PROFITABILITY IMPROVEMENT in the OIL REFINERY - a Case Study of Bongaigaon Refinery and Petrochemicals
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UNIVERSITY OF LJUBLJANA FACULTY OF ECONOMICS and INTERNATIONAL CENTER FOR PROMOTION OF ENTERPRISES (ICPE), LJUBLJANA MASTER DEGREE THESIS PROFITABILITY IMPROVEMENT IN THE OIL REFINERY - A Case Study of Bongaigaon Refinery and Petrochemicals Ljubljana, September 2004 Bishnu Ram Boro Author's STATEMENT I Bishnu Ram Boro hereby certify to be the author of this Master's thesis that was written under the mentorship of Prof. Rudi Rozman and in compliance with the Act of Authors' and Related Rights – Para. 1, Article 21. I herewith agree this thesis to be published on the website pages of the Faculty of Economics. Ljubljana, date....................... ; Signature ................................... ACKNOWLEDGEMENT A business cannot continue without running on self-sustainability basis. To achieve sustainability, it is important to look within and outside business environment and understand the way of analysing the situation and take all possible measures in order to bring improvement in the profitability of enterprises on sustainable basis. This is the main issue in the present scenario of running enterprises. Having working experience in different departments of Bongaigaon Refinery & Petrochemicals Limited (BRPL) such as Technical Services, Corporate and Strategic Planning, Project and Refinery Operation during last sixteen years, I got the opportunity to study about the business process and corporate strategies in these departments. The issues related to improvement of profitability were in my mind since the company was facing uncertainty in its existence after the abolition of Administered Pricing Mechanism (APM) and hence it was my spontaneous eagerness to choose this topic for my thesis. Keeping the developments in view, an attempt has been made in this thesis to explore and select factors that could provide the means to the refinery for improvement in the profitability. I am very glad to have been given the opportunity to study International MBA for which I am grateful to the management of Bongaigaon Refinery & Petrochemicals Limited (BRPL). Without the sponsorship of BRPL, it would not have been possible for me to study International MBA. I must express my sincere gratitude to the Government of India for nominating me for this International MBA program. I am thankful to International Center for Promotion of Enterprises (ICPE) for their pioneering services, without that MBA in my life would be a distant dream. I am indebted to the Faculty of Economics, University of Ljubljana, Slovenia for giving me the opportunity to study in its prestigious institution. I am indebted and grateful to my mentor Prof. Rudi Rozman, Faculty of Economics, University of Ljubljana, Slovenia for his guidance, suggestions and support through the preparation of this thesis. I am extremely thankful to Shri BK Gogoi, Chairman and Managing Director (CMD) of BRPL for his valuable suggestion and direction, which inspired me throughout my MBA study. I express my sincere gratitude to Shri RM Hazarika, Director Operation and Shri RN Das, Director Finance of BRPL for their valuable advice, which will be valuable assets in building my carrier. I express my heartfelt gratitude to Shri DB Dass, General Manager (P&A) and Shri N Rahman, Dy. General Manager (Project) for their constant suggestion and supports. Without their valuable support and suggestion it could have been difficult for me in joining the MBA course. I wish to thank Shri N Saikia, Chief Manager (Administration), Shri BP Bora, Chief Manager (Internal Audit), Shri Ajit Brahma, Senior Manager (CTD) and Shri Partha Gosh, Senior Manager (Technical Services), Shri KK Sarma, Manager (Elect. Maint.), Shri RK Jha, Manager (Technical Services), Shri KN Brahma (ERP) and Shri S Sen (Project) for their constant help in all possible ways since the beginning and through out my stay at Slovenia. Last but not the least, I must put on record my gratefulness and indebtness to my wife, Smti Jayanti and daughters Punaam and Halina, who were not only sources of my inspiration and encouragement to peruse this course, but also managed the domestic front courageously on their own during my long isolation from home. I would like expressing my sincere gratitude to my parent and all family friends, whose support was invaluable at certain critical juncture during last one year. BISHNU RAM BORO September, 2004 Ljubljana ii TABLE OF CONTENTS Page No. CHAPTER 1 INTRODUCTION 1 CHAPTER 2 PRESENTATION OF BRPL 5 2.1 Development of the Company 5 2.2 Products of BRPL 5 2.3 Units of BRPL 7 2.3.1 Refinery Sector 8 2.3.2 Petrochemicals Sector 8 2.3.3 Polyester Staple Fibre (PSF) Plant 9 2.3.4 Utilities of BRPL 9 2.4 Vision and mission of the company 10 CHAPTER 3 PROFIT IMPROVEMENT PROGRAMME 11 AND PROCESS 3.1 Decision making process 11 3.2 Analysis as cognitive method 13 3.2.1 Subject, purpose and method of analysis 13 3.2.1.1 Subject of the analysis 13 3.2.1.2 Purpose of the analysis 13 3.2.1.3 Method of the analysis 14 3.2.2 Business analysis 16 3.2.2.1 Analysis of business functions 16 3.2.2.2 Analysis of profitability 18 3.2.3 Analysis of organisation 19 3.2.3.1 Definition of organisation 19 3.2.3.2 Analysis of organisational structure 20 3.2.3.3 Analysis of organisational culture 24 3.2.3.4 Analysis of organisational processes 25 3.3 Analysis of environment 26 3.3.1 Definition of environment and environmental analysis 26 3.3.2 General environment (PEST) analysis 28 iii TABLE OF CONTENTS Page No. 3.3.3 Competitive environment (Industry) 29 3.3.3.1 The Threat of potential entrants 30 3.3.3.2 Bargaining power of firm’s suppliers 31 3.3.3.3 Bargaining power of customers 31 3.3.3.4 Threat of substitute products 32 3.3.3.5 The Intensity of rivalry among competing firms 32 3.4 SWOT analysis 33 3.4.1 Definition of SWOT analysis 33 3.4.2 SWOT matrix as the basis for performing strategies 34 3.4.3 Development of competitive advantage 35 3.4.4 General questions for SWOT analysis 36 3.5 Setting goals and propose measures 37 3.6 Profit improvement programme (PIP) 39 CHAPTER 4 BUSINESS AND ORGANISATIONAL ANALYSIS 43 OF BRPL 4.1 Analysis of business functions 43 4.1.1 Analysis of purchasing 43 4.1.2 Analysis of production 43 4.1.3 Analysis of sales 45 4.1.4 Analysis of financing 45 4.1.5 Analysis of personnel functions 48 4.2 Analysis of profitability 49 4.2.1 Profit analysis 51 4.2.2 Analysis of assets 51 4.3 Analysis of organisation 53 4.3.1 Board of directors 53 4.3.2 Corporate office and its inter-relation with functional divisions 54 4.3.3 Functional divisions and departments 55 4.3.3.1 Functional area under Director- Operation 55 4.3.3.2 Functional area under Director- Finance 58 4.3.3.3 Functional area under Director- Human Resources 59 iv TABLE OF CONTENTS Page No. 4.3.4 Analysis of organisational Culture 60 4.3.5 Organisational process 60 CHAPTER 5 OIL INDUSTRY SCENARIO 63 5.1 Global oil industry scenario 63 5.2 Oil industry scenario India 64 5.2.1 Refining capacities 65 5.2.2 Consumption pattern of petroleum products 66 5.2.2.1 Liquefied Petroleum Gas (LPG) consumption pattern in India 66 5.2.2.2 Naphtha consumption pattern in India 66 5.2.2.3 High Speed Diesel (HSD) consumption pattern in India 67 5.2.2.4 Light Diesel Oil (LDO) consumption pattern in India 68 5.2.2.5 Low Sulphur Heavy Stock (LSHS) consumption pattern in India 68 5.2.2.6 Furnace Oil (FO) consumption pattern in India 69 5.2.2.7 Year-wise consumption of petroleum products in India 70 5.2.3 Year-wise import of crude oil and petroleum products in India 70 5.2.4 Year-wise export of crude oil and petroleum products 71 CHAPTER 6 AWOT ANALYSIS OF BRPL 72 6.1 Brief on SWOT analysis 72 6.2 SWOT matrix of BRPL 73 CHAPTER 7 PROPOSED PROFIT IMPROVEMENT MEASURES 78 IN BRPL 7.1 Maximisation of capacity utilisation 79 7.2 Energy optimisation 80 7.3 Production process optimisation 85 7.3.1 Maximisation of hot RCO feed to DCU 85 7.3.2 Minimisation of yields of RCO in CDU and that of 86 Heavy ends in DCU 7.3.3 HSD yields improvement 87 7.3.4 LPG maximisation 87 v TABLE OF CONTENTS Page No. 7.4 Product mix optimisation 88 7.4.1 MS maximisation 89 7.4.2 HSD maximisation 90 7.4.3 LSHS up-gradation to LDO by pour point depressant (PPD) 91 7.4.4 Routing of intermediate streams to finish products 91 7.5 Improvements in maintenance management 92 7.5.1 Proposed central maintenance planning (CMP) department 93 7.5.2 Proposed central work shop (CWS) department 95 7.5.3 Proposed maintenance condition monitoring (MCM) 95 department 7.5.4 Field maintenance groups (Refinery, Petrochemicals, 95 CPP and OM&S) 7.6 System automation 96 7.6.1 Integrated Management Information System (IMIS) 96 7.7 Proposed human resources management in BRPL 98 7.7.1 Cohesive team building 98 7.7.2 Improve inter-group relationship 99 7.7.3 Create continuous learning environment 99 7.7.4 Motivation 99 7.7.5 Performance management system 100 7.8 Organisation of profit improvement programme 101 CHAPTER 8 CONCLUSION 103 BIBLIOGRAPHY 107 ANNEXURE I-VI vi LIST OF TABLES Table No.