PARCO Internship Report

INTRODUCTION
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PARCO Internship Report

Petroleum energy plays a pivotal role in the socio economic development of a

country, especially for a developing country like Pakistan, where demand for

petroleum products is fast increasing.

Incorporated in May 1974, Pak Arab Refinery Ltd. (PARCO) has now been in

existence for 27 years as a joint venture between the government of Pakistan

(GOP) and Abu Dhabi. Its authorized capital is Rs. 5 billion and paid up capital

is Rs. 2160 million of which 60% is held by the GOP and 40% by Abu Dhabi

petroleum investments of Abu Dhabi.

This long awaited project has been setup despite facing numerous obstacles and

hurdles during the 1998-99 period and despite international sanctions.

PARCO is presently engaged in the transportation of petroleum product on

behalf of oil marketing companies OMC’s from Karachi to Mahmood Kot near

Multan and to Faisalabad and Machike near Lahore through its 1,230 kms.

Pipeline. Parco’s pipeline system includes a network of highly sophisticated

telecommunication facilities and a comprehensive supervisory control and data

acquisition system.

Originally, Parco’s pipeline network was functioning up to Mahmood Kot near

Multan, a distance of 864 kms. And operating on the basis of two pumping

stations at Karachi and Shikarpur with an annual pumping capacity of 2.9

million tons. Two additional intermediary pumping stations commissioned in

1994 at Bubak (Sindh) and at Fazilpur (Punjab) increased the pumping capacity

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to 4.5 million tons per annum. Later, with further technological upgrading of

the system the pumping capacity was increased to 6 million tons. This

additional capacity is a major step towards meeting the increasing requirements

of petroleum products in the central and northern areas of the country, which

account for over 60% of the country’s demand of petroleum products. This

increased capacity will also come in extremely handy for transporting 4.5

million tons of crude and 1.5 million tons per year of products through the

existing pipelines. This timely initiative by PARCO will relieve a lot of

pressure on road movement.

In June 1997, PARCO completed its 364 Kms. MFM pipeline extension project

and extended its operations to Faisalabad and Machike. The project design

allows for further expansion of the pipeline from Faisalabad at Kharian besides

Sahiwal and from Mahmood Kot to Peshawar.

PARCO’s pipeline system consists of 7 pumping stations namely:

PS-1 Korangi

PS-2 Bubak

PS-3 Shikarpur

PS-4 Fazilpur

PS-5 Mahmood Kot

PS-6 Kot Bahadur Shah

PS-7 Faisalabad Not operational as yet)

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Also, there are four terminal stations namely:

TS-1 Keamari

TS-2 Mahmood Kot

TS-3 Faisalabad

TS-4 Machike

PARCO delivers the products at Mahmood Kot through a further pipeline

connection of 4.5 kms. To the joint oil marketing companies facilities called

JIMCO.

All PARCO terminals and pumping stations have been designed according

to the latest international standards and laid out in a standardized fashion for

ease of operation. PARCO crosses country installations have been adjudged

to be comparable to the best available in the international oil industry.

The refinery will be on stream by September 2000, which will place

PARCO in a unique position, with an additional capability to exploit the

future trends of the oil industry in Pakistan.

BOARD OF DIRECTORS

• Dr. Gulfaraz Ahmad Chairman

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• Mr. Mohammad Nasser Al-Khaily Director/Vice Chairman

• Dr. Shahid K. Hak Managing Director

• Mr. G.A Sabri Director

• Mr.Abdus Sattar Director

• Mr. Iftikhar Alam Director

• Mr. Ismail J. Al-Ramahi Director

• Mr. Naseer Al-Qahtani Director

• Dr. Hans-Heinz Horrak Director

The company manages by professional management. The relationship

between workers and management are coordinated. The employees are

quite satisfied with their management. The workers are drawing handsome

salaries. The management is also satisfied with the performance of

employees.

Financial Year

The financial year of the company begins from 1st July to 30th June.

Banker’s Of the Company

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Following are the Banker’s of the company.

• ANB-AMRO Bank

• Allied Bank of Pakistan Ltd.

• ANZ Grindlays Bank

• Bank Al-Falah Ltd.

• Bank of America

• Crescent Investment Bank Ltd.

• Deutsche Bank

• Emirates Bank International

• Gulf Commercial Bank Ltd.

• Habib Bank Ltd.

• Mashreq Bank

• Muslim Commercial Bank Ltd.

• National Bank of Pakistan

• National Development Finance Corporation

• Pakistan Kuwait Investment Co. (Pvt.) Ltd.

• Standard Chartered Bank

• The Bank of Khyber

• The Bank of Punjab

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• United Bank Ltd.

Auditor’s of the Company

The auditors of the company are Taseer Hadi Khalid & Co. Chartered

Accountants.

NUMBER OF DEPARTMENTS
 Finance Department.

 Human Resource Department.

 Process.

 Personnel & Administration.

 Electrical / Instrument.

 Mechanical

 Technical Services.

 Health & Safety Environment.

 Engineering Services

Company Secretary

Mr. S.M. Mahboob

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Corporate Office

Corporate Headquarters,

Korangi Creek Road,

Karachi- 75190,

Pakistan.

Registered Office

Avari Plaza,

Adjacent to Hilton Hotel,

87, Shahrah-e-Quaid-e-Azam,

Lahore. Pakistan.

Refinery Office

Qasba Gujrat, Mahmood Kot,

Distt. Muzaffargarh,

Pakistan.

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NEED FOR THE REFINERY

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Due to the following reasons PARCO’S mid country refinery project come into

existence:

• Petroleum product demand in Pakistan has outstripped local production

• Demand in northern region of Pakistan is more than 60% of Pakistan’s

total requirement.

• Furnace Oil being a viscous product cannot be transported over long

distance in pipeline to meet requirement of power plants in the vicinity

of Mahmood Kot. It is more economical to transport Crude Oil to Mid –

Country Refinery and produce products including furnace Oil.

• Indigenous refining capability brings additional security and the desired

flexibility of product supply with respect to imports.

• PARCO Mid country Refinery has a lead of at least 3-5 years on any

other refinery project in the country giving market positioning benefits

and ensuring maximum commercial advantage.

• PARCO 1,228-km cross-country pipeline network is already available

for crude/ product transportation.

• Enables PARCO to diversify into marketing of LPG and other Fuel

products.

• Refinery coupled with the White Oil Pipeline Project (WOPP) gives

PARCO a competitive advantage to meet up-country demand.

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REAPING THE BENEFITS

PARCO’S Mid-Country Refinery will be a source of great pride and benefit

for the people of Pakistan, since it has been put up in the last 2 years despite

very heavy odds and economic retractions on Pakistan. The following

benefits are:

EMPLOYMENT OPPORTUNITIES

PARCO’S Mid-Country Refinery has created employment opportunities

for 10.000 people, especially during the construction phase and gives a

chance to people to enhance their skills. Further they will expand it for

marketing point of view and opportunities of employment created.

FOREIGN EXCHANGE SAVING

The operation of the Refinery will result in greater foreign exchange saving

($ 100 million per year) for the country by reducing the import of petroleum

products and stream line transportation logistics and generating nearly $24

million per year in taxes, duties, and dividends.

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DEVELOPMENT OF ALLIED INDUSTRIES

In addition to the production of petroleum products, the refinery is expected

to become a nucleus for the development of downstream petrochemical

units in the area, and it will provide and opportunity for the development of

the allied industries in the area.

All these benefits will contribute to the economic growth of the country and

thus will be considerable value for all Pakistanis.

MISSION STATEMENT OF PARCO

• To provide the country and the oil marketing companies (OMC’s)

with as good a service in the area of product transportation, as it has

in the past with the pipeline transportation.

• To maximize production of middle distillates and full oil to meet the

national demands of petroleum products which is currently around 18

million metric tons, increasing at rate of 5% per annum.

OBJECTIVES OF PARCO
The following long term corporate objective, which are inherently embodied in

the name of the company are:

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(P) Professional and Progressive Corporate outlook.

(A) Aggressive Pursuit of Technical Excellence, Advanced Planning.

(R) Reliability of Service

(C) Consistency in performance

(O) Organized, Systematic Development.

LOCATION

CONSTRUCTION

The major cost involved in any organization is in the shape of construction

cost. The total cost of the refinery is around US$886 million of this colossal

amount, US$50 million have been spent on environmental protection measures

and US$ 28 million have been spent on buildings and civil works, including the

housing complex hospital, school, refinery buildings, approach roads etc.

ADVANTAGES OF REFINERY LOCATION

PARCO select the location due to the following advantages.

• It is sensible and strategic location from a commercial and national

Security point of view.

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• Serves major consumption centers catering to a population of 35

million with a current / projected significant deficit.

• It is located close to power plants with an annual demand of over 1

million tons of furnace oil.

• Streamlines the movement of crude oil and petroleum products thus

reducing burden on country’s rail / road transportation.

• It is close to petrochemical demand centers giving advantages for

future growth into bulk petrochemicals.

• Utility supplies have been secured through adjacent power plants and

there is plenty of water to meet refinery requirement.

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CAPACITY
“Capacity is the minimum rate of output for a facility”

The Refinery complex includes 11 onsite units process units besides numerous

off site / utilities units and other permanent facilities with 51 tanks to store the

crude oil, intermediate feeds stocks and finished products.

PARCO’S mid-country Refinery will have a refining capacity of 100,000

barrels per day or 4.5 million tons per annum making it the largest in the

country.

PROCESS UNITS AND CAPACITIES

Unit code Unit BPSD

100 Crude distillation 100,000
110 Vacuum distillation 42,800
200 Naptha Hydrotreater 25,650
300 CCR platformer 16,350
284 Diesel max 22,450
130 Visbreaker 15,560
801 Kerosene merox 20,000
802 LPG merox 4,500
411 Gas concentration Liquid: 22050
Gas: 11.242 (MMSCFD)
810 Amine treating F.G.: 7.721 (MMSCFD)
SWS: 9,963
820 Sulphur recovery 115 MTPD

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FINANCE DEPARTMENT
Finance department is the center point of my internship. Finance department is

the backbone of every organization. In MCR finance department has several

sections. The Finance department is responsible for the entire accounting

process of the organization, regarding the recording of the transactions,

designing the accounting, preparing of financial statements and computer

application to the accounting process.

In MCR only Trial Balance prepare, all Accounts are maintained in Karachi

head office. Sophisticated techniques are used, LAN & WAN systems, Inter

Com facility through MCR to Head Office Karachi is very beneficial to

maintain the accounts of PARCO.

From this quick and better work is possible. These techniques are very effective

and prove efficient for growth and progress of this organization. Now it will

possible to check and collected the information or routine work of any

employee of PARCO.

DESIGNATIONS

Mid-Country Refinery has following local staff Designation grade wise.

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1. DEPUTY MANAGING DIRECTOR (Operation).

2. MANAGER.

3. DEPARTMENT HEAD :

Chief Accountant

4. SECTION HEADS :

Senior Accountant

5. GRADE-V :

Accountant I

6. GRADE-VI :

Accountant II

7. GRADE-VII :

Accountant III

8. GRADE-VIII :

Assistant Accountant I

9. GRADE-IV :

Assistant Accountant II

10. TRAINEE :

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Hierarchy level of Finance department.

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Sections of Finance Department

Accounting matter of finance department is deal both in the Refinery office

and Head office. Head office deals Banking section, Payroll section, Insurance

Section, Import Section, Income Tax accounting while Refinery office deals

initial stage of business transaction, recorded and maintained. Refinery finance

department consists of billing payable Section, Receive able Section, Impressed

or cash section, MIS Section, Invoice Section, Cost, Budget & Sales Section.

Also other section which are not directly linked with accounts but also

necessary. I would like to mention these sections Oil accounting Section,

Purchase Section or store or supplies, shipping Section, Commercial

department. All final accounts are maintained in Head Office INCOME

STATEMENT AND BALANCE SHEET. In the Refinery office only Trial

balance posting complete.

The main functions of these sections are record the business transactions.

Sections are restricted up to the recording and maintaining the accounting data.

For proper maintain the accounts, used coding techniques on their voucher.

There are four kinds of vouchers.

CASH VOUCHER: These vouchers are prepared for payment of petty cash.

CHEQUE VOUCHER: CHEQUE payments made by these vouchers.

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PAYABLE VOUCHER: This voucher is prepared at the time of making

payment to any party. In accounting term, party name will be debited and

income, taxes and advances will be credited.

JOURNAL VOUCHER: This is also known Adjustment voucher. This

voucher is prepared for adjusting any entry.

Vouchers are prepared after every transaction. Write narration about these

vouchers. These vouchers are signed by certain authorities e.g. (prepared by,

checked by, approved by, punched by, Verified by).

 IMPREST/CASH SECTION:

Scrutinizing of vouchers / cash disbursements & maintenance of record

(REFINERY & PIPELINE) of the following activities: -

• Cash withdraw from Bank.

• Payment of Medical Allowance

• Payment Petrol Subsidy.

• Payment Hardship Allowance

• Payment of Out Station Allowance (Rs.100/= per day.)

• Payment of Tea Allowance (Rs.8.4/= per day to every employee.)

• Payment of Office Entertainment & Refreshment

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• Payment of Utilities

• Advances to Employees against Expenses.(If necessary)

• Statement of General Expenses (T.A & D.A, Suppliers labor etc)

Grade I – Payment made by the Head Office.

Grade II- Entertainment 1000/= per month and current value of 250 liters petrol

paid.

Grade III – Rs.600/= per month as entertainment and current value of 200

liters petrol are paid.

Grade IV- Rs.400/=per month as entertainment and 175 liters petrol paid.

Grade V to IX- Petrol subsidy 150 liters paid to the employees.

Salaries of Refinery employees paid by Head Office.

Custom Staff payment and submission of Monthly summary to corporate

office to recoverable from OMCS.

• Bloom field Hall School (Advances & Reimbursement of Expenses)

• Payment of Salaries to casual Staff.

• Preparation of journal Vouchers of Expenses Statement against advance and

maintenance of record.

• Maintenance of Cash Book

• Checking of Vouchers, coding and posting and dispatch to Head Office.

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 BILLING PAYABLE SECTION

This section received the bills or invoices that including tax amount that may

differ according to the nature of bill and paid within 10 days. Payments of

Daily wages, Casual employee (Non-permanent Staff) are made through

CHEQUE. For this Payment till Rs.5000/= may issue CHEQUE without

crossing. All party payment is made through cross CHEQUE. There is no

deduction of tax till Rs.24999/= up to this amount certain taxes will be

deducted from the total amount of bill. 3.5 % tax deducted on all receipt of

Inventories. 5 % tax deducted on Services e.g. hospitals, clubs, schools, other

utilities. 7.5 % tax on Rent, 10 % amount deducted as commission of supplier.

This section made the payment to contractors who provide the Inventories or

Supplies and Services. Payable section refunded the amount that has paid to

parties or contractors in their bills. Food beverage tax is non -refundable.

Now here the question arises, what is the procedure of Bills payment?

Chief Accountant received the Bills from concern parties. Bills are checked by

payable section. They tally the amounts of 1-Purchase order 2-Material Receipt

Statement 3- Invoice and made vouchers that approved by the chief

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Accountant. These bills are paid by CHEQUES and recorded in CHEQUE

voucher. After posting all record dispatch to Head Office.

 RECEIVEABLE SECTION

This section, we may call banking section. It deals revenues. If there is capital

in our banks, The amount of taxes will be credited. The record of all

transaction maintained through Bank Reconciliation Statement. PARCO

receive Demand Draft (D.D) or Telegram (T.T).

BANKING LODGEMENT is prepared on the amount by selling its product

that PARCO sale via its own Brand Name “Pearl”. The revenue through sale

of Oil Marketing Companies (OMC’s) deals Head Office. Central Excise Duty

(CED) paid advance Rs.85 per metric ton. Whenever the product is being sold,

the shipping department prepare the four copies of Article Removal 1(AR1)

and Article Removal 2 (AR2). One copy held in its own possession and

remaining copies are send to Receive able Section, Concerned party, and in the

office of Excise and Taxation. AR2 is prepared when product sold through

Under Bound. Government store Under Bounder Product in the warehouses.

Duties and Taxes are paid later on. AR1 received Receive able Section of

Refinery office.

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Refinery office use these banks: National Bank of Pakistan (NBP). Allied Bank

of Pakistan (ABL) Muslim Commercial Bank (MCB).

CHEQUE VOUCHER is used for TAX LODGEMENT. Taxes are deposit by

each party.

JOURNAL VOUCHER is used for the adjustment of taxes. When party paid

amount. Bank is debited and the Party Name credited. When duty paid.

Central Excise duty is debited and Bank account credited. We prepare Journal

Voucher or make adjustment when Central Excise Duty is paid. This section

used the term Tax Withdraw Voucher or Journal Voucher (JV) Or Journal

Receipts (JR).

 MIS SECTION

Management Information System Section prepares the Trial Balance via the

posting of journal voucher through coding that made in computer systems by

using the BASIC LANGUAGE programming.

MIS Section receive Journal vouchers from pay able section, cash section, and

sales tax section. By posting in specific code, these posting adjust in Trial

Balance automatically for programming.

Every section has coding system, either Budget cost or Center cost. They post

these vouchers by using these coding system. BASIC LAGUAGE

programming convert it in to Trial Balance by using these codes in specific

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heads. Information Technology Department provides the facility of

programming. Some programming are installed in Visual Basic M/S Excel,

named PPT personnel Protection Equipment and Library System etc. Oracle

programming is also installing.

 INVOICE SECTION

We may call this section Sales section. The product of refinery sold via OMC’s,

PEARL, and direct to the direct consumer. Pipe line and Gantry means of

transportation. Parties submit the Projection/ Agreement and the amount of that

product, they required in the projection. Payment made through D.D or T.T. In

this amount taxes also included.

When Invoice Section prepare invoice, it deduct the sales tax amount 15 % of

sale, Central and Excise Duty Rs.85 per metric ton and development surcharge

from the Sales and calculate the Net amount. After posting dispatch to Head

Office.

Parties submit projection before some days of delivery. In shipping

department, there are Control Room1 (CR1) and Control Room 2 (CR 2) that

are used as gate pass. Invoice Section receive the Delivery Advice (D.A)

which shipping department prepare. This D.A includes capisty and number of

tanker.

 COST AND BUDGETING & SALES TAX

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This Section deals the Budget control and Sales taxes.

Cost and Budget:

Budget is allocated for every year. This period start from 1st July to30th June.

We can classify the budget in to two main heads, Revenue Budget and Capital

Budget. Revenue Budget is allocated for operating expenses which are helpful

for generate the revenue e.g. telephone, store and supplies etc. Capita Budget

is allocated for fixed expenses e.g. furniture and fixture, machinery etc.

These are allocated in proper heads, either about Revenue items or Capital

items. This will helpful in better coding and maintaining the record. Each

department demanded required budget. When ever any thing is required

Indent Sheet is prepared. This is written issue order which is approved by

finance department. To fulfill the need of any thing which is mentioned in

Indent Sheet, calls quatations from various department. Suitable quatation

accepted and place purchase order. Purchase department prepares Material

receipts statement (MCR), when material received. From this received material,

issue to the demanded department, and prepare Material Issue Requisition

(MIR). Every department prepared the coordinate, in the form of summary.

This summary is send via approval of Manager. Board of Director approved it.

When Managing Director singed it, then send to related department.

Sales Tax:

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Sales Tax has coordinated relationship between sales output invoices and

purchase input invoices. If amount of sales output invoices increases, we will

have to pay sales tax, and if the amount purchase input invoices increase, we

recover amount of tax. So for we adjust either we pay or pay. In case of

favorable balance, we will not received and carry forward for next transaction.

Four copies of Invoices are classified as such. First original invoice, send to

consignee, Second duplicate copy send to Parco commercial department,

triplicate copy receive Parco finance department and quadruplicate copy send

to shipping/clearance department. 99 % parties are registered that pay the sales

tax 15 % and remaining unregistered parties that pay the sales tax 15 % plus 1.5

% deduct as sales tax, not as the whole 16.5 % deduct as sales tax. Sales tax

pays up to 15th date to next month. Head Office purchases the crude oil by the

Letter of Credit. We can refund the sales tax amount under Section 22(1) a,

Sales tax act 1990. We adjust the favorable balance, carry forward for next

transactions.

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MATERIAL MANAGEMENT
“Material Management is concerned about short range decisions about supplies,

inventories, production level, staffing patterns, schedules and distribution.”

MATERIAL IMPORTANCE FOR PARCO

Material is important for PARCO because the Refinery will optimize product

supply logistics and ensure efficient and economic availability of petroleum

products to the central and northern regions of the country, which about for

over 60% of the country’s total requirement.

Impact of inventory:

Inventory has direct impact on the profitability of the organization. Parco can

not keep much more inventory, because if they do so, they bear much more cost

of holding.

FUNCTIONS OF THE MATERIAL

MANAGEMENT
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PURCHASING:

Parco will import three vessels per month, approximately carrying 64,000

metric tons each from Saudi Arabia.

SUPPLIER:

The supplier of the crude oil for Parco is ARAMCO. PARCO entered a crude

oil sales agreement with ARAMCO for the purchase of 30,000 barrels/day of

light ARABIN crude. The agreement was signed at Dahran on Jun 18,2000.

CONTRACTING:

Contract for the transportation of crude oil for the MID-COUNTRY Refinery,

from Saudi Arabia and Abu Dhabi, was signed with Pakistan National Shipping

Corporation (PNSC) on July 18,2000.

INVENTORY MANAGEMENT
“INVENTORY IS A STOCK OF ANY THING HELD TO MEET THE

FUTURE DEMAND OF ORGANIZATION”.

TYPES OF INVENTORY

RAW MATERIAL:

Raw material used by the Mid-Country Refinery is the crude oil ( light Arabian

crude) which is purchased from Saudi-Arabia and Abu Dhadia.

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FINISHED GOODS

Finished goods of PARCO Mid-Country Refinery are

LPG Regular Gasoline

HOBC JP-4

Jet A-1 Kerosene

LDO HSD

Fuel Oils

INVENTORY CONTROL SYSTEM

Inventory control system has two types of systems

CONTINUOUS REVIEW SYSTEM

When ever the number of the units are drawn out of the inventory stores they

judge the position of the inventory that whether it is a time to reorder of not. In

this way t he inventory is controlled.

PERIODIC REVIEW SYSTEM

The second method of inventory control system is periodic review system. In

this system the inventory position is judge periodically instead of continuously.

In a p system the lot size may change form one order to the next, but time

between orders is fixed.

INVENTORY CONTROL SYSTEM AT PARCO

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PARCO USING THE PERIOD reviews system. It means that lot size vary

but the time between orders is fixed. As PARCO will import three vessels

per month approximately carrying 64,000 metric tons each, but the first

vessel brought 66,000 metric tons of crude oil for the Mid –Country

Refinery.

QUALITY CONTROL
Total quality management (TQM) stresses three principles:

 Employee involvement

 Continuous improvement

 Customer satisfaction

EMPLOYEE INVOLVEMENT

One of the important elements of TQM is employee involvement. Employee

involvement consist of

CULTURAL CHANGE

In TQM, every one in the organization must share the view that quality control

is an end itself. It is possible only if the environment of the organization is

good. For this purpose PARCO spent US$50 million on environmental

protection measures and established a friendly environment.

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INDIVIDUAL DEVELOPMENT

Individuals motivated by giving awards and incentives. PARCO give their

employees the following awards.

Long Service Award

PARCO distributed the 7, 10, 15 and 20 years service awards among their

employees.

Best Station Award:

Every year one of Parco’s terminal pumping stations is given “the best station

award” after being assessed on the standard of its house keeping and safety.

CONTINUOUS IMPROVEMENT

PARCO improve the quality continuously. For optimization and product quality

control, the facility of advance process control is available in the system.

PARCO has a laboratory also whose function is to check the quality of

products. If the quality of products are not satisfied they are reprocessed until

of products acquire the desired quality standards.

CUSTOMER SATISFACTION

PARCO gearing to deliver the correct quantity of high quality products to

consumers tank on timely basis, through the safest and shortest routes and at

the lowest costs. Further more the objective of this initiative is to provide

excellent consumer service, where customer complaints are promptly attended.

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Also where measures are instituted to ensure that the customer is properly

informed and that lessons are learnt to prevent re-occurrence of errors. Parco’s

existing infrastructure and expertise should assist in achieving this aim and

establishing a marketing network.

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SIGNIFICANT OF ACCOUNTING
Summary of Significant Accounting Policies are as follow.

Basis of Presentation

These accounts have been prepared in accordance with International

Accounting Standards, as applicable in Pakistan.

Accounting Conversion

These accounts are prepared under the historical cost ‘convention’ as modified

by capitalization of exchange differences.

Fixed Assets and Capital Work-in-Process

Fixed assets except land are stated at cost less accumulated depreciation. Land

and capital work in progress are stated at cost. Cost in relation to certain fixed

assets and capital work –in- progress signifies in historical, exchange

differences e.g. (Assets and liabilities in foreign currencies are translated into

rupees at the specifics rate of exchange announce by the State Bank of

Pakistan. Prevailing on the balance date, except those which are covered under

exchange risk cover scheme, which are translated at cover rate.

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Exchange gain/loss on loan relating to assets that have been fully depreciated is

directly charge to profit and loss account) and financial charges on borrowing

for financing the project until such projects are completed or become

operational.

Depreciated is charged to income applying the straight line method, where by

cost of an assets are written of over its estimated useful life without taking into

accounts any residual value. Full year depreciated is charged on addition while

no depreciation is charged on items disposed off during the year.

Maintaining and repaired are charged to income as and when incurred, major

renewals and improvements are capitalized and the assets so replace, if any, are

retired. Gains and losses are disposals of assets (If any) are included in income

currently.

Assets Subject to Finance lease

Assets subjects to finance lease are stated at the lower of present value of

minimum lease payments under the lease agreement under the fair value of

assets, the related obligation of the lease are accounted for as liabilities. Assets

acquired under the finance lease are depreciated over the useful life of the

assets on the straight line method at the rate given:, Depreciation on lease assets

is taken to profit and loss accounts.

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Borrowing Cost

Borrowing costs that are attributed to the acquisition, construction, or

production of fixed assets have been capitalization as the part of cost of the

relevant asset.

Investment:

Long Term

These are stated at cost. Provision is made for decline, other than temporary, in

the value of investment, if any.

Short Term

These are stated at the lower of cost or market value.

Stores & Spares

These are valued at the moving average cost, while items considered obsolete

are carried at nil value. Items in transit are valued at cost comprising invoice

value plus other charges paid thereon.

Revenue Recognition:

Revenue from Transportation

Revenue from transportation of petroleum is recognized on delivering the

products.

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Investment

Return on investment recognized at the rate specified in the respective

investment scheme and accrued for the period. The income is recognized on

the assumption that such investments will be held till the next terminal date.

Staff Retirement Benefits:

Gratuity

The company operates a defined benefits funded gratuity scheme for all

supervisory staff. Contributions are made annually to the fund on the basis of

actuarial recommendations @ 7.32 % of basic salary, cost of living, allowance

and indexation. The actuarial valuation is performed once every three year and

the most recent actuarial valuation of the scheme was carried out at 30th June

1997, which reflected the fair value of the fund’s assets and liabilities at

Rs.24.845 million and Rs.25.171 million respectively. The actuarial valuation

was carried out using “Projected Unit Credit Method”.

For Non–supervisory staff, contribution for gratuity is made on the basis of

entitlement of the employees at the Balance Sheet date.

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Pension Fund

The company operates a defined befits funded pension scheme for all

supervisory staff. Contribution made annually to the fund on the basis of

actuarial recommendation @ 20 % of the basic salary, cost of living allowance

and indexation. An actuarial valuation is performed once in three years and the

most recent actuarial valuation of the scheme was carried out at 30th June 1997,

which reflected the fair value of the fund’s assets and the liabilities at

Rs.42.197 million and Rs.54.270 million respectively. The actuarial valuation

was carried out using “Projected Unit Credit Method”.

Starting from the year 1997, the company is also operation a defined benefit

funded pension scheme for all workmen staff. Contributions are made annually

to the fund on the basis of actuarial recommendations. Based on the first

actuarial valuation carried out on 01 January 1997, contributions are made at

the rate of 4% per annum in addition to initial contribution of Rs.899,000.

Provident Fund

In addition, the company also operates a defined contribution Provident Fund

for all its regular permanent employees. Contributions are made equally by the

company and the employees @8.33% of basic salary, cost of living allowance

and indexation to the fund.

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Taxation:

Current

Provision for current taxation is based on taxable income at the current rates of

taxation after taking into account tax credits available if any.

Deferred

Provision for deferred taxation is made on all material timing differences using

the liability method.

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RATIO ANALYSIS
Ratio analysis of financial statements refers to the process of Determining and

Presenting the relationship of items and group of items in the statements.

Ratio analysis however is not an exact science but a useful art. It is a

Statistical yardstick providing a measure of relationship between two

Accounting figures. Ratio analysis can be of use both in the trend or structural

Analysis and static analysis. Great care is needed while calculating meaningful

ratios and in interpreting them. Although there are several ratios which can be

employed by an analyst, yet the type of ratio, he would use entirely depends on

the purpose for which the analysis is done i.e., a creditor would keep himself

abreast about the ability of a concern to cover up its current obligations and so

would care about current and liquid ratios, turnover of receivable, coverage of

interest by the level of earning etc.

So the Financial statement analysis is the process of identifying of financial

strengths and weaknesses of the firm by properly establishing relationship

between the items of the balance sheet and the profit and loss account.

The need for ratios arises due to the fact that absolute figures are often

misleading. For example, if sale increases from Rs.300,000/= to

Rs.350,000/=, it may not be a good thing as appears. The increase in sales may

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be affected at the cost of a disproportionate rise in expenses. Absolute figures

are only valuable if they are studied in relation to each other.

Expenses of Ratios

Expenses of ratios is done in the following ways:

1- Actual ratios are arrived at by dividing one number by another e.g. current

asset to current liability is 2 : 1

2- Ratio between two numerical facts usually over a period of time e.g. Stock

turnover is three times a year.

3- Ratio between two numerical may be expressed in percentage.

Advantages of Ratio Analysis

• It helps to give comprehensive financials statements in evaluating aspects of

any undertaking in respect of financial health, operation efficiency and

profitability.

• It gives a chance of inter-firm-comparison to measure efficiency and helps

management to resort to some remedial measures.

• Dynamic or trend analysis is helpful towards planning and forecasting the

virtuous use of ratios.

• It provides a good help in decision making for investors and to the financial

institutions.
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CLASSIFICATION OF RATIOS
Ratios can conveniently be classified as follows:

1-INCOME STATEMENT RATIOS:

Income statement ratios are also called operational ratios. These ratios deal

with the relationship of two items and both are in the profit and loss account or

income statement. It is necessary for income statement ratios that both items

must belong to the same profit and loss account. The following are the

important types of income statement ratios:

A. GRASS PROFIT RATIO

This ratio is of great importance in the analysis of the trading results of the

business. Gross profit Ratio is the ratio of gross profit to net sales expressed in

percentage. Thus it expresses the relationship between gross profit and sales.

It tells the management the ability of sales to generate earnings before any cost

of business except cost of goods sold.

FORMULA: -

Gross Profit
Net Sales

Year 1994-95 1995-96 1996-97 1997-98 1998-99

% 47.95 51.43 72.38 79.67 87.17

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The figure of gross profit ratio is continuously increasing. Its mean that

PARCO is regularly developing.

B. OPERATING PROFIT RATIO

The operating profit ratio measures the percentage of profit earned on each

sales dollar before interest and taxes. A high operating profit margin is

preferred. It takes into consideration the trading results and operating

expenses. It is more important ratio than the simple gross profit ratio. It can be

obtained by dividing operating profit on sales.

FORMULA: -

Operating Profit
Sales

Year 1994-95 1995-96 1996-97 1997-98 1998-99

% 47.03 51.26 73.92 59.33 69.90

Operating profit ration margin is gradually increasing except there is a lightly

declining in the year 1997-98, and is increasing trend for next year.

C. NET PROFIT RATIO

The net profit ratio measures the percentage of each sales dollar remaining after

all expenses, including taxes, have been deducted. The higher the net profit

margin, the better will be the company position. It is expressed in percentages.

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It is also useful for the proprietors of the business. This is a good yardstick in

the hands of management to measure the overall profitability.

FORMULA: -

Net Profit (after taxes)

Sales

Year 1994-95 1995-96 1996-97 1997-98 1998-99

% 34.73 41.67 60.90 55.04 63.41

The profitability position of PARCO is satisfactory.

D.OPERATING RATIO

This is the ratio of cost of goods sold plus operating expenses to net sales. It is

generally expressed in percentage. It measures the cost of operations per rupee

of sales. This ratio shows the operational efficiency of the business. Lower

operating ratio shows higher operating profit and vice versa. An operating ratio

between 75% and 80% is generally considered as standard.

FORMULA: -

Cost of Goods Sold + Operating Expenses

Net Sales

Year 1994-95 1995-96 1996-97 1997-98 1998-99

% 62.30 62.54 40.67 36.19 28.98

This trend shows that operational efficiency of the business increasing each
year.

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E. STOCK TURNOVER RATIO

Every firm has to maintain a certain level of inventory of finished goods so as

to be able to meet the requirements of the business. This level of inventory

should neither too be high, nor too low. A too high inventory means higher

carrying cost sand higher risk of stocks becoming obsolete whereas too low

inventory may mean the loss of business opportunities. Thus it is essential to

keep sufficient stocks in business.

Stock turnover ratio is also known as inventory turnover. It is the relationship

between the cost of goods sold during a particular period of time and the cost of

average inventory during that period. It is expressed in number of times.

FORMULA: -

Cost of Goods Sold

Average Inventory

OR

Net Sales
Inventory

Year 1994-95 1995-96 1996-97 1997-98 1998-99

% 44.99 45.00 45.00 45.00 44.99

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Inventory turnover ratio measures the velocity of conversion of stock into

sales. Parco inventory turnover ratio is revealing that it is near about the

same. This is a good point of the company.

2- BALANCE SHEET RATIOS:

Balance sheet ratios deal with the relationship between two balance sheet

items, e.g. the ratio of current assets to current liabilities or the ratio of

proprietor’s funds to fixes assets. Both the items must pertain to the balance

sheet items:

A. CURRENT RATIO

Current ratio may be defined as the relationship between current assets and

current liabilities. This ratio is also known as working capital ratio. The current

ratio is the test of solvency or it is a test of short term, financial strength. It the

current ratio is higher it means the current assets are more free from debt claims

by creditors, and the creditors would feel themselves more satisfied.

It is a good measure of general liquid and is most widely used to make the

analysis for a short-term financial position or liquidity of a firm. The standard

for this ratio is 2: 1. It is calculated by dividing the total of the current assets

by total of the current liabilities.

FORMULA: -
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Current Assets : Current Liabilities

Year 1994-95 1995-96 1996-97 1997-98 1998-99

% 1.94:1 1.489:1 1.66:1 3.45:1 1.21:1

This financial position is satisfactory.

B. QUICK RATIO

This ratio is also termed as “acid test ratio” or “liquid ratio”, It is the ratio of

liquid assets to current liabilities. The true liquidity refers to the ability of a

firm to pay its short-term obligations as and when they become due. The

standard for this ratio is 1: 1.

FORMULA: -

Liquid Assets : Current Liabilities

Year 1997-98 1998-99

% 55.64 181.10

This is highly positive aspect toward the liquidity position of the firm.

3- COMBINED OR MIXED RATIOS:

These ratios exhibit the relation between a profit and loss accountant and

balance item. The important ratios are as under:

A- RETURN ON INVESTMENT
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It measures the return of total investment with the borrowed money or invested

by owners in the business. It is obtained by dividing the net profit on total

assets.

FORMULA: -

Net Profit (after tax)

Total Assets

Year 1997-98 1998-99

% 28.15 5.39

B-RETURN ON EQUITY

This is a measure of the return on ordinary capital of the company. It indicates,

for every Rs.10/= of capital invested in the firm how many rupees were

produced or lost this year. If it is increasing than the previous year then it is

good one. It may be obtained by dividing. Net profit on the sum total of

ordinary capital, reserve and profit.

FORMULA: -

Net Profit (after tax) – Preference Dividend

Equity share Capital

Year 1994-95 1995-96 1996-97 1997-98 1998-99

% 27.25 29.51 32.03 24.71 26.51

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Trend shows that the return on ordinary capital of the company is increasing

and up to 1996-97 and decline in the year 1997-98, and increased again for

next year. Over all trends of these years are satisfactory.

C- EARNING PER SHARE

Earning per share is a good measure of profitability, when compared with

earning per share of other companies. Earning per share is a small variation of

return of equity capital and is calculated by dividing the net profit after taxes

minus preference dividend by the total number of equity shares.

FORMULA: -

Net Profit (after tax) –Preference Dividend

Number Equity Shares

Year 1994-95 1995-96 1996-97 1997-98 1998-99

% 6.12 8.19 11.52 10.69 14.31

The figures of earning per share are increasing continuously. Trend is very

positive for the shareholders of the company. Because the earning on the share

increasing continuous during these years.

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Suggestions
This year PARCO has been granted the Marketing License to sell POL

products. PARCO plans to market fuel products and LPG of kits refinery and

the lubricants of ADNOC & OMV.

Being the internee of the largest oil refinery and pipeline network PARCO is

better placed to gradually become a major market player of the industry. With

its joint venture partner of Emirate of Abu Dhabi and their Austrian associates

OMV, PARCO has a multinational character. OMV owns the largest fuel and

lube refineries and retail outlets in other European countries around Austria. It

is also engaged in oil and Gas exploration Pakistan. This association will

provide additional expertise/advise on refinery and marketing operations.

In view PARCO’S unique position of having sufficient experience and

expertise in laying and efficiently operating 1,228 Km. Long oil pipeline the

Government of Pakistan has assigned to PARCO the ‘White Oil Pipeline

Project’ (WOPP) for laying a pipeline from Karachi to Mahmood Kot for

transporting petroleum products to up-country. After commissioning of the

Refinery, PARCO’s existing pipeline up to Mahmood Kot will be in a position

to execute this project at the lowest cost and operate it with least overheads as

compared to a new operator. It will also provide additional standby facility for

transporting crude in emergencies.

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The management is making continuous efforts to modernize the systems and

procedures and to improve the working atmosphere leading to higher

productivity. Housing facilities for the staff have been developed at Pumping

and Terminal stations. A full fledged housing complex including mosque,

school, a hospital and a club with recreational facilities is nearing completion at

Mahmood Kot, to accommodate the Mid-Country Refinery staff.

I am pleased to say that the company has established a reputation of a well

managed and profit oriented Joint Venture between Pakistan and Abu Dhabi. It

will continue to set high standards of performance and profitability and

implement new projects for the benefit of shareholders and for the good of the

country.

It is a pleasure to state that keeping in line with its progress, your company is

playing its de role in the field of social and community welfare activities by

supporting educational institutions, and community welfare activities in the

vicinity all along the route of our pipeline, including deploying of mobile

dispensaries to cater to needs of the people living in rural areas.

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CONCLUSION

Every thing PARCO achieves is the product of team effort. All PARCO

employees share the achievements of the company and have every reason to

feel proud of what has been achieve so far. However with the diversification in

business activity, especially in the finance department, PARCO meet the new

challenges, since success lies in better service and consumer satisfaction.

PARCO’S future aim is therefore to consolidate a significant account presence,

as a major contender in the petroleum sector of Pakistan, with a future that

heralds bright prospects.

There is need for proof any concept of refresher courses for the employees. If

directors would make arrangement to provide training to the employees then

they would work efficiently. By this productivity will also increase.

I would like to recommend that the management should develop some policies

for the promotion of efficient workers. If no policy for the promotion of

workers so it will create unrest among the workers. The management should

make sound policies for the promotion of efficient workers. This will not only

increase the productivity of workers but the management will also retain

efficient workers with them.

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