The Business Customs And Practices

Published Date: 02 Nov 2017

Lanka IOC PLC is an overseas venture of Indian Oil Corporation Ltd., India which is a Fortune 500 company with a ranking of 98th on the Fortune Global 500 listing (2011). The company is principally engaged in operating retail petrol stations. The company is engaged in importing, exporting, storing, distributing, selling and supplying petroleum products. LIOC primarily markets petroleum products in bulk supply to industrial consumers, building and operating storage facilities at the Trincomalee Tank farm.

Commercial energy (petroleum and electricity) intensity is an indicator of a country’s energy Utilisation with respect to the national output (measured in terms of Gross Domestic Product- GDP). Low commercial energy intensity would suggest stringent use of energy for economic activities. In 2007, commercial energy intensity reduced to 13.12 toe/GDP LKR Million from previous year’s figure of 13.19 toe/GDP LKR Million, and it is the lowest recorded commercial energy intensity after year 2000.

The Gross Domestic Product (GDP) in Sri Lanka was worth 59.17 billion US dollars in 2011. The GDP value of Sri Lanka represents 0.10 percent of the world economy. GDP in Sri Lanka is reported by the the World Bank. Historically, from 1960 until 2011, Sri Lanka GDP averaged 11.4 USD Billion reaching an all-time high of 59.2 USD Billion in December of 2011 and a record low of 1.4 USD Billion in December of 1960.

In 1961, the Government of Sri Lanka under the Ceylon Petroleum Corporation Act No.28 of 1961 established the Petroleum Corporation with the following general objectives in mind: "To carry on business as an importer, exporter, seller, Supplier or distributor of petroleum, to carry on the business of exploring for, the exploiting, producing and refining of petroleum to carry on any such business as may be incidental or conducive to the attainment of these objectives"

Oil Companies in 1971 and 1972 respectively, and with this the right to import, export, sell, supply or distribute petroleum of any class was exclusively vested in the corporation. The bunkering business is now being carried out by the lanka marine services (Pvt) Ltd., which is own by the Ceylon Petroleum Corporation. The corporation entered the agro chemical business in 1969, in competition with the private sector, with a view to market Agro - chemical product at reasonable prices.

The GOSL decided to liberalize the petroleum sector in 2003 and invited the Government of India to enter into the downstream retail marketing of peroleum by offering China Bay tank farm on long lease. The basis of liberalization was to limit the marketing companies to three for a initial period of five years and the formation of Common User Facility company called "Ceylon Petroleum Storage Terminals Limited" (CPSTL) to manage the storage and distribution infrastructure of CPC comprising Kolonnawa and Muthurajawella Installations, all bulk depots island wide.

Business Customs & Practices:

In Sri Lanka The Ministry of Petroleum Industry was established in 2005 for regulation and formulate and implement policies, plans, and programmers to develop the petroleum resources and to meet the demand to levy rules and regulations for the faster growth of emerging petroleum industry.

Companies also link factory performance to management performance reviews and compensation. At one company, "many people at various levels of the organization have social and environmental sustainability targets included in their work plans, and they are evaluated on them annually.

Sri Lanka is having much advantage on the infrastructure conditions for oil industry compare to countries in South Asia mainly due to its strategic location. Present expansion in Bandaranayke airport at Katunayake and also newly suggested port at Hambanthota area will provide positive initiatives towards the transportation infrastructure as input/output port for oil exporters.

Gross National Product in Sri Lanka increased to 6470617 LKR Million in 2011 from 5534327 LKR Million in 2010. Gross National Product in Sri Lanka is reported by the Central Bank of Sri Lanka. Historically, from 1950 until 2011, Sri Lanka Gross National Product averaged 840878.18 LKR Million reaching an all-time high of 6470617 LKR Million in June of 2011 and a record low of 4115 LKR Million in June of 1950.

Technology used in production is considered to be a highly important factor as it determine the quality of output, time consumed for production which ultimately decides the lead time.

Investments are to be made in order to upgrade the technology in use. This will enable the country to be in par with the global trends and the other competitors. Usage of obsolete technology will indeed act as a barrier in the Oil industry. Sri-Lanka is currently challenged by the above situation as many factories other than few large players, do not possess advance technology in exploring and refining.

Information technology is throughout used in all the level in oil industry.

Controlling technology is required at all level in the value chain. Some examples of the controlling technologies are as follows.

Green completions: To stop wastage of natural gas.

Plunger lift systems: To remove back age of oil wells.

TEG dehydrator emission controls: To reduce lekage in refinery.

Desiccant dehydrators: nearly eliminate methane leakage during the process of removing moisture from natural gas, with the use of special water-absorbing salts.

In Sri Lankan oil industry two forms of business can be seen. I.e. sole proprietorship and partnership. For example Ceylon plc is the sole proprietor and cairn ltd. Is having partnership with Lanka IOC

Low-bleed or no-bleed pneumatic controllers: limit leakage from pneumatic controllers, which control gas pressure and flow, with the use of special reduced-leakage ("low-bleed" or "no-bleed") systems.

Pipeline maintenance and repair: allows for methane flowing through pipelines to be captured while problems in pipelines are fixed.

Vapor recovery units: capture methane leaked from crude oil when it is stored in tanks.

Leak monitoring and repair: detects and captures methane leaks, which are typically colorless and odorless, from numerous locations at an oil & gas facility, using advanced leak monitoring equipment and enhanced operational practices.

The major export commodities of Sri Lanka are Textiles and apparel, Tea and spices, Diamond, Emeralds, Rubies, Coconut products, Rubber manufactures, Fish.

The major import commodities of Sri Lanka are as Textile fabrics, Mineral products, Petroleum, Foodstuffs, Machinery and transportation equipment etc.

In an oil refinery, the crude oil being processed is separated in to different forms on the basis of their range. The value chain model starts with the exploration. In exploration process the resource for the oil is to be found out. After finding the place from where oil can be found the production of oil starts. Heavy machinery is used to explore oil from land. The oil thus collected is in the form of crude so it needs further refining process. In the processing part of value chain the crude oil is to be refined and separated in to different forms like petrol, diesel, oil etc. road tankers with capacities between 10 and 40 tonnes are normally used to take crude oil from refinery to distributor.

COMPARATIVE POSITION OF CRUDE OIL INDUSTRY OF SRI LANKA AND INDIA

Particulars

Sri Lanka crude oil industry

Indian crude oil industry

Technology

Backward

Forward

Pricing

Relatively High

Relatively low

Production

Relatively low

Relatively High

Transportation

Relatively low

Relatively High

GDP Distribution

Relatively low

Relatively High

Usage

All Time

All Time

Purchase Pattern

Direct

Direct

Target Market

Every One

Every One

Natural Resources

Relatively low

Relatively High

A Sri Lanka rank 93 in terms of export of crude oil is concerned while it ranks 61 as far as import of crude oil is concerned. According to the estimated data of 2012 Sri Lanka imports 41000 barrels per day of crude oil. The country exported 59.13 million metric tons of petroleum products against the imports of 26.31 million metric tons (including 8.95 million metric tons of LNG) during 2010-11 The consumption of petroleum products during 2010-11 was 141.785 million metric tons (including sales through private imports) which is 3.60% higher than that of 138.196 million metric tons during 2009-10.

Mineral richness of Gujarat contributes significantly in the nation’s development as about 50% of on land crude oil and 40% of gas production in the country originates from Gujarat State. In the last 6 years, 37 MMT of crude oil was produced from Gujarat without any hindrance (i.e. without any socio-political problems) and as a result of which imports worth Rs. 48000 Cr were saved.

In this manner, Gujarat contributes to the energy security of the entire nation and reduces country's dependence on imported crude. Gujarat’s Export share in India is highest contributing to an average over 14% share in India.

Garments covering Chapters 61&62 while remaining in the negative list, will be given 50% tariff concessions on a fixed basis, subject to an annual restriction of eight million pieces, of which six million shall be extended the concession only if made of Indian fabric, provided that no category of garments shall exceed one and half million pieces per annum (GAM). 50% tariff preference on five tea items, subject to a quota of 15 million Kg. Per year (TEA): 5 products.

GATT provided an international framework that established ground rules for worldwide trade among its members. GATT’s primary purpose was to reduce trade barriers, particularly tariffs and quotas, among its members.

Developing countries have a competitive advantage in the oil industry, with significantly lower labor costs. The MFA was introduced to allow developed countries to adjust to the competition of imports from developing countries.

As countries could choose which products to restrict from which countries, the MFA resulted in preferential treatment for certain countries; in the case of the UK, these included ‘least developed countries’ such as Bangladesh and Sri Lanka. World Bank studies have suggested that 19 million jobs have been lost in developing countries due to quota restrictions imposed by the MFA, plus 8 million due to high tariffs.

Zero duty on about 319 items upon entering into force of the Agreement (F I): 319 products

Phasing out of tariffs on items with 50% margin of preference on 889 products up on coming into force of the Agreement, withupto70%attheendofthe1styear, upto90% at the end of the 2ndyear and 100% at the end of 3rd year (F II): 889 products.

Fortheremainingitems,(exceptforthoseonthenegativelist),whichistheResidualList,preferencewouldbenotlessthan35%beforetheexpiryofthreeyears,70% beforetheexpiryofsixyearsand100%before the expiry of eighth year.(SLR): 2724 products.

A negative list of 1180 items.(DII): 1180 products

Overall, Sir Lanka has a varied terrain but it mainly consists of flat lands but south-central portion of the country's interior features mountain and step sided river canyons. The flatter regions are the areas where most of Sri Lanka's agriculture takes place, aside from coconut farms along the coast.

Sri Lanka's climate is tropical and the southwestern part of the island is the wettest. Most of the rain in the southwest falls from April to June and October to November. The northeastern part of Sri Lanka is drier and most of its rain falls from December to February. Sri Lanka's average yearly temperature is around 86°F to 91°F (28°C to 31°C).

An important geographic note about Sri Lanka is its position in the Indian Ocean, which made it vulnerable to one of the world's largest natural disasters. On December, 26, 2004, it was struck by large tsunami that hit 12 Asian countries. Around 38,000 people in Sri Lanka were killed during this event and much of Sri Lanka's coast was destroyed.

Road haulage is handled by private companies; some businesses also have their own trucking operations. After 1978 container transport became an important mode of freight haulage for exports produced in the investment promotion zones. Intercity haulage is carried out by trucks. Bullock carts remained important in rural and suburban areas in the 1980s.

Sri Lanka developed little industry under British rule, relying instead on the proceeds from agricultural exports to buy manufactured goods from other countries. Most industry during the colonial period involved processing the principal export commodities: tea, rubber, and coconut. Although these sectors remained important, in the 1980s there was a much greater variety of industrial establishments, including a steel mill, an oil refinery, and textile factories.

The first block is the smallest out of the three with 3,338.1 square kilometers while the third block is the largest with an area of 4,126.5 square kilometers.

Oil and Natural Gas Corporation (ONGC) which was offered the block nominated to India said it was not interested in the assigned block citing low prospectively and the fact that Sri Lanka was asking for a big signature bonus.

Indian Oil's Digboi (Assam) refinery Asia's first along with its oil field is the oldest refinery and continuously operating oilfield in the world after being in operation since 1901. In the Sri Lanka state Colombo that Indian Oil Corporation (IOC) will set up a refinery in Sri Lanka with an investment up to US$ 3.6 billion. IOC which already has a venture in Sri Lanka through its subsidiary Lanka IOC operates 10 refineries in India and the one in Sri Lanka will be its first refinery outside India.

Natural gas liquids (NGL)

NGLs are the liquid or liquefied hydrocarbons produced in the manufacture, purification and stabilisation of natural gas. These are those portions of natural gas which are recovered as liquids in separators, field facilities, or gas processing plants. NGLs include but are not limited to ethane, propane, butane, pentane, natural gasoline and condensate.

Other hydrocarbons

Other hydrocarbons includes emulsified oils (e.g. orimulsion), synthetic crude oil, mineral oils extracted from bituminous minerals such as oil shale, bituminous sand, etc. and liquids from coal liquefaction.

Refinery feed stocks

A refinery feedstock is processed oil destined for further processing (e.g. straight run fuel oil or vacuum gas oil) other than blending in the refining industry. It is transformed into one or more components and/or finished products. This definition covers those finished products imported for refinery intake and those returned from the petrochemical industry to the refining industry.

Feature

To carry on business as an importer, exporter, seller, supplier and distributor of Petroleum products.

To carry on business of exploring for the exploiting, producing, and refining of Petroleum

To carry on any such business as may be incidental or conducive to the attainment of the objectives.

Pan India Campaign on Conservation of Fossil Fuel & its effect on Climate Change: India spends maximum of its foreign earnings on importing crude oil for meeting its growing energy demand. On the other hand, Global warming is the looming concern today. CO2 is the largest contributor to the phenomenon of global warming and petroleum products are the largest source of CO2 emission into the environment. CO2 cannot be stopped being emitted from burning of petroleum products, but it certainly can be reduced to a great extent by way of efficient utilization of these products and that is where the role of PCRA critically comes into force.

Refinery

P&S Products

Barauni

Carbon Black Feedstock (CBFS), Raw Petroleum Coke (RPC), Sulphur

Digboi

Paraffin Wax

Guwahati

Raw Petroleum Coke (RPC)

Haldia

CBFS, Jute Batching Oil (JBO), Micro Crystalline Wax (MCW), Mineral Turpentine Oil (MTO), Sulphur

Koyali

LABFS, Mineral Turpentine Oil (MTO), Sulphur, Toluene

Mathura

Propylene, Sulphur

Panipat

Benzene, Mineral Turpentine Oil (MTO), Petcoke, Sulp [1] hur

Industrial diversification began in the 1960s with the production of consumer goods for the domestic market. This trend was a consequence of government measures aimed at saving foreign exchange, which made it difficult to import many items that had previously been obtained from overseas. Heavy industries were established in the late 1960s, mostly in the state sector. During the 1970-77 period the state assumed an even greater role in manufacturing, but after the economic reforms of 1977 the government attempted to improve prospects for the private sector. The fastest growing individual sector in the 1980s was textiles, which made up approximately 29 percent of industrial production in 1986. The textiles, clothing, and leather products sector became the largest foreign exchange earner in 1986. Over 80 percent of the manufacturing capacity was concentrated in Western Province, particularly in and around Colombo.

Trade Barriers

Trade Restrictions which are apply at the time of Exporting and importing oil from srilanka to the other countries. The basic Trade Restriction is as follow:

Trade Restrictions

Sri Lankan Oil Industry

Embargo

Quotas

License

Customs

Marketing Objectives

To make the world class or world known brand by providing the best quality and satisfy the customer need with delightful feeling.

To retain the position as a market leader in market place.

Become best in Internal Vitality, market standing, profitability.

Benefit segmentation to identify crude oil markets and groups of consumers who may be attracted by specific benefits offered by a product.

For, Crude oil industries we are start our business in five major city of Sri Lanka, coming next five years. Our Business start form the south region of the Sri Lanka than after we start our business West, North, East and Central region for next five years in Sri Lanka.

For, Crude oil industries we are start our business in five major city of Sri Lanka, coming next five years. Our Business start form the south region of the Sri Lanka than after we start our business West, North, East and Central region for next five years in Sri Lanka.

Main objective for the advertising in the crude oil are

To make aware about various product successfully in the country.

To generate the good brand image and cover the maximum market area. It also helps us to recall the brand and product of the firm.

We can share the information about the Crude oil.

First year we start business at COLOMBO city. (West)

Second year we start business at KANDY city. (Central)

Second year we start business at TANGALLE city. (South)

Third year we start business at JAFFNA city. (North)

Forth year we start business at BATTICALOA city. (East)

Discount will be providing to the consumer in high context at the initial phase of the product. As the time will pass on the discount will reduce. The margin of the discount will as par the price of the product and its category.

Gifts:-Gifts will be given to the specific and regular customers. For first 200 customers there is going to be a lucky draw and gifts will be provided to the 20 lucky customers.

Year

Transportation Cost ( in million)

2013

150

2014

160

2015

170

2016

180

2017

190

For the company handling expense are 5000000 per year and 6% per year increases.

Custom duty rates are as under, Import tariff rates on OIL items charged at the 7.5% as per the Sri Lankan custom we are planning contribution of S Rs. 22 billion in customs duties, excise, and corporate taxes. as per the Sri Lankan custom department.

GST is charged on the domestic product and services, GST charged on the importer, supplier and the services provider now a day the VAT is replaced by the GST (goods and services tax) which rates is same as the VAT.

In the OIL industry in Sri Lanka, the customers are all type. The Product price is not low, so we will use method of payment only cash.

After studying country and industry, cost of project and proposed means of finance for the project are in the above tables. The total cost of the project will be 1821.1 Rs. in million. cost for land and site development, building, plant and machinery and other fixed assets will be 0, 500, 1000 respectively.

Preliminary expense and pre-operative expense will be 100 and 20 respectively. Contingency margin and working capital margin will be 50 and 1.1 respectively.

Installed capacity of the factory will be 88730 ton per annum. Capacity utilization for the next five years will be 85%, 88%, 90%, 90%, 90%. Total production will be 75420.5, 78082.4, 79857, 79857, 79857 tonne for the next five years. Sales revenue for next five years will be 501848.01, 51956028.96, 53136847.80, 53136847.80, and 53136847.80.

This is projected estimates of Apparel for five years. The profit after tax is increasing. Net cash accruals are also increasing for 5 years as 284609.01, 292307.23, 296188.02, 295919.31, and 295609.25 respectively which shows that the company will grow.

The projected balance sheet of company for five years. In the initial year reserves and surplus is high and year by year is increasing because company is getting profit. Here for oil trade creditors are increasing. From the total assets net fixed assets are increasing and there are no debtors. Cash & bank balance is increasing year by year. So overall assets, loans and advances are in upward trend.

There will be one MD., three managers – one finance manager, one marketing manager, HR & Production manager. In admin staff there will be two accountants (one senior accountant and one junior accountants). Labour staff will be of 50 members. Labour force includes supervisor, worker, cleaner, security.

Salary of Director and MD & Chairman will be Rs. 18, 00,000 p.a., salary of each Manager will be Rs. 5, 40,000 p.a., salary of Admin staff will be Rs. 18, 00,000 p.a., salary of labor force will be 1, 50, 12,000.