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The foundation of Oil and Gas industry in India was laid by the Industrial policy
Resolution, 1954, when the government announced that petroleum would be the core sector
industry. In pursuance of the Industrial Policy Resolution, 1954, Government-owned
National Oil Companies ONGC (Oil & Natural Gas Commission), IOC (Indian Oil
Corporation), and OIL (Oil India Ltd.) were formed. ONGC was formed as a Directorate in
1955, and became a Commission in 1956. In 1958, Indian Refineries Ltd, a government
company was set up. The government in order to increase exploration activity, had approved
the New Exploration Licensing Policy (NELP) in March 1997 to ensure level playing field in
the upstream sector between private and public sector companies in all fiscal, financial and
contractual matters. This ensured there was no mandatory state participation through
ONGC/OIL nor there was any carried interest of the government. Oil and Gas Industry has a
vital role to play in India's energy security, if India has to sustain its high economic growth
rate.
The growing demand for crude oil and gas in the country and policy initiative of Government
of India towards increased E&P activity, have given a great impetus to the Indian E&P
industry raising hopes of increased exploration.
Oil and Natural Gas Corporation Limited (ONGC) and Oil India Ltd. (OIL), the two National
Oil Companies (NOCs) and private and joint-venture companies are engaged in the
exploration and production (E&P) of oil and natural gas in the country. During the year 2008-
09, crude oil production has been 33.51 million metric tonnes (MMT) with natural gas at
32.85 billion cubic metre (BCM).Natural gas production in 2009-10 is targeted to be about
52.116 BCM.


‘ 




India stands 6th in the global comparison for the production of Oil and Petroleum
which is around 7060000 barrels short of the global leader.

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1 Saudi Arabia 10,780,000

2 Russia 9,810,000
3 United States 8,514,000
4 Iran 4,174,000
5 China 3,795,000
6 India 3,720,000
7 Canada 3,350,000
8 Mexico 3,186,000
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The Organization of the Petroleum Exporting Countries (OPEC) was created in 1960
to unify and protect the interests of oil-producing countries. OPEC is a cartel that aims to
manage the supply of oil in an effort to set the price of oil on the world market, in order to
avoid fluctuations that might affect the economies of both producing and purchasing
countries.


This unified front was created primarily in response to the efforts of Western oil
companies to drive oil prices down. The original members of OPEC included Iran, Iraq,
Kuwait, Saudi Arabia, and Venezuela. OPEC has since expanded to include seven more
countries (Algeria, Angola, Indonesia, Libya, Nigeria, Qatar, and United Arab Emirates)
making a total membership of 12 members are responsible for half of the world's oil exports.

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According to current estimates, more than three-quarters of the world's proven oil
reserves are located in OPEC Member Countries, with the bulk of OPEC oil reserves in the
Middle East, amounting to 72% of the OPEC total.

‘ 

According to the 2008 BP Statistical Energy Survey, the world had proved oil
reserves of 1237.875 billion barrels at the end of 2007, while consuming an average of
85219.7 thousand barrels a day of oil in 2007. OPEC members hold around 75% of world
crude oil reserves. The countries with the largest oil reserves are, in order, Saudi Arabia, Iran,
Iraq, Kuwait, United Arab Emirates (UAE), Venezuela, Russia, Libya, Kazakhstan and
Nigeria.

According to the 2008 BP Statistical Energy Survey, the world had proven natural gas
reserves of 177.35 trillion cubic metres and natural gas production of 2939.99 billion cubic
metres in 2007.

Although the world has 3,600 billion barrels of unconventional oil reserves, these
require significant energy and water to extract. Wood Mackenzie estimated the world's
unconventional oil reserves as comprising heavy oil (107 billion barrels), extra heavy

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oil(457) and shale oil (2,800). The main sources are Canada, Venezuela, Madagascar and
Texas.

According to the 2008 BP Statistical Energy Survey, the world had a 2007 refinery
capacity of 87913.34 thousand barrels a day.


‘ 

According to current estimates, more than three-quarters of the world's proven oil
reserves are located in OPEC Member Countries, with the bulk of OPEC oil reserves in the
Middle East, amounting to 72% of the OPEC total.


‘ 




In June 2007, OPEC announced plans to invest US$ 130 billion in expanded production
between then and 2012. Excluding Iraq, production is forecast to increase from 35.7 million
bpd to 39.7 million bpd in 2010. Between 2013 and 2020 OPEC plans to spend a further US$
500 billion provided bio fuels doesn't change economics. Saudi Arabia alone is investing US$
50 billion to increase crude production capacity from 10.5 million barrels a day in 2007 to 12
million bpd in 2009 and 15 million bpd after 2025.
Oil companies are looking for oil all over the world
Middle East: 31%
Europe & Eurasia: 21.7%
North America: 16.5%
Africa: 12%

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Asia Pacific: 9.8%

S. and Central America: 9%


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c Exxon Mobil Corporation
c PetroleoBrasileiro S.A.
c BP plc
c Chevron Corp
c China Petroleum & Chemicals Corporation
c OAO Gazprom
c Total SA
c RosneftOjSC
c ENI SpA
c Schlumberger LTD.
c ConocoPhillips
















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The government announced a New Exploration Licensing Policy in 1997, which differed
from the old one in the following respects.
1)c Bidders were to compete on cost recovery ± they could ask for up to 100 per cent ±
and on their share of profit petroleum.
2)c They were free to sell their share of the oil to anyone within the country.
3)c Conditions regarding minimum expenditure, required partnership with government oil
companies, and signature, discovery and production bonuses were scrapped.
4)c Tax provisions were defined, and their stability promised. There would be a 7-year
income tax holiday, exemption from customs duty on exploration and drilling
equipment, royalty was fixed at 10 per cent except for onshore crude which would
pay 12.5 per cent, 5 per cent royalty on discoveries in water deeper than 400 meters,
and development expenditure could be amortized over 10 years.
5)c The licence could be assigned to third parties under conditions.
6)c A Conciliation and Arbitration Act passed in 1996, based on the model set by United
Nations Commission on International Trade Law, would apply to disputes.
7)c Bidders were required to give the Directorate of Hydrocarbons, which was set up in
1993, the results of their surveys; in case they abandoned the concession, the results
would become available to subsequent bidders
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The National Common Minimum Programme, envisages that profit-making companies will
not generally be privatized. All privatizations will be considered on a transparent and
consultative case-by-case basis. The existing ³navaratna´ companies would be retained in the
public sector while these companies can raise resources from the capital market. It also
envisages that the public sector companies and nationalized banks will be encouraged to enter
the capital market to raise resources and offer new investment avenues to retail investors.

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The government has taken many progressive measures to create a conducive policy and
regulatory framework for attracting investments.
c Allowing 100 per cent foreign direct investment (FDI) in private refineries through
automatic route and 26 per cent in government-owned refineries.
c A foreign company can setup a project office or an Indian company for
undertakingupstream operations in India.

c Abolition of the administered pricing policy.
c 100 per cent FDI is also allowed in petroleum products, exploration, gas pipelines and
marketing/retail through the automatic route.


 ‘ 


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c Public sector oil companies will spend US$ 11.33 billion in 2010 on expanding
supplies and building new transportation networks for oil and gas.
c ONGC will invest US$ 696 million for increasing facilities at its oilfields in Assam
and Western Offshore to boost output. Moreover, it will spend US$ 5.62 billion on
capital expenditure in the next financial year.
c State-run gas utility GAIL will invest over US$ 1.54 billion in laying gas pipelines
from Dabhol on the Maharashtra coast to Bengaluru, Kochi and Mangalore.
c Reliance Industries has proposed to invest an additional US$ 1.5 billion in bringing to
production four gas discoveries adjoining its prolific gas fields in Krishna-Godavari
basin in the country's east coast


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India provides a customised tax regime for the upstream sector and non-residentservice
providers in relation to Exploration & Production operations.
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There is a special mechanism for taxation of income of companies which have entered into a
Production Sharing Contract (PSC) with the Government of India for undertakingexploration
and production activities.
c As per these provisions, taxable profits of a tax payer, who has entered into a PSC
with the Government for participation in the business of prospecting, exploration or

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production of mineral oil, to be determined in accordance with the special

provisionscontained in the PSC
c The provisions of the domestic tax law are deemed to be modified to that extent.
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c Specific allowances in addition or in lieu of allowances under normalprovisions
asspecified in the PSC are permitted.The specific allowances relate to.
c Expenditure incurred for exploration or drilling activities or services or assetsused for
these activities.
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c One hundred percent tax holiday available in respect of profits earned from
production of mineral oils.
c Tax holiday is available for seven consecutive years from the year of commencement
of commercial production.

 
 
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The Finance Minister has also increased the Minimum Alternate Tax to 18% from the earlier
15%. Oil exploration and production companies had sought an exemption from MAT. At
present, 15% MAT is applicable on booked profits (16.995% effective). No exemption has
been granted on profits earned from commercial production or refining of mineral oil which
are otherwise fully exempted from income tax for the period of seven years from the levy of
MAT.

 
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The petroleum industry is one of the biggest industries in India. The oil industry is broadly
segmented into upstream and downstream sectors. The exploration and production
exploitation activities comprise the upstream sector, while refining, marketing and
distribution activities come under the downstream sector.
c Drilling
c Production
c Refining
c Transportation and Distribution
c Research and Development

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To meet the growing demand of petroleum products, the refining capacity in the country has
gradually increased over the years by setting up of new refineries in the country as well as by
expanding the refining capacity of the existing refineries. As of April, 2009 there are a total
of 20 refineries in the country comprising 17 (seventeen) in the Public Sector and 3 (three) in
the Private Sector. The country is not only self sufficient in refining capacity for its domestic
consumption but also exports petroleum products substantially. The total refining capacity in
the country as on 1.10.2009 stands at 179.956 MMTPA. The company-wise location and
capacity of the refineries as on 1.10.2009 is given in Table below.

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c As on April 1, 2009, India has a total refining capacity of 178 MMTPA (including the
newly commissioned RIL refinery at Jamnagar)
c 18 out of the total 20 refineries in India belong to PSUs (with a capacity of a little
over 59%)
c In the last few years, the Indian refinery sector has witnessed continuous capacity
additions and the trend will continue in near future also; Projected capacity by 2017 is
302 MMTPA


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Mangalore Refinery and Petrochemicals Limited (MRPL), an organization with an asset base
of over 7,000 cr. It is a subsidiary of ONGC.

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The ownership pattern of the company is as follows:
Oil and Natural Gas Corporation (ONGC) 72%
HPCL 16%
Equity with public and financial institutions 12%

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The seeds of this project were sown in the year 1987 when HPCL were looking for a partner
in their venture to start a refinery. Among the many bidders for the deal, Adithya Birla group
was selected.


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Before acquisition by ONGC in March 2003, MRPL was a joint venture Oil Refinery
promoted by M/s Hindustan Petroleum Corporation Limited (HPCL), a Public Sector
Company and M/s IRIL and associates (AV Birla Group). MRPL was set up in 1988 with the
initial processing capacity of 3.0 Million Metric tones per annum that was later expanded to
the present capacity of 9.69 Million Metric tones per annum. The Refinery was conceived to
maximize middle distillates, with capability to process light to heavy and sour to sweet Crude

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with 24 to 46 API gravity. On 28th March 2003, ONGC acquire the total share holding of
A.V. Birla Group and further infused equity capital of Rs.600 cr thus making MRPL a
majority held subsidiary of ONGC. Subsequently, ONGC has required equity allotted to the
lenders pursuant to DRP raising ONGC's holding in MRPL to 71.62 percent. The
implementation of DRP in March 2003 within 4 weeks of acquiring equity in MRPL by
ONGC has changed the credit profile of the company. ICRA has assigned A1+ rating
(indicating highest safety) to the Short Term Borrowing programme of MRPL on a
standalone basis.

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The refinery is located in Dakshina Kannada district of Karnataka. It is at a distance
of 22 kms from Mangalore. The organization is spread over an area of about 1404 acres. The
refinery was set up with the view to meet the needs of Southern India. The choice of the
location was based in the proximity to seaport, the New Mangalore Port Trust. The port is at
a distance of 16 km from the site of the company. The port has a dedicated, totally
mechanized jetty for handling the products of MRPL.

 
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To be a world class Refining and Petrochemicals Company, with a strong emphasis on
Productivity, Customer Satisfaction, Safety, Health and Environment Management
Corporate Social Responsibility and Care for Employees.

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c Sustain leadership in energy conservation, efficiency, productivity and innovation.
c Capitalise on emerging opportunities in the domestic and International market.
c Strive to meet customers¶ requirements to their satisfaction.
c Maintain global standards in health, safety and environmental norms with a strong
commitment towards community welfare.
c Continuing focus on employee welfare and employee relations.
c Imbibe highest standards of business ethics and values.
c Sustained enhancement in shareholders value.

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The work in the project started in the year 1992 and the first phase was commissioned 1996,
which had a processing capacity of 3 MMTPA (Million Metric Ton Per Annum). The work in
the second phase of the project started soon after the commissioning of the first phase. The
same was commissioned in the year 1999, and had a processing capacity of 6.96 MMTPA. It
was later increased to 9.96 MMTPA (Million Metric Ton per Unit) The total capacity of the
plant at present is increased to 11.82 MMTPA from 9.69 MMTPA considering the successful
utilization of design margins available in the units over a period of 4 years. MRPL which
meets roughly 8% of India's refining capacity has been successfully running the refinery at
115% to 130 % capacity utilization over the past 4 years.

 

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MRPL has the unique distinction of having processed 38 different types of crude¶s, sourced
from west Africa, Saudi Arabia, Kuwait, Iraq, Iran, Sudan, Qatar, Abu Dhabi, Dubai, Yemen,
Kazakhstan, China, Vietnam, Malaysia, Indonesia, Brunei and India (Mumbai High).
Presently, two sweet crude¶s Mumbai high and Nile Blend (Sudan) are being regularly
processed, in addition to two sour crude¶s ± Iran mix and Arab Mix. The raw material is
brought to the port through bulk oil containers. The cargo unloaded at the port is directly
pumped to the storage tanks of the company through a pipeline that is approximately 16 kms
in length. The raw material so stored is again pumped to the different units as per production
schedule. The finished products are also pumped to the respective storage tanks.

 
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MRPL has the unique distinction in India of having two hydro crackers and two CCR units,
which produce high quality fuels.
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The atmospheric and vacuum distillation units and Naphtha splitter unit designed by EIL
are heat integrated to achieve high energy efficiency there by reducing fuel oil consumption
and in turn reducing air emissions.

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The hydro cracker unit in India and first in southern part of India produces high quality
sulphur ± free diesel, Kerosene and ATF. The plant is designed for 100% conversion of
heavy low value gas oils to lighter and valuable products. Diesel from hydro cracker unit has
a high cetane number, which facilitates.

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Shell soaker Visbreaker technology under the license of ABB lummus of Holland has
been adopted to upgrade heavy vacuum residue to Naphtha and gas oil. This is the first unit in
India to have vacuum flash column, producing vacuum gas oil, which is used for
supplementing the feedstock to hydro cracker unit.

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A state of the art unit, the continuous catalytic regeneration type plat forming unit (CCR)
produces lead±free, high octane motor spirit (petrol). Hydrogen produced as a by-product, is
used in the hydro cracker unit.

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LPG and Kerosene Meroxunits covert mercaptons to disulphide. Reformat with RON 110
is also exported for production of premium grade petrol and also for extraction of P-xylene, a
high value aromatic component used in the production of PTA and polyester.

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The hydrogen plant designed by M/s. KTI, Holland produce hydrogen by steam
reforming of Naphtha Hydrogen purity of 99.9% is achieved through Pressure Swing
Adsorption (PSA) unit the technology for which is given by UOP.

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This unit employs the highly efficient Bitumen process given by M/s. Porner of Austria to
produce paving grade asphalt.

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Keeping in view the power situation in the district, MRPL as installed a 112.5 MW power
plant to meet its entire power requirements, through five turbo generator of 22.5MW each.
There are seven boilers of 140Mt/Hr capacity each.


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The unit was licensed by KTI Italy and produces 99.9% purity sulphur using the most
modern and sophisticated selectox process. There are three sulphur units to meet and produce
the above said grade sulphur with a capacity of 100 tones for each of unit.

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In order to meet the stringent specification of benzene content in motor gasoline, reformer
splitter unit is installed. The unit employs simple distillation process to remove the benzene
from the motor gasoline to the specified levels.

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This plant is designed to process high sulphur diesel stream from cdu-1 and cdu-2 to meet
the sulphur spec of diesel 25% sulphur) as stipulated by the government of India.


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MRPL is manufacturing the following products by distillation of crude and other secondary
processing facilities:
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The darling of House-wife¶s for it¶s cleanliness and effective use -(This is used as domestic
cooking gas) and also as auto fuel.

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This is used in fertilizer and Petrochemical industries.
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Generally known as petrol, it is in fuel for two wheelers and cars whose consumption has
gone up by leaps and bounds in the past few years MRPL is the only company to produce
unleaded petrol from day 1 of production.

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Still the poor man¶s electricity in remote places and a part being used as fuel.

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This particular product has to undergo\stringent laboratory tests before being dispatched. It is
used as fuel in domestic aircrafts and defence aircrafts.

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This is used in all heavy vehicles, trucks, tankers, railways etc. MRPL has achieved less than
0.25% of sulphur levels in diesel as prescribed by the ministry of petroleum.

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This is basically used in Furnace and boilers.

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MRPL produces different grades of bitumen for use in laying roads, highways and airport
runways.

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This is directly dispatched from the sulphur recovery unit by trucks. Before the products are
dispatched, they are subject to blending, sampling, testing and certification to meet the
specification. These products (except sulphur and bitumen) are sold to MSHPCL, who as per
the agreement, are the sole distributors. Sulphur, bitumen and Naphtha are directly marketed
by MRPL.

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c ³Safety First ³± is M.R.P.L Motto.
c Lecturers and Seminars an industrial safety for MRPL staff, contractors and other
industries are regularly conducted.
c One of the best equipped live five fighting ground is used for training all staff.
c Mock fire drill and on-site emergency plan.

  



The operations of the refinery are divided into the following blocks:
1.c File and Safety department is well equipment to meet emergencies
2.c Raw Water Pump House situated 45kms from away from the Refinery at Sarpady
supplies water required for the refinery from Nethravathi River.
3.c Technical Service Division looks after design, construction, process engineering,
quality control, inspection, documentation, technical training and other related
activities.
4.c Engineering and Maintenance Division look after the maintenance related to
Mechanical, Electrical, Instrument, and Civil engineering activities of the refinery.
5.c Project Division is at present implementing the expansion of Refinery from 3 to 9
MMTPA (Million Metric Ton Per Annum)
6.c Personnel and administration Division is responsible for recruitment, welfare,
transport, land, security, community development and other employee related to the
Refinery.

c
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7.c Finance AND Accounts Division takes care of finances and accounting requirement
of refinery.
8.c Purchase Function looks after purchases and sales of product sulphur and bitumen.
9.c Stores Function regulates the receipt and issue of material and disposal of scrap items.
10.cMarketing Division keeps track of marketing of company products.
11.cSecretarial Function looks after the shareholder services and other secretarial
activities.
12.cLiaison Office at Delhi and Bangalore keeps liaison with various Government
agencies.

  
 

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c Received ISO: 9002 certification on December 1999 and was re-certified ISO
9001:2000 on January 2003.

c
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c Oil Conservation Award from Ministry of petroleum and Natural Gas on January 31,
2003.
c The Company has been conferred with the ³MINI RATNA´ category-1 status in July
2007 by the Government of India.
c Ranked 5th among India¶s top 500 Companies in terms of total income in the Oil
Refining and Marketing sector for 2006- Dun & Bradstreet India.
c MRPL won the prestigious Greentech Safety Gold Award for the year 2004-05 in
Petroleum-Refinery Sector for the outstanding contribution in safety record
maintained at work place.
c Business Excellence Award for 2005 ± Karnataka Chamber of Commerce.
c Commendation Certificate for Large Scale Manufacturing Industry under Rajiv
Gandhi National Quality Award 2006.
c MRPL¶s performance on Energy Conservation continues to be excellent. For the
fourth year in succession, the Jawaharlal Nehru Centenary Energy Performance
Award was given to MRPL by the Ministry of Petroleum & Natural Gas (20 th
September, 2007)
c MRPL adjudged the winner in the ƒ"
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c MRPL has won the * 
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specific Energy Consumption Performance amongst all Refineries in Public Sector.
c MRPL secured the +
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from Kanara Chamber of Commerce and also State level Export award for the Year
2005-06 and 2006-07 from Govt. of Karnataka
c ICRA has reaffirmed their Issuer rating of ³Ir AAA´ to MRPL for lowest credit risk.
CRISIL issued rating of ³Cr AAA´ to MRPL indicating highest safety continues.

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These seven elements are distinguished in so called hard S¶s and soft S¶s. The hard elements
are feasible and easy to identify. They can be found in strategy statements, corporate plans,
organisational charts and other documentations.

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The four soft S¶s however, are hardly feasible. They are difficult to describe since
capabilities, values and elements of corporate culture are continuously developing and
changing. They are highly determined by the people at work in organisation. Therefore it is
much more difficult to plan or to influence the characteristics of the soft element. Although
the soft factors are below the surface, they can have a great impact of the strategies and
system of the organisation.


 



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Strategy refers to set of decisions and an action and it includes mission objectives, goals, and
major action and policies. MRPL mission is ³to produce petroleum products of world class
quality at internationally competitive cost. The quality policy of MRPL is to have a set of
satisfied internal customers, business associates, and society through excellence in quality
products and service and also to achieve safe working conditions and Eco friendly
environment through continuous improvement in the technology and man power skills. Its
strategy is to be committed to the state of the technology, environmental protection and safety
in its operations, social commitment and employee relations.
Another strategy of the company is to upgrade the quality specifications of the products
manufactured. It aims at the maximum use of the raw material and upgrades the crude oil into
value added products.

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Style is one of the factor from which manager of the organisation can bring
organisation change. The McKenzie framework considers style as more than the ³style´ of
top management. The management of MRPL, is closely associated with team building,
interpersonal interactions and human skills as the management style at MRPL is domestic in
nature. IT encourages the employees to participate in decision making. The authority and
responsibility of each employee is clearly defined at MRPL.
Efficient employees are recognised and their performance is praised in the form of
quick promotion and attractive incentives. Regarding the style of productions, MRPL has
adapted the policy of TQL, which refers to providing training on various areas such as total
productivity management, total quality management, etc. In MRPL managers spend more
time interacting with various employees in various departments, it can be said to be
democratic wherein the employee are given full freedom to express what they think and
sometime the discussion of the employee with employee are also taken into consideration
while making important decisions.

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Structure describes the hierarchy of authority and accountability in an organisation.
These relations are frequently diagrammed in organisational charts. Most organisations use
same mix of structure pyramidal matrix to accomplish their goals. A structure is a formalising
of relationship roles and responsibility in order to recognise and perform work.

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MRPL has a well built organization structure. Since its activities has grown by
expanding their overall scope of operations through further penetrating existing markets by
introducing similar products in to additional markets it has adopted a functional organization
structure.
The functional structure at MRPL, establishes a formal, lateral channel of
communication that existing hierarchical channel of authority and responsibility. It provides
clearly marked carrier path for their services and it also facilitates the developments of skills
who are working in organization.

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People are main asset of the organization. Organization performance mainly depends
upon individual¶s performance who are working in the organization. So staffing plays
important role by right person in right job. Staffing is the process of acquiring human
resources for the organization and assuring that they have the potential to contribute to the
achievement of the organizations goals.
The work force at MRPL is very skilled, 97% of the workforce is qualified with minimum
qualification being graduation on the administration side and diploma on the technical side.
The personnel and administration department is responsible for recruiting people for
MRPL. The most eligible candidate is selected and they are trained for a month and
promotion of the employees is based on the performance appraisal undertaken. The
employees of MRPL are paid high salary and MRPL has provided hospital facility, shopping
centres, schools, departmental stores and employees club facility to its employees.

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System means all the rules, regulations and procedures both formal and informal that
compliment the organisation structure. The flow of activities involved in the daily operation
of a business including its core process and its support systems. In MRPL there is a formal
flow of communication in two ways i.e. top level to bottom level and bottom to top. Each
division has its own reporting system which integrates entire organisation into corporate
office. MRPL has proper set of procedure for selecting right candidates to the organisation.

! c +7


The MRPL possesses labour force with various skills.The company encourages and
provides training for the developments of skills, depending onthe employees at operating
level and management level.
The employees at management level, posses skill for company administration, leadership,
motivation etc. They are also trained under various aspects like skill development,
behavioural department, fire and safety training.
At the operating level the employees possess various skills in relation of their jobs as well as
other aspects like self-development, first aid training fire and safety training,work cultureetc.
All the employees are properly trained in order to improve their skills so as to help them to
contribute to maximum productivity.

c
c
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Shared values the center case of the framework give raise to a certain spirit among
organizational members regarding ³who we are and where we are headed´ the spirit
permeating in the organization in term is reflected in the values, attitudes and philosophy it s
members the corporate values define the ideas and belief which guide the organizational
operation they lay down the foundation of the organization management philosophy and give
raise to particular culture.
MRPL gives prime importance to safety aspects in all the activities, it trains and
motivates personnel at all levels continuous so to culture which can be achieved by building
and nurturing work culture which focuses on work ethic commitment in the surroundings
through continuous reactive pollution control measures.Vigorous forestation programmers
have been created in around MRPL. Measures also have been taken to protect the existing
flora and fauna any basic interference

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MRPL¶s competitive edge due to following reasons.
a)c It is the only Refinery where more than 99% recovery of Sulphur is achieved
which makes its products high quality and eco friendly.
b)c It can refine 40 different varieties of eco friendly.
c)c The large capacities with filled economics of large scale production in the ling run.
d)c It has highly skilled and energetic work force.
e)c It has many processing units unlike others Refineries in India.
f)c It has state of art technology which requires less man power and human
interference.
g)c Now being a subsidiary company of ONGC it has got more financial assistance and
a wide market











c
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MRPL Other refineries
Gasoline yield on crude 18% 8%
Gas oil + jet fuel yield 58% 49%
P ‘

:c 



Company name Capacity Project cost Cost per MT
1)MRPL 9MMT 6,902Crs 6,770
2)Reliance 27MMT 18,200Crs 6,741
3)Essar 9MMT 8,000Crs 8,800
P
 



:c  




Units Quality per

1.c Crude units 96,90,000 MT

2.c Hydro Cracker 2400,000 MT

3.c CCR Platform 9,50,000 MT

4.c Visbreaker 23,00,000 MT

5.c Hydrogen unit 9,00,00,000 SCFD

6.c Bitumen unit 2,00,000 MT

7.c distillate HDS 30,000 Barrels

8.c sulphur unit. 1,10,000 MT

P
 

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MRPL has a power plant which generates 112.5 MW using Turbo generators and
steam turbines. It is the heart of the refinery which supplies required power and steam
to the complex for an industry like MRPL uninterrupted power supply is a must to
achieve production targets. A steady supply of power also ensures long life of the plant
as well as safety of the complex.

:c &
+$


MRPL has flare system which are used for safe disposal of inflammable gasses and
toxic vapour which are produced during startup, shutdown and normal operations. As
well as during emergency like cooling water failures, power failures.

lc =7

1)c The main weakness of MRPL is its financial performance which has been negative
because of higher interest rates and accumulated depreciation.
2)c The marketing of main products like Petrol, Diesel, Kerosene, LPG, which are done
by HPCL, has not been able to increase its market share. This has adversely affected
MRPL because of lower domestic sales the plant was being under utilized.

lc 




1)c MRPL has plans to invest Rs. 600 Cr upgrading its technology to achieve Bharath III
and Euro III norms
2)c Plans to invest Rs. 41.24 Lakhs. In R&D Projects for current year.
3)c Setting up of retail outlets for direct marketing.


lc P


The treats faced by MRPL are as follows:
1)c Volatility in International prices of Crude Oil.
2)c Government Decisions in the context to privatize HPCL.
3)c MRPL would be facing competition form Reliance in the long run

c
c
c
c

 ‘
 


Working capital management is concerned with managing of the current assets, the current
liabilities, and the inter-relationship that exist between them. The working capital
management is a significant part of business decision. It is a major concern to the financial
manager in an accomplishment of value maximization depends essentially on the working
capital decisions.

 
+ 
%

+$

This study is based on the working capital management at M.R.P.L. The scope of study
limited to Mangalore Refinery and Petrochemicals Ltd. (MRPL) with reference period from
2005 to 2009.

 
# 

%
+$

lc To compare various managerial aspects of various oil companies with that of MRPL
lc To evaluate and analyse the operating cycle of MRPL.
lc To assess the Overall efficiency of working capital of MRPL.
lc To critically analyze the inventory management of MRPL.
lc To evaluate the Cash Management at MRPL.
lc To critically analyze the Receivables Management and their collection at MRPL.
lc To find future trend of Working Capital.


 
".$

( c P$
%
+$The study carried out here is basically analytical in nature. This type
of study relies on data which is already available.
- c P$
%

: The methodology involved for data collection was mainly
through secondary data and was obtained from the company¶s financial statements
(from 2005 onwards) and the company¶s website (http://www.mrpl.co.in). The
Balance Sheets and the Profit & Loss Accounts for the last 5 years was the source
based on which forecasting was done which was from the company¶s
archives.Extreme care was taken in collecting the data from the financial statements
and only relevant data was taken for the analysis based on .

c
c
c
c

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The source of data has been company¶s Balance Sheet and Profit
and Loss Accounts over a period of past 5 years.
c P

%

 
 The data has been collected mainly from the
company¶s Balance Sheet and Profit & Loss Account for the past 5 years. Interview
schedule was taken to understand how the Finance Department is working and what
are the various policies followed in the Organisation.
 c P

 
)

%
$
 Various tools and techniques have been
used to fulfil the aforesaid objectives. A thorough study of the Organisation has been
along with in depth study of the functioning of Finance and Accounts Department of
MRPL. Further for the analysis of Working Capital Management, study of working
Capital cycle / Operating cycle has been made along with Operating cycle of MRPL.
Thereafter analysis of working capital has been done by taking into consideration
past 5 years Current Assets and current Liabilities.
After this component wise analysis has been done, to have in depth view of working
capital requirements and its trend. To find out the efficiency of Working Capital
management, Ratio analysis tool has been used for the evaluation of inventory, Cash
Management and Receivables Management at MRPL. Trend Projection of Working Capital
Requirements has also been done to assess the future requirements of Working Capital. This
has been done till 2015.

 c
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+ 

Industry Structure is being identified on the basis of following parameters:


 ‘ ‘
a
%
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There are 17 players in this Industry:
c BPCL
c Bharat Oman
c Bharat Petro JPD
c Black Gold Refineries
c CPCL
c Essar Oil
c HPCL
c HPCL-Mittal
c IOCL
c MRPL
c Numaligarh Refineries
c Raj Lubricants
c Raj Petroleum Products
c Reliance Inds.
c SahPetroleums
c Southern Refineries
c Valvoline Cummin


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The total market size of all the companies in this Industry is being calculated on the basis of
the sales of these companies:

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information from the financial statements, a number of tools are used to analyze such
statements. The most popular tool is the Ratio Analysis.
The following ratios are calculated and interpretations are made based on the results:
lc Technology orientation
c In house R & D
c Technology imports
lc Foreign exposure
c Export intensity
c Import intensity
lc Productivity
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lc Performance
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c Return on Equity

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Reliance and HPCL have been major importers of the technological advancements in the
globe where as BPCL and MRPL have imported almost nothing in the years in consideration.
IOCL has been a minor importer all through the years.
HPCL has collaborated with several academic / research institutions to come up with
innovative results enhancing the production capacity and other industrial parameters. The
details of the projects (particularly the partners in collaboration) are given below:
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Reliance and MRPL have been major export intense companies where as it may be
seen that all other three companies ,i.e., have relied more on serving the domestic
needs of the country. In 2009, it is seen that Reliance has exported a lot and a
significant phenomenon is seen, HPCL, BPCL, and IOCL have shown the same
export intensity in all the years in consideration.

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additional debt capacity. So if the company goes for higher debt, then at the same time it
should have higher interest coverage ratio.

 
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a

A major entry barrier into oil refining and gas is lack of
competition in major markets for refined products. Government dominance of user
industries and the losses it forces them to make limit their capacity to pay
internationally comparable prices. Barriers can vary depending on the area of the
market in which the company is situated. Other areas of the oil business require
highly specialized workers to operate the equipment and to make key drilling
decisions. Companies in industries such as these have higher barriers to
entry than ones that are simply offering drilling services or support services.

lc -.

.
 
%
+
: Even though there are many oil companies in
the world only few companies have become successful.The large amounts of capital
investment tend to weed out a lot of the suppliers of rigs, pipeline, refining, etc. These
companies have significant power over smaller drilling and support companies and
they do not have much competition between them.


lc -.

.
 
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-$
The balance of power is shifting toward buyers.
There is no much difference between one company¶s oil or drilling services and of
course oil is a necessary commodity. This leads buyers to seek lower prices and better
contract terms.

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Substitutes for the oil industry in general include
alternative fuels such as coal, gas, solar power, wind power, hydroelectricity and even
nuclear energy. Solar energy, and other non-renewable sources offer strong
competition in a long run because of renewability and pollution matters.

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This ratio shows the return on long term funds employed in business in pre tax terms. The
ratio is changing slightly over the years except for the year 2006 where it reduced more. The
reason for this is the operating profit decreased from Rs. 2068 cr. in the year 2005 to Rs.
1160 cr. in the year 2006. But after 2006 it has shown a good sign as the ratio has increased
and only in 2009 there is slight decrease in the ratio because of increase in total funds and
there was no proportionate increase in the operating profit.

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The study has been carried out while keeping in point the objectives of understanding
the dynamics of Organisation, to critically analyze the Finance and accounts department of
Mangalore Refinery and Petrochemicals Ltd. The scope of study was limited to Mangalore
division of the organisation where all the data is collected from various plants and then
compiled together.

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Working Capital Management is a significant facet of financial Management. It is
basically the management of Current Assets and Current Liabilities of a firm. This includes
short term finance, negotiating favourite credit terms, controlling the movement of cash,
administering accounts receivables and monitoring the investments in inventories. All this
consume a great deal of time of finance managers.
The basic goal of Working Capital Management is to manage Current Assets and Current
Liabilities in such a way that a satisfactory level of working Capital is maintained i.e. neither
inadequate nor excessive.


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There are two concepts of working capital ± Gross and Net
lc Gross Working Capital refers to the firms investments in Current Assets (current
assets are the assets which can be converted into cash within an accounting year or
within an operating cycle) and include cash short term securities, debtors and stock.
lc Net working capital can be defined in two different ways:
a.c It is the excess of current assets over current liabilities.
b.c It is that portion of a firm¶s current assets which is financed by long-term
funds.
Net working capital can be positive or negative. A positive working capital arises
when current assets exceed current liabilities. A negative working capital arises when
current liabilities are in excess of current assets.
The Gross working capital concept focuses on two aspects of current assets
management:
a.c How to optimize investment in current assets?
b.c How should current assets be financed?

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The need for working capital arises due to the time gap between production and
realisation of cash from sales. There is time gap between purchase of raw materials and
production, sales and realization of cash. Hence, the working capital is needed for following
purposes:
i.c For the purchase of raw materials, components and spares.
ii.c To pay wages and salaries
iii.c To incur day-to-day expenses and overhead costs.
iv.c To meet the selling costs such as advertising, etc.
v.c To meet inventories of raw materials, work-in-progress, and finished stock.

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The company follows the policies of working capital management according to
Reserve Bank of India (RBI) instructions. As far as practices of Working capital are
concerned, the company gives a credit period of 21 days to its customers.

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There are four major methods of calculating working capital requirement of s firm.
They are listed below:
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In this method the working capital
requirement is determined on the basis of average holding period of current assets and
relating them to costs based on the company¶s experience in the previous years. This
method is essentially based on operating cycle concept.
lc -



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ratio of sales on the assumption that current assets change with sales.
lc 

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This method uses a simple technique of estimating
working capital requirements as a percentage of fixed investment. The working
capital is taken as a fixed percentage of fixed investments and the ratio is determined
on the basis of previous years.
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of working capital. For example: Inventories, accounts receivables, cash accounts
payable, etc.

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Operating Cycle is the time duration required to convert sales after the conversion of
resources into inventories, into cash.
Working Capital is required because of the time gap between sales and their actual
realization in cash. The time gap is technically termed as ³Operating Cycle´ of the business.
The amount of working capital differs from time to time and frm business to business
depending upon the operating cycle in each case. The shorter the operating cycle, the quicker
the realization of sales and hence lesser the amount of working capital needed.
It has three stages:
1)c Acquisition of Resources such as raw material, labour, and fuel etc.
2)c Manufacture of product which includes conversion of raw materials into work-in-
progress, into finished goods.
3)c Sale of Product and recovery of proceeds either for cash or on credit. Credit sales
create account receivable for collection.
There are two elements in the business cycle that absorb cash ± inventory (stocks and
work-in-progress) and receivables (debtors owing you money). The main sources of cash are
Payables (your creditors) and Equity and Loans.
A Typical operating cycle of a Manufacturing firm, a on Manufacturing firm or a
Trading firm and a Service or Financial firm is given below:


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Each component of working capital (namely inventory, receivables and payables) has
two dimensions: TIME and MONEY. If you can get money to move faster around the cycle
(e.g. collect money due from debtors more quickly) or reduce the amount of money tied up
(e.g. reduce inventory levels relative to sales), the business will generate more cash or it will
need to borrow less money to fund working capital. As a consequence, you could reduce the
cost of bank interest or you will have additional free money available to support additional
sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g.
get longer credit or an increased credit limit; you effectively create free finance to help fund
future sales.
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Working capital requirements of the firm depend on the general nature of the
business. The small company requires less working capital, because of their limited
transaction. Big firm like public utilities require more of working capital because of
huge transactions.

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Production cycle is the time taken to convert raw material into finished goods. Longer
the production cycle higher the working capital required. Shorter the production cycle
lower the working capital required.


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The working capital requirements are higher when the boom conditions prevailing in
the economy and lower when economic activity is marked by decline.

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If the company sales are on the seasonal basis, more working capital is required
during seasonal sales and less working capital during off seasons. If the company¶s
sales are throughout the year a uniform working capital is required.

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grants less credit the working capital required is high.

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The payment of the dividend consumes cash. Thus, if the company declares a
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dividends. Thus, the cash is preserved and lower working capital required.

‘/:c

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rising prices necessitates the use of more funds for maintaining an existing level of
activity.

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The management can contribute to a sound working capital position through operating
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capital is required.

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need for the working capital.

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Technological developments related to the production process have sharp impact on
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ratio should be 1:1. Here we observe that in the year 2009 the quick ratio is higher compared
to all the other years considered. It is because the current liabilities have reduced from
Rs.5173cr. in the year 2008 to Rs. 3438 cr. in the year 2009. Also the inventories have also
reduced from Rs. 3632cr. in the year 2008 to Rs. 1899 cr. which resulted in the increase in
quick ratio.

! 
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The term Inventory refers to the stockpile of the products of a firm is offering for a sale and
the components that make up the product. In other words. Inventory is composed of assets
that will be sold in future in the nominal course of business operations. The assets which firm
store as inventory in anticipation of need are:
i)c Raw Material
ii)c Work-in-Progress
iii)c Finished Goods


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should be made to place the order at the right time with the right source to acquire the right
quantity at the right price and quality. An effective Inventory Management should:
1)c Ensure a continuous supply of raw materials to facilitate uninterrupted production.
2)c Maintain sufficient stocks of raw materials in periods of short supply and anticipate
price changes.
3)c Maintain sufficient finished goods inventory for smooth sales operation and efficient
customer service.
4)c Minimize the carrying cost.
5)c Control investment in inventories and keep it at an optimum level.


!  


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For the purpose of evaluation of how the working capital is managed at MRPL, I have
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In M.R.P.L., it is done under Linear Programming Model (L.P.P.) whereby each crude¶s
different properties, prices, yield, crude availability, freight charges, unit constraints all are
fed into the Model and which gives maximum profits and rank them according to the profits
they earn or yield.
This system is known as ³Pecking Order´. These are of 2 types, i.e., one is monthly pecking
order, and the other is yearly pecking order. The yearly pecking orders are done for those
crude, where availability of crude is abundant like Iran mix, Saudi, Kuwait etc. which are
arrived in huge. They are fixed. It is done in terms of contract basis.
The other is monthly pecking order. It is done for those that are available in cheap, whereby
the other companies reject the crude may be given for lesser price. It is done on spot basis.
So accordingly crude is purchased in the market. After choosing which crude to be
purchased, question arises what is the quantity to be purchased. Quantity ordered is mainly
affected by 2 factors in MRPL they are as follows:
c International crude ± There are 2 matters relating to international crude, one is vessel
size and the other jetty constraints for unloading. Larger is the vessel then it is
economical. Thus there should be a balance. Therefore one parcel should be 80-95
TMT.
c Indian crude ± As it holds less quantity, i.e., smaller ship, it should hold 35-50 TMT



.
%



Marketing companies like HPCL; BPCL and IOCL, place a proportionate order for finished
goods of M.R.P.L. There will some percentages (%) of finished goods those are pre-
determined in throughput of crude. If the existing throughput crude does not hold the
percentage of finished products, then the order is placed two months earlier this is because
procurement of stock takes a long process or it is less predictable.

 c
c
c
c

The placing of proportionate order for finished products to M.R.P.L. by marketing companies
through Petroleum Planning cell. They will do it under past or present scenario. The excess is
proportionately distributed among different refineries including M.R.P.L.

& 
.

Forecasting is done by taking into consideration the order placed before in hand by marketing
companies like HPCL, BPCL and IOCL. As some proportionate of finished products are pre-
determined in crude oil accordingly if there is any deficit in crude with regard to finished
product then there is a requirement of crude. Then scheduling for whole month is done taking
into consideration of the above with respect to its throughput.


(.


7
%


.

%

$

Crude is brought in two ways into the refinery:
c Term basis ± purchased annually
c Spot basis ± purchased according to requirement and availability of crude.
E.g.: Crude from Western African = 45 days
Crude from Middle East = 15 days


! 

".

"2

Cash is an important component of Working Capital, although the concept of Cash
Management is not new. It has assumed greater importance in the modern business world due
to important changes in the conduct of business and ever increasing difficulties and cost of
borrowings and the same applies to MRPL.

c 
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Funds flow is undertaken between collections, cash, disbursements. Information flow
is undertaken between collections control through information reporting and disbursements.
M/S Mangalore Refinery and Petro Chemicals Limited do not maintain excess money.
So, it can¶t be able to invest in marketable securities. So, there is no chance of surplus funds
investment in different options.
If company is facing deficit in Working Capital, they follow some actions to avoid that. They
are:
1)c Advance from Customers
2)c Short-Term Loan
3)c Temporary Overdraft
4)c Reduction in Stock Holding.
5)c Unsecured Loan from Directors, etc.


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)

The firm¶s objective is not only to stimulate customers to pay their accounts as promptly
as possible but also to convert their payments into a spendable form as quickly as possible.
Some important techniques used by M/S Mangalore Refinery and Petro Chemicals Limited to
minimize collection float are:
‘:c  

-7
.

It is used to reduce float by shortening the mail and clearing float components. Mail
float is reduced because regionally dispersed collection centers bring the collection point
closer to the point from which the cheques are sent. Clearing float should also be reduced,
since the Payee¶s Regional Bank is likely to be in the same Federal Reserve district or the
same city as the bank on which the cheque is drawn; it may even the same bank. A reduction
is clearing float will, of course, make funds available to the firm more quickly.
:c 2 7
-

Another method used to collections by Mangalore Refinery and Petro Chemicals
Limited is Lock Box System. Here instead of mailing payment to a collection center, the
Payer sends it to a post office box that is emptied by the firm¶s bank. One or more times each
business day, the bank opens the payment envelopes, deposits the cheques in the firm¶s


c
c
c
c

account an sends a deposit slip (or under certain arrangements, a computer tape) indicating
the payments received along with any enclosures, to the firm.
:c
 
+

Rather than depositing these cheques in its collection account, the firm arranges to present the
cheques to the bank on which they are drawn and receive immediate payment. The firm can
express merit or private express services to get the cheques into a bank in the same city or to
a sales office.
:c =

P%

Firm also frequently use wire transfers to reduce collection float by quickly
transferring funds from one bank account to another. Wire transfers are telegraphic
communications that a book keeping entries remove funds from the payers bank and deposit
them into the payee¶s bank. This can eliminate mail and clearing float and may provide
processing float reductions as well.

lc

P 
)

The firm¶s objective related to accounts payable is not only to pay its accounts as late as
possible but also to slow down the availability of funds to suppliers and employees once the
payment has been dispatched. Some important techniques followed by M/S Mangalore
Refinery and Petro Chemicals Limited are:
‘:c 


.

It involves the strategic use of mailing points and bank accounts to lengthen mail float
and clearing float, respectively when the date of post mark is considered the effective date of
payment by the supplier, the firm may be able to lengthen the mail time associated with
disbursements. This is due by paying payments in the mail at locations from which it is
known they will take a considerable amount of time to reach the supplier. This scheme is
developed by widespread availability of computers and data on check clearing time allows
firm to maximize clearing float on their payments.
:c $
.

&

It is a method of consciously anticipating the resulting float or delay associated with
the payment process. Firm often play the float by writing cheques against funds not currently
in their checking accounts. They are able to do this because they know a delay will occur
between the receipt and the deposit of cheques by suppliers and the actual withdrawal of
funds from their checking accounts. It is likely that the firms bank account will not be drawn

c
c
c
c

by the amount of the payments for a few additional days. Although the effective use of this
practice could result in problems associated with balanced cheques any firm¶s use float to
stretch but their accounts payable.
:c 9:
%
+$

?
- 
( 

Firm that aggressively manage cash disbursements will often arrange for some type of
overdraft system or a zero balance account. Under an overdraft system, if the firm¶s checking
account balance is insufficient to cover all cheques presented against the account, the bank
will automatically lend the firm enough money to cover the amount of the overdraft. The
bank, of course, will charge the firm interest on the funds lent and will limit the amount of
overdraft coverage.

9:&



<
 
 

Checking accounts in which zero balances are maintained. Under this arrangement,
each day the bank will notify the firm of the total amount of cheques presented against the
account. The firm then transfers only that amount, typically from a master all. Once the
corresponding cheques have been paid, the account balance reverts to zero. The bank, of
course, must be compensated for this service.
M.R.P.L. has centralized cash management with regard to cash outflows and cash inflows at
its corporate office in Mumbai. Any excess collection at branches in Mangalore and
Bangalore will be transferred to corporate office and whenever shortfall arises in the branches
funds are transferred from the corporate office. Here cash refers to cash and cash equivalents.
Maximum limit is fixed based on the past experience and number of transactions in
the previous year. Further there is a restriction in the Income Tax for cash payment exceeding
Rs. 20,000. As far as possible all payments are made through bank and only in some
exceptional cases cash payments are being made. Payments such as travel advances to
employees, petty cash expenses, reimbursement of expenses are made through cash. In case
of pending vouchers with the cashier requires further funds and the required amount will be
drawn from the banks (Bank branches are situated in site). M.R.P.L. Mangalore has cash
holding of Rs. 50,000 and Mumbai corporate office holds Rs. 50,000. Any excess in the
office will be transferred to the bank and any shortfall cash will be withdrawn from bank.
Again Chief Resident Manager in Bangalore and Delhi office has an imprest balance of Rs.
15,000 to meet petty cash expenses. Petty cash imprest are with regard to following reasons:
Purchase ± local purchase ± Rs. 15,000/-; Fire and safety ± petty repairs ± Rs. 500/-;

c
c
c
c

Materials ± petty clearing charges ± Rs. 500/-; G.M. (T/S) ± petty expenses ± Rs. 500/- ; P &
A (guest house ± petty expenses ± Rs. 5,000/-.
Corporate office Mumbai deals with major funds management. They deal with high
value transactions like receipt ± sales from HPCL, borrow out of working Capital limits, Bills
Discounted, loans to NMPT, NMPT interest remittance of Phase II once in a quarter to
Mumbai corporate office and interest of Phase I is remitted to M.R.P.L., Mangalore. Crude
payments, loan repayments, interest on loans, interest, tax payment etc. They have to closely
monitor interest rates, i.e., C.C. accounts whereby daily cash flow requirement is dealt
through Opening Accounts in banks, withdrawal should be high when interest rates are low
and withdrawal should be low when interest rates are high.
One important aspect noticed in the Cash Management System is that, outstation party
used to send their DD by courier, which delayed realization to the extent of transit time. To
avoid this delay in transit time, currently many banks are offering excellent cash management
services whereby collection at various locations are pooled in customers account at one place
and disbursement can be made from there. Corporation Bank services MRPL this service.
This service in Corporation Bank is known as ³CAPS´ (Collection And Payment Service).
The company needs to explore the options of availing similar services from a bank that has
got wide network so that it will benefit both the customer and the company.
Based on MRPL¶s request 2 banks from consortium of lenders have allocated Rs. 150
lakhs (Corporation Bank) and Rs. 25 lakhs (SBI) as CC limit to their Mangalore branch for
the utilization of MRPL Mangalore site office. Thus MRPL Mangalore gets total cash credit
limit of Rs. 175 lakhs. Payment to customs and Wharfage are done through SBI and all the
payment is done through Corporation Bank. Cash receipts are receipts from Mumbai, receipts
from NMPT, LC receipts and receipts from sales other than major receipts from sales viz.,
HPCL.

!  


%

".

For the purpose of evaluation of Working Capital Management, I have done a keen study on
the working capital by evaluation of the cash management at MRPL. For this purpose I have
calculated two ratios:
1.c Cash and Bank Balances to Current Assets ratio
2.c Sales to Cash and Bank Balances Ratio

c
c
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The main objectives of Receivable Management are:
1)c To obtain the optimum volume of sales.
2)c To control the cost of credit and keep it at the maximum.
3)c To maintain the optimum level of investment in receivables.
4)c To keep down the average collection period.


! ! 



$
%

$

Credit policy provides guidelines for determining whether to extend credit to a customer, and
how much credit to extend, the firm must establish credit standards to use in making these
decisions.
Appropriate sources of credit information and methods of credit analysis must be developed.
Each of these aspects of credit policy is important to the successful management of accounts
receivable.
Terms of payment followed by M/S Mangalore Refinery and Petro Chemicals Limited
New Customers ± 100% Advance.
Export ± Letter of Credit and criteria followed is pricing, quantity, volume of order, requisite.
So it offers limited credit.


! ! 




%
&




$

1.c Credit Standards
2.c Credit Period
3.c Cash Discount
4.c Collection Effort.

‘ c 

+

The firm¶s credit standards are the minimum criteria for the extension of credit to a customer.
MRPL consider the key variables while contemplating, relaxing or tightening its credit
standards, will give a general idea of the kinds of decisions involved.








c
c
c
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3

Changing credit standards can be expected to change the volume of sales. If credit standards
are released, sales are expected to increase. If credit standards are tightened, sales are
expected to decrease. Generally, increases in sales affect profits positively, whereas decreases
in sales affect profits negatively.
 c 


( 
 


Carrying or maintaining accounts receivable involves a loss to the firm. This cost is
attributable to the forgone earnings opportunities resulting from the necessity to tie up funds
in accounts receivable. Therefore, the higher the firms investment in accounts receivable, the
greater the carrying costs and vice versa.
Cost of Marginal Investment in Accounts Receivable can be calculated as follows:
Average investment in Accounts Receivable =
Cost of annual Sales ÷ Turn of Accounts Receivable
Average investment in Accounts Receivable =
360 ÷ Average Collection Period
c -



The probability or risk of acquiring a Bad Debt increases as Credit Standards are released.
The increase in Bad Debts associated with relaxation of Credit Standards raises bad debts
expenses and impacts profits negatively. The opposite effects on Bad Debt Expenses and
profits result from a lightening of a Credit Standards.
The basic changes and effects on profits expected to result from the relaxation of credit
standards are tabulated as follows:

 

%
.
%% 

%


Sales Volume Increase Positive
Investment in Accounts Increase Negative
Receivable
Bad Debts Expenses Increase Negative
If credit standards were lightened the opposite effects would be expected.

 c 




The credit period refers to the length of time customers are allowed to pay for their
purchases.

c
c
c
c

Credit period allowed by M/S Mangalore Refinery and Petro Chemicals Limited is
Export - 45 days
Local - 30 days
Lengthening of the credit period pushes sales up by inducting existing customers to purchase
more and attracting additional customers. This is however, accompanied by a larger
investment in debtors and a higher incidence of bad debt loss. Shortening of the credit period
would have opposite influence. It tends to lower sales, decreases investment in debtors, and
reduce the incidence of bad debt loss.
 c 

 

Firms generally offer cash discounts to induce customers to make prompt payments. The
percentage discount and the period during which it is available are reflected in the credit
terms (Cash Discount offered by M/S Mangalore Refinery and Petro Chemicals Limited is
5%). When a firm initiates or increases a cash discount the following changes and effects on
profits can be expected.
 c  




The collection programme of the firm, aimed at timely collection of receivables followed by
M/S Mangalore Refinery and Petro Chemicals Limited may consist of the following:
1.c Maintaining the state of receivables
2.c Telegraphic and telephonic advice to customers around the due date
3.c Threat of legal action to overdue accounts
4.c Legal action against overdue accounts
5.c Dispatch of letters to customers whose due date is approaching

! ! 

%
 


Firms can control its receivables by:
c Monitoring and controlling of accounts receivables.
c The measures commonly employed for judging whether accounts receivables are in
control are:
i.c Bad Debts losses
ii.c Average Collection Period
iii.c Ageing Schedule

 c
c
c
c

! ! 
 

".

"2

Cash flow can be significantly enhanced if the amounts owing to a business are collected
faster. Every business needs to know who owes them money, how much is owed, how long it
is owing, for what it is owed. Slow payment has a crippling effect on business in particular on
small businesses who can least afford it. If you don¶t manage debtors, they will begin to
manage your business as you will gradually lose control due to reduced cash flow and, of
course, you could experience an increased incidence of bad debt.


,2

M.R.P.L. major products are sold through HPCL. It sells products like High Speed Diesel,
Motor Spirit, LPG, and SKO.
HPCL is given 21 days of credit. In a very rare and exceptional case HPCL fails to pay the
amount due to M.R.P.L., within due date. If it is so, then they are liable to pay interest of 18%
(Interests rates are subject to variation with respect to products and periods).
2

Recently, M.R.P.L. also started to sell its products directly to IOCL. Previously, the products
were sold through HPCL, through whom the products have been sold to IOCL. M.R.P.L
grants 3 days credit to IOCL in case of direct sales.
-2

M.R.P.L. do not sell its products to BPCL directly. MRPL sells its products to BPCL through
HPCL and invoice is raised on HPCL as ³BPCL A/C HPCL´.


M.R.P.L.¶s products are exported. Except LPG and kerosene and all other products like
Naphtha, Motor Spirit, High Speed Diesel, Fuel Oil and ATF at international prices are
exported to Vitol Asia, B.P. Singapore, TRAFIGURA PTE Ltd., Marubeni International,
Itochu Petroleum, Sumitomo Corporation, Chevron Texaco, Projector U.K., B.B. Energy.
These are some of buyers amongst many. Among these most of the exports is done to Vitol
Asia.
First, M.R.P.L. floats a global tender for a particular product whereby it contains quantity,
date, price, payment, laydays, laytime and demurrage. Interested buyers will participate in the
tender and give their offer. The buyer stipulates some terms and conditions with regard to the
price, payment, laydays, laytimes and demurrage while offer. Then M.R.P.L. will analyse the
offer and the best offer will be awarded with the tender.

 c
c
c
c

All the buyers deal with Letter of Credit except B.P. Singapore, they are provided with 30
days of direct payments and rest of the buyers¶ deal with Letter Of Credit. Terms and
condition of the Letter Of Credit will differ from each of the buyers, product and price. It is
agreed at the time of payment and after co-ordinating with buyer. M.R.P.L. will analyse
Letter of Credit and seek any amendments if required. After confirmation of receipt of valid
Letter Of Credit, they give clearance for loading. M.R.P.L. discounts letter of credit in the
bank and the buyer pays it to respective banker.


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c Raw material conversion period, work in progress conversion period and the finished
goods conversion period is decreasing over the years.
c The firm is able to collect their money from customers within 30 days.
c The working capital is increasing continuously over the years because of the increase
in the cash and bank balance
c It has more percentage of inventories compared to other items of current assets in all
the years under consideration. But the percentage is reducing over the years, which is
a positive development for the company.
c Increase in sales volume has created positive impact on Cash and bank balance.
c The company follows a credit policy. Accordingly It provides a credit period of 30
days for local sales and 45 days for export sales as against the findings of 21 days
(average).
c Cost of production and Cost of sales both are increasing over the years when
compared with the gross sales.
c Company is having moderate profit, which enables them to reduce term loans over the
years.
c Working capital requirements can be financed from internal as well as external
sources. The following banks provide Cash Credit facility to MRPL ± Punjab
National Bank, SBI, UBI, Corporation Bank, Canara Bank, Bank of Baroda.
c MRPL is being provided 30 days credit by suppliers, which also acts as the source of
working capital.

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The present study µAnalysis of working Capital Management at MRPL, is undertaken through the
ratio analysis. This gives an image of the quantitative aspect of the company¶s financial aspect. Ratios
are calculated from current year numbers and are then compared to previous years, and industry
standards

MRPL a major unit in refining industry has been generating continuous profits as compared to
previous year with current year. To summaries, working capital at a plant level, this mainly involves
forecasting and monitoring of various components, which is done systematically. Whereby major
portions of receivables are managed by central marketing organization for all plants level. Other
important components of working capital are bill payables and borrowings of funds monitored by
corporate level.

Inventory is monitored differently for raw materials, work in progress, finished goods and stores.
Monthly inventory report is sent to chairman through the finance department to corporate office, but
the major portion of debtor are dealt by central marketing organization.

The two main ratios we used for our analysis were the quick ratio or the acid test ratio and the current
ratio, both of which have been explained earlier. Post observing the ratios for the last five years it can
be observed that the ratio in nearly all cases is more than one which indicates that MRPL always has
enough money to meet up its obligations.

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Doing internship in MRPL gave me a good exposure to the corporate world. It was a good
experience for me in
"2
2. for eight weeks. Employees at "2
, were very co-
operative and resourceful who helped me in getting the required data.
Being in the organization for eight weeks, I came to know the following:
c How the finance dept. actually works and how they are divided into various
categories.
c Facilities provided by the company to the employees.
c Nature in the factory premises
c What is the exactly happening in MRPL i.e they import crude and refine it into
petroleum and same time they get many intermediate products while refining.
c MRPL gives credit to customers and they use letter of credit as the means of security.
c I came to know about the different modes by which the customers do their payments.
c I came to know how exactly petrol and diesel is actually priced, i.e. the different
components involved in the price.
c Finally I came to know the work culture of MRPL.
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