted various cost cutting methods and new marketing policy to change the fortunes of the company. 3. The organization aimed to become fully integrated from exploration to marketing. With ONGC the company got access to their crude and also planned to setup retail outlets to complete the full cycle. 4. The company entered into lot of joint ventures and networks to ensure smooth supply of raw materials and evacuation of products.
5. Now being conferred Mini Ratna of the Indian government and a lot of expansion
projects lined up, the future looks good for MRPL.
14
Learnings from the project
1) How ONGC bought about the turnaround of MRPL from the brink of bankruptcy to being a very profitable refinery using their expertise in the oil sector. 2) Continuous focus on Safety and Energy Efficiency added to the profitability of MRPL 3) Even though MRPL was a state of the art refinery from the time of inception conflict between its major shareholders lead to its decline. 4) Considering the future demand MRPL is making use of technical approach to produce Euro III and Euro IV compliant fuels.
Reference sources
www.mrpl.co.in www.ongcindia.com www.petroleum.nic.in www.scribd.com www.crisilresearch.com www.moneycontrol.com www.hinduonline.com www.rediff.com Prowess database
15
16
doc_181904349.docx
document is complete organization analysis of MRPL including organization structure, factors that led to its growth, expansion and decline.
1
Organizational Analysis
A Case Study on Mangalore Refinery and Petrochemicals Ltd
Contents
An introduction to the Organization ............................................................................................................. 3 Structure & Norms of the Organization ........................................................................................................ 4 Core Values of MRPL .................................................................................................................................. 5 Vision and Mission MRPL: .......................................................................................................................... 5 Process Flow Diagram .................................................................................................................................. 6 History .......................................................................................................................................................... 6 Share holding pattern ................................................................................................................................... 7 Share Variation .......................................................................................... Error! Bookmark not defined. Corporate Social Responsibility ................................................................................................................... 8 Conducive Factors Identified…………………………………………………………………………………………………………………8 The Decline of the organization .................................................................................................................. 10 Reasons for Growth .................................................................................................................................... 11 Further expansion of MRPL and factors involved ...................................................................................... 12 Certifications ............................................................................................................................................... 12 Awards & Accolades .................................................................................................................................. 13 Conclusion .................................................................................................................................................. 14 Learning from the project ........................................................................................................................... 15 Reference sources ....................................................................................................................................... 15
2
An introduction to the Organization
Mangalore Refinery and Petrochemicals Ltd well known as MRPL is a state of the art grassroot refinery which is located in the vicinity of Mangalore city. It is the third largest refinery in India. The refinery now has a capacity to process 9.7 million metric tonnes per annum of crude oil. The refinery has got a versatile design with high flexibility to process crudes of various API and with high degree of automation. It is the first refinery in the country to produce Motor Spirit and diesel meeting Euro-III norms. Company produces every possible product from the crude oil. MRPL produces products like Motor Spirit (Petrol), High Speed Diesel (HSD), Aviation Turbine Fuel (ATF), Naphtha, Bitumen, Sulphur, Furnace Oil, Liquid Petroleum Gas (LPG), Kerosene, Tar etc. MRPL supplies Aviation Turbine Fuel to Mangalore and Bangalore Airports; it supplies Petrol, Diesel, Kerosene and other products to Indian Oil Marketing Companies (OMCs) like IOCL, HPCL, BPCL etc. It is also the only refinery in India to have 2 CCRs producing unleaded petrol of High Octane.
3
Structure & Norms of the Organization:
BOD Chairman
President (OPS)
Assistant President (Refinery)
Assistant President (Breakdown)
President (Projects)
President (Marketing)
GM (Projects) AVP (HR) DGM (ADMIN) GM (Mech) DGM (Inst) DGM (Elect) DGM (Plant) VP (Finance) VP (Maintenance) VP (OPS) VP (TS) VP (Marketing)
As running a refinery is a high risk job, with potential for an accident very high, it has a highly mechanistic structure with all tasks and operations of the employees guided by SOP’S & Manuals. The Company has well defined procedures and guidelines for discharge of various functions. These are highlighted below:
1) Delegation of Powers: The M.D and Functional Director’s of the Company at various levels discharge their functions & responsibilities within the powers delegated to them by the Board of Directors under Delegation of Powers.
4
2) Laid down Policies and Guidelines: MRPL has laid down policies and guidelines governing major activities of the Company. While discharging the functions the officers need to follow these laid down policies and guidelines.
3) Manuals MRPL has procedural manuals covering all important activities. Manual ensues carrying of activities in a systematic and standardized manner and eliminate the scope of exercise of discretion. While discharging the functions covered by these Manuals, the officers need to follow the provisions of these Manuals.
Core Values of MRPL:
? ? ? ? ? Efficient use of resources Care for environment and safety Respect and value for employee Continuous improvement in growth Enhancing values for end consumer Teamwork Innovation
?
Vision and Mission of MRPL:
5
Process Flow Diagram:
History:
As the government had liberalized the petroleum industry, MRPL was incorporated on 7th March, 1988 pursuant to a Memorandum of Understanding (MOU) dated 26th June, 1987 executed between the President of India representing the Government of India (GOI), Hindustan Petroleum Corporation Limited (HPCL) and Indian Rayon & Industries Limited (IRIL) of AV Birla Group, for the purpose of setting up a refinery at Mangalore in the state of Karnataka. The Company obtained the Certificate of Commencement of business on 2nd August 1988, from the Registrar of Companies, Karnataka and subsequently the Letter of Intent from the Government of India; it was the first joint venture Oil Refinery in India.
6
It had an initial processing capacity of 3.0 Million Metric tonnes per annum. It is also the only Refinery in India to have 2 Hydrocrackers producing Premium Diesel (High Cetane) and also to have 2 CCRs producing Unleaded Petrol of High Octane. In March 2003 AV Birla group sold its 37 per cent stake in MRPL to ONGC. AV Birla group announced that it wants to exit the refinery project as it does not form part of its core competency. ONGC, with the core business of exploration and production of oil and gas, MRPL acquisition would take it one step further in forward integration.
Share holding pattern as on March31, 2008e 97: MRPL Percentage ONGC HPCL Banks/financial institutions/insurance companies Corporate bodies Foreign institutional investors Mutual funds/UTI Individual shareholders Total 2007-08 71.62 16.95 1.65 0.97 0.47 0.04 8.31 100.0
Source: CRISIL Research
Share Variation in 2007-08
7
Corporate Social Responsibility:
Samrakshan, MRPL's CSR program is committed to the well being of the communities around the refinery area. As an endeavor to empower women, the company took lead in organizing a skill development program for women from surrounding villages are trained in tailoring & stitch craft. A skill development center for women from fishermen community under women empowerment program has been also built. As a measure of goodwill to the project- displaced families, the company is also providing a overhead water tank to ease the drinking water problem of the rehabilitation colony. The internal roads of this colony are being asphalted. MRPL has donated medical equipments such as laser, dialysis machine and maternity equipments as well as establishing a Pediatric Ward to Government Hospitals. MRPL has constructed an Art Center, public park and is providing Mid Day meals in 11 schools covering 2,600 students. To educate regarding the water conservation and preservation among school children, Rain Water Harvesting Projects have been implemented in five schools of neighboring villages. With a view to provide better education to Government School children, the company has provided Teaching Aids, Sports Materials, benches & desks, water coolers to 70 schools of neighboring villages. MRPL has been providing scholarship assistance to students securing first two ranks in all the classes of the above schools.
Conducive Factors Identified:
India’s key advantages for developing itself as an export refining hub includes cost competitiveness and location advantage. India has significant lower cash operating costs on account of cheaper power and labor costs. The capital costs are also lower by as much as 25 to 50 percent over other Asian counterparts. Geographically, MRPL is strategically located en route of Middle East crude for East Asian and Pacific-rim markets. In fact, India possesses surplus refining capacity and has already turned into a net exporter of products. By 2010, the expected worldwide deficit in refining capacity would be around 112 MTPA because of shutting down of some of the smaller refineries in developed
8
economies. Smaller refineries in North America and Europe are finding it uneconomical to invest in cleaner fuels because of high compliance cost and cleaner fuel norms. In Japan and Australia, oil majors have rationalized their refining assets because they are becoming uneconomical to operate. Thus the potential for exports is huge and with their expansion plans MRPL hopes to capitalize on this opportunity.
MRPL is close to NMPT (New Mangalore Port Trust), so the import and export cargo of MRPL takes place here. MRPL Oil Jetties are located inside the NMPT (New Mangalore Port Trust). There are 6 lines running from Refinery to coastal terminal out of which four are White Oil lines and 2 are Black Oil lines. Out of 2 Black Oil lines one is a Crude receipt line of 36” diameter and other one is used for Furnace oil/ LSHS service. From coastal terminal hook up is taken for supplying products to IOCL and BPCL. Petronet Mangalore Hassan Bangalore Pipeline Limited (PMHBPL) is used transfer supplies to Bangalore. Oil comprises about 36 per cent of India’s primary energy consumption at present, and driven by India’s overall economic growth, it is expected to grow both in absolute and percentage terms. The growth in demand is projected to catapult the overall demand to 196 MMT in 2011-12 and 250 MMT in 2024-25.
Environment:
? Suppliers: Crude oil is the main raw material for Refinery. To ensure stability of supplies the company has a MOU with Iran an OPEC member to supply 1,20,000 barrels of crude per day. MRPL has planned to process 4,000 bpd of Cairn India's Rajasthan crude this year to reduce its dependence on imports of crude.
? International Factors:
MRPL’s forex transactions in a financial year towards payment of crude oil and receipts from export of petroleum products involve approx. US $ 6 billion. Company therefore faces the challenge to manage the fluctuation in forex market arising out of depreciation/appreciation of US $ vis-a-vis Indian Rupee. Considering that MRPL exports about 40-50% of its products and its domestic sales are also linked with US $ (trade parity price), there is a natural hedge to a large extent.
9
? Political Factors: Most of the known oil reserves are in one part of the world, i.e. West Asia (or the Middle East). The other major petroleum exporting countries are Russia, Nigeria, Indonesia and Venezuela. These countries have been politically unstable in the recent past and this has also led to the oil traders demanding a premium. ? Customers: MRPL and Shell Gas B. V., Netherland entered into a Joint Venture agreement on 5th Feb 2008 to form a joint venture company "Shell MRPL Aviation Fuel and Services Private Limited" for marketing of Aviation Turbine Fuel (ATF) to both Domestic and International airlines at Indian airports. The Promoter Companies will bring in respective services and strengths together to the JV. MRPL will bring its expertise and high quality products and Shell Aviation will bring its global brand, network and customer base in addition to stringent quality control procedure. The company continues to lay more emphasis on developing export potentials to sell its
surplus production capacity. The company has been supplying approx. 1.0 MMTPA of petroleum products to State Trading Corporation, Mauritius under the 3 year term contract, signed in July 2007. Discussions with other National Oil Companies of few other countries are in progress for long term tie ups for export of Petrol, Diesel, ATF & Fuel oil.
Decline of the organization:
Excessive debt, low capacity utilization and management conflicts are the reasons for decline between 1998-2003. Deregulation of the industry financial year 1999 coincided with firming oil markets, as the Organization of Petroleum Ex porting Countries (OPEC) initiated production cuts to revive sagging oil prices. Sharply rising feedstock prices eroded operating margins/profits. Further, high (fixed) interest cost put pressure on cash flows and wiped out post-tax profits. Starting FY99, the company also initiated work on expanding refining capacity from 3 m metric tonnes per annum (MMTPA) to 9 MMTPA. The 10
unfortunate turn in industry environment in addition to squeezing internal accruals and delayed completion of project expansion, which is likely to have come on-stream in FY 2002. The same is reflected in the dramatic rise in interest and depreciation costs for FY 2002. During this period, the scrip fell from Rs 21 to Rs 5 levels. MRPL's profit margins were restricted to that on refining. Marketing carries a higher margin in the oil industry, compared to refining but MRPL did not enjoy that benefit as it did not have a network of its own. Refining margins are thin at the best of times and subject to a lot of volatility based on the prevailing global oil prices. Being a new refinery and with a huge financial commitment, the thin margins took their toll. The problem was compounded by the inability of the Government to revise retention margins for the administered products. MRPL was already exposed to global crude price volatility with the government taking it out of the ambit of the administered pricing mechanism. It found its margins squeezed. The last straw came when global oil prices started their upward journey in mid-1999 pushing MRPL's margins into the negative territory. With deregulated product prices not keeping pace with the rise in oil prices and the Government failing to revise margins on the controlled ones, MRPL's finances started their downward journey last year. What actually made things miserable for MRPL was that its capacity expansion programme coincided badly with the above developments. The company found itself in the midst of a massive capital generation and management exercise exactly at one of the most trying time for its business.
Reasons for Growth:
Organization Restructure:
After ONGC acquired MRPL, it made efforts to slash costs at every turn and bring a new marketing focus to a company, which with accumulated losses of Rs 412 crore (Rs 4.12 billion) and underutilized capacity was lost in the now defunct Board of Industrial and Financial Restructuring heap. Infusion of cash and streamlining of management .Under ONGC, the refinery (designed capacity of 9.69 MMTPA) also achieved more than 100 per cent crude run for the first-time (highest-ever crude run of 104 per cent); After takeover ONGC pumped in Rs 600 crore (Rs 6 billion) and restructured MRPL's Rs 5,500 crore (Rs 55 billion) debt (which pushed its equity to 71.62 per cent).De-bottlenecking of the existing facilities was planned to improve capacity utilization and cut costs. ONGC delisted MRPL from Ahmedabad, Bangalore, Calcutta, Delhi and Madras Stock Exchanges because trading volumes were low and listing fees payable to the stock exchanges was being a burden. ONGC targeted at making MRPL energy efficient through administration of energy incentive schemes. Within a year it attained a composite 11
energy factor of 5.04 and the energy performance of the refinery was 68.98 MBTU/BBL/NGRF/
for the year 2003-04.
Further expansion of MRPL and factors involved:
The Company is implementing Phase III Refinery Project at a cost of Rs.7,943 Crore. This will enhance the refining capacity from the existing 9.69 MMTPA to 15 MMTPA and also increase the distillate yield (Petrol, Diesel, LPG, Propylene, Naphtha etc.) by about 10% eliminating the low value Black Oil (FO/ Bitumen) even while using more of low Price High Sulphur Heavy oils and high acid crude oils.
The establishment of a 7.5 MMTPA Refinery at the wellhead at Barmer would largely depend on the availability of crude oil from Rajasthan blocks at an economically viable price as well as adequate fiscal incentives from the State Government, for which the company is still in discussion with Rajasthan State Government.
A separate Company promoted by ONGC and MRPL in the name of ONGC Mangalore Petrochemicals Ltd. (OMPL) has begun implementation of the Aromatics Project, estimated to cost about Rs.4852 Crore, to produce Paraxylene and Benzene value added products, using Naphtha feed stock from MRPL.
MRPL is planning to setup a 15 MMTPA refinery at Kakinada for which a draft feasibility report has been prepared. These draft reports are presently being reviewed and a final decision for implementation or otherwise will be taken shortly.
Certifications:
MRPL is ISO 14001:2004 certified.
12
Awards & Accolades:
o MRPL has won the First Prize in the prestigious ‘Jawaharlal Nehru Centenary Award for Energy conservation in refineries’ for the year 2006-07, instituted by the Ministry of Petroleum & Natural Gas (MoP&NG) for the fourth consecutive year o o o State Gold award for excellence in exports (Non –SSI) for 2000-2001 , 02,05
IS0 14001 certification on September 2, 2002.
ISO: 9002 certification on December 1999 and was re-certified ISO 9001:2000 on January 2003.
o o
Oil Conservation Award from Ministry of Petroleum and Natural Gas on January 31, 2003.
Accredited Five Star rating by British safety council, UK in the year 2003 for its best Health and Safety Management Systems.
o
Green Tech Gold award for Environment Excellence in November 2004. 13
o o
National Safety Award for the year 2004 from Ministry of Labour, GOI.
Certificate of Excellence from New Mangalore Port Trust for handling highest Quantity of Crude in the year 2004-2005.
o o o o
Green Tech Gold Safety award for Health and Safety Management Systems in 2005.
Golden Peacock Environment Management Award for 2005 Overall Safety performance – runner - up award for the year 2005-06 by Ministry of Labour.
MRPL receives "Best Boilers" Award for the year 2005-06.
Conclusion:
1. The organization has a functional structure & tall hierarchy of authority with employee actions highly standardized through SOP’s and manuals. 2. Since then with ONGC’s expertise MRPL has adopted various cost cutting methods and new marketing policy to change the fortunes of the company. 3. The organization aimed to become fully integrated from exploration to marketing. With ONGC the company got access to their crude and also planned to setup retail outlets to complete the full cycle. 4. The company entered into lot of joint ventures and networks to ensure smooth supply of raw materials and evacuation of products.
5. Now being conferred Mini Ratna of the Indian government and a lot of expansion
projects lined up, the future looks good for MRPL.
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Learnings from the project
1) How ONGC bought about the turnaround of MRPL from the brink of bankruptcy to being a very profitable refinery using their expertise in the oil sector. 2) Continuous focus on Safety and Energy Efficiency added to the profitability of MRPL 3) Even though MRPL was a state of the art refinery from the time of inception conflict between its major shareholders lead to its decline. 4) Considering the future demand MRPL is making use of technical approach to produce Euro III and Euro IV compliant fuels.
Reference sources
www.mrpl.co.in www.ongcindia.com www.petroleum.nic.in www.scribd.com www.crisilresearch.com www.moneycontrol.com www.hinduonline.com www.rediff.com Prowess database
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