MANAGEMENT ACCOUNTING TERM REPORT HASCOL PETROLEUM LTD Group Members: Manum Murtaza 14015 Hamad Tariq Ashraf 15082 Ali Arshad 14483 Muzammil Hasan 12702 Omer Ahmed 14357 TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................ 4 INTRODUCTION OF HASCOL ................................................................................................... 5 VISION STATEMENT .............................................................................................................. 6 MISSION STATEMENT ........................................................................................................... 6 PAKISTAN’S OIL AND GAS INDUSTRY .................................................................................. 6 COMPETITORS AND HASCOL’S POSITION IN THE MARKET ........................................... 7 REASON FOR HASCOL’S CHANGING MARKET POSITION ............................................ 7 COSTING PROCEDURES FOLLOWED BY HASCOL .............................................................. 8 ACTUALIZED STANDARD COSTING PROCEDURES ....................................................... 8 HASCOL’S PRODUCTS ............................................................................................................... 8 NATURE OF THE GOODS ........................................................................................................... 9 INVENTORY ................................................................................................................................. 9 BILL OF LEADING ................................................................................................................. 10 STORAGE OF INVENTORY ...................................................................................................... 10 INLAND FREIGHT EQUALIZATION MARGIN (IFEM) .................................................... 10 PRICING....................................................................................................................................... 11 RISKS OF IMPORTING FOR HASCOL ................................................................................ 12 SELLING PRICE...................................................................................................................... 12 HOW DOES THE GOVERNMENT COMPUTE THE PRICE OF PETROL? ....................... 12 TENDERING PROCESS ......................................................................................................... 13 WHAT ACTIONS DOES HASCOL TAKE AFTER FIGURING OUT THE GOVERNMENT’S CAPPED PRICE? ..................................................................................... 13 S&P GLOBAL PLATTS INSIGHT MAGAZINE ................................................................... 14 PPRA – PAKISTAN PROCUREMENT REGULATORY AUTHORITY.............................. 14 CLOSE EYE ON PSO’S MOVES ........................................................................................... 14 HOW IS THIS DONE? ............................................................................................................. 15 OVERHEADS & LABOR ............................................................................................................ 15 APPENDIX ................................................................................................................................... 17 QUESTIONNAIRE FOR INTERVIEW .................................................................................. 17 TRANSCRIPTION OF INTERVIEW ...................................................................................... 19 BUSINESS CARD OF INTERVIEWEE ..................................................................................... 29 XECUTIVE UMMARY E S The purpose of this report is to interpret and gain an insight on the costing procedures followed by Hascol Petroleum Ltd. in Pakistan. We aim to analyze the different methods used by Hascol Petroleum Ltd. for pricing their products, to understand their business procedures, to have an overview of the overall industry and how Hascol manages with its end-to-end competitors. The main purpose we aim to derive from the report is to have an up close understanding of our subject of study – Management accounting – under real world experiences. NTRODUCTION ASCOL I OF H Hascol Petroleum Limited is involved in the buying, stockpiling and offering of oil-based commodities, for example, Fuel Oil, Fast Diesel, Gas, Stream A-1, LPG and Oils. Hascol was created in the year 2001 under the Companies law of 1984, fundamentally to exploit the oil division deregulation and to create a program for owning, renting and leasing oil storerooms and in addition bringing in oil-based goods for its very own use. In the year 2005, Hascol was granted permission with an advertising permit by the Legislature of Pakistan and from that point forward, Hascol has been occupied with building up a retail arrange under the Hascol mark and by the 31st of December 2014, the company has created more than two hundred and eighty retail outlets, in the four regions of Pakistan and Azad Kashmir. This number has reached to 300 before the end of the year 2015. Pakistan, at the moment, only has 20% of its oil requirement that is getting fulfilled. So whatsoever oil is being extracted from Pakistan, only 20% we can consume and the rest of the 80% demand is met through the imports. So Pakistan is an import driven market. At the moment, there are five refineries in Pakistan. Three of the refineries are in the South; one is in mid country and the other one is in the Northern areas. So the Southern refineries are BYCO, PARCO and PR. The mid countries refineries are again, PARCO which is the largest refinery in Pakistan. Then the fifth one is the Attock refinery. So these five refineries at the moment are catering that 20%. They import crude oil along with refining indigenous crude oil as well – all the oil that has been taken out and extracted from Pakistan. The rest 80% is managed through the imports and from two ports that are in Pakistan and in Karachi. These are Kemari port and Karachi port. There is another port for oil handling that is BYCO. VISION STATEMENT The vision statement of Hascol Petroleum limited is to become the leading energy marketing company in Pakistan through operational excellence, talent management, business diversification and sustainable expansion. (HASCOL Petroleum Ltd.) MISSION STATEMENT The Mission statement of Hascol Petroleum limited is to gain recognition and leadership in the hydrocarbon and energy sectors, by maximizing customer satisfaction and shareholder value through continuous improvement, high quality human capital, and appropriate technology and by adhering to the Company’s Core Values. (HASCOL Petroleum Ltd.) PAKISTAN’S OIL AND GAS INDUSTRY Pakistan is known for being the regional gateway of energy with its perfect location, it is blessed with reserves of different sorts of energy such as oil and gas. Pakistan’s rapidly increasing requirements for oil and gas is one of the reasons for the needs of large-scale exploration and expansion projects and investments to help increase oil and gas production. Pakistan is largely dependent on Oil and Gas for its energy creation. Both oil and gas collectively contribute 77.40% to the energy requirement of Pakistan. Pakistan has an estimated oil reserve of 303.63 million barrels whereas its current production of oil is 65,531 barrels per day. The gas reserves of Pakistan are estimated to be 28.32 TCF while its current production is 4 billion cubic feet per day. Currently, there are seven oil refineries in use in Pakistan, with the capacity to refine 248,506 bpd. Gas is the chief source of energy in Pakistan. Pakistan has a well-developed gas dispersion network. COMPETITORS AND HASCOL’S POSITION IN THE MARKET Hascol can be considered as the second leading Petroleum Company in the petroleum industry. Its greatest competitor is PSO, which is a government owned organization. As compared to Hascol Petroleum Ltd. all other competitors, except Pakistan State Oil (PSO) have differentiated and lower ratios, in comparison to Hascol. This indicates the fact that Hascol Petroleum is an emerging market leader. It cannot compete directly with PSO due to the government backing PSO currently has. However, it aims to work line in line to be as great as PSO is. REASON FOR HASCOL’S CHANGING MARKET POSITION As Mr. Hassan Nadeem Jan emphasized to us in the interview, that when he joined Hascol in 2010, the sales were around Rs10bn to Rs11bn, however the current sales of Hascol are around Rs 280 bn. In 2010 the market share of Hascol was less than 1% at the time whereas PSO had a 70% market share. Nonetheless, currently, Hascol is the second largest company after PSO and the largest oil company in the private sector. Mr. Hassan Nadeem Jan claims that the critical success factors during the last 8-9 years were the following. Firstly, the vision of Hascol’s CEO enabled the company to begin to prosper and transformed the company overall. The CEO brought the company from a 12th ranking company to a 2nd ranking company, where Hascol stands today, by transforming it completely. Another contributing factor to the changing market position was the storage spaces built by Hascol. In 2010, the storage infrastructure held by Hascol was zero but after multiple developments, their current storage structure has the capacity of 500000 tonnes. COSTING PROCEDURES FOLLOWED BY HASCOL ACTUALIZED