A to Z of Public against corruption

A to Z of Public against corruption

1. Act against corruption
2. Bring to book the corrupt officials
3. Complain to higher authorities
4. Demand results as per citizen Charter
5. Embrace Honesty
6. Fulfil duty as Citizen
7. Guide fellow citizens to avail E-services
8. Highlight defeciencies in the System
9. Ignite the lamp of probity
10. Join movements against corruption
11. Kindle the fire in fellow citizen’s hearts
12. Learn the redressal rules
13. Make it a habit not to bribe
14. Nurture courage in family & friends
15. Organise the struggle against corruption
16. Possess strength to resist temptation
17. Question the doubtful discretionary practices
18. Remember your right to information
19. Sound the alarm against corruption
20. Trouble the trouble makers
21. Understand the evil of corruption
22. Verify all receipts for authenticity
23. Walk away from dishonest practices
24. Xenaciously move towards honest India
25. Yoke the corrupt by punishment
26. Zero in on corrupt officials

Ramanathan. K

Petroleum - The process, cost and (hidden) price

Petroleum - The process, cost and (hidden) price

Pricing of petroleum has been a widely discussed and despised topic. The following is my take on the topic:

1.  Your Petrol or Motor Spirit as it is called by the industry or Gasoline as its called in other parts of the world starts out as Crude Oil which is a fossil fuel or in more clearer terms the remains of animals that have died and become buried under the layers of soil and rock the heat and pressure made it into Crude oil (https://www.bbc.com/bitesize/guides/z8yj6sg/revision/1) .  

2. This crude oil is being extracted from Onshore or offshore or shale resources. Each crude has its own characteristic and like persons its called sweet or sour (may be sour crudes are big bad T. rex remains and sweet ones are of  veggie and softie ornithopods). Sweet crudes are low sulfur and readily yield your MS. Sour crudes have higher sulfur and require a little coaxing to yield MS. Accordingly they are priced inversely proportional to their sourness. A few examples are : (a) Western texas crude (WTI):- produced in U.S.A.It is light and sweet (low sulfur content) (b) Brent Blend:- is the name given to the blend of crude from 15 different fields from North sea.Its heavier and sour (high sulfur content) than WTI crude. (c) OPEC crude:-is even more heavier and sour than Brent crude hence requires more processing.

Crude oil is priced in USD per British Barrel based on the Benchmark crude

3. India only produces around 14.17 percentage of the Crude that is being refined in the country (2017-18 data from http://www.ppac.org.in). That leaves a whopping 85 percent to be sourced from other countries. ONGC (a PSU) , Reliance and a few other Indian and Consortium explorers extract this valuable commodity and supply it to the refineries in the Country as per allocations pre-determined.

4. The crude from outside the country is bought either in spot markets or through forward contracts by the refiners in the Country according to their refinery configuration, its age, its auxillary production facilities Eg: Chennai Petroleum Corporation a subsidiary of Indian oil Corporation can handle wax rich crudes as it has a paraffin and wax unit with its refineries. These Crude shipments are then transported in the following kinds of vessels:

Description	Class
Medium Range tanker	Panamax
LR1 (Large Range 1)	Aframax
LR2 (Large Range 2)	Suezmax
VLCC (Very Large Crude Carrier)	VLCC
ULCC (Ultra Large Crude Carrier)	ULCC

Of course in the present scenario the VLCCs and ULCCs are preferred as many refineries have created infrastructure like Single Point Mooring (SPM) to enable handling of such huge carriers Eg BPCL’s Kochi refinery (https://www.bharatpetroleum.com/Our-Businesses/Refineries/Kochi-Refinery/Overview.aspx) 

5. The 19 PSU , two Joint Venture and two Private refineries have a combined refining capacity of 247566 thousand Metric Tonnes Per annum(TMTPA). The PSUs dominate by having 57.38 percent of the refining capacity. Reliance in the Private sector is the largest refining hub in the world (including the SEZ) with a capacity of 68200 TMTPA. But the DTA portion alone directly enters the indian market while the SEZ exports the production, some of it however may land up in India through high sea sale.

Except Mangalore Refinery & Petrochemicals limited, all other refineries are owned by Oil Marketing Companies

These refineries get this crude at various market determined prices and start refining the crude either alone or after mixing it with their other crudes to extract the host of products including our hero/heroine MS something like this:

(Picture courtesy PPAC.ORG.IN)

6. After further refining and processing to meet today’s tough pollution norms in terms of Octane number and other standards like BS IV, our friend is finally ready to travel from the refinery gate. In some cases the  product itself is imported also instead of sourcing from the Refinery. This might happen due to shutdown of the refinery either due to planned maintenance or emergency. Around 35892 Thousand Metric tonnes (TMT) of various products  was imported (MS- 174 TMT) in 2017-18  as compared to 254390 TMT which was produced in the country. Likewise some of the products are exported also i.e. 66757 TMT in 2017-18 ( MS 14035 TMT).

7. Now comes the interesting part, though the refineries source their own crude as per their own contracts and spend their different resources in converting the crude to MS, at the refinery gate the price has no relationship with their cost. The Refinery Gate Price is calculated based on the Free On Board price of the Product i.e. in our case the price of MS. This concept is called Trade Parity price for MS and its cousin Diesel i.e. High Speed Diesel (HSD)

Extract from C&AG Union report no. 14 of 2014

This forms the basis for arriving at the profit for the refinery. Efficient refiners with newer more complex distilling units and associated facilities like Fluid Catalyst Cracker units and Delayed Coker units are able to extract more value from the sourest of crudes and the lower value products like Furnace Oil or Low Sulfur Heavy Stock. This translates into a higher Gross Refining Margin which is measured again in US$ per Barrel. This ranged in the year 2017-18 from 3.70 US$ per barrel for IOCLs Guwahati refinery (excluding the Excise Duty Benefit North eastern States avail) to 11.70 US$ for Bharat Oman Refinery. The Private refiner Reliance also clocked an impressive 11.60 US$ per Barrel. Ultimately we tend to understand that our brother MS is baptized with a new price tag at the refinery gate without considering any of his past sins i.e. real cost involved.

8. Then our hero gets out of the Refinery to the Oil Marketing Companies(OMCs) who are the cousins of the refineries which take our bro MS to the final consumer i.e. us. He travels through Pipeline or road or rail or some times sea to reach the Terminals/Depots of the corners of the region which is served by the refinery and which is termed as its economic zone. Here we need to just have a look at the OMCs in the country and the infrastructure they own :

Extract from PPAC ready reckoner June 2018

As it can be seen a lions share of the infrastructure is held by the PSUs. The PSUs in oil marketing and their shareholding by Government is as follows:

Company	Government Stake
IOCL	56.75
BPCL	53.89
HPCL @	51.11

@held by ONGC which is also a PSU

If we take the Retail outlets which are final points of distribution for our beloved MS, 56,598 outlets i.e. a whopping 90.4 percent is with the public sector similarly  when it comes to market share they hold among themselves 24330 TMT out of 26176 which is close to 93 percent of the market. (Data for year 2017-18 from PPAC Ready reckoner June 2018)

Billing up to the Dealer is on the basis of volume at 15 degree celcius instead of Ambient temperature

Though this vice like grip by the PSUs augurs well for the Government, it might create hidden ineffeciencies in the form of wasteful expenditure and repetitive activities wherein shared infrastructure can lead to better utilisation and gain to the government in the form of higher dividends. An example may be seen in the criss crossing of pipelines by OMCs Bangalore is served by Mangalore Hassan Bangalore(MHB) Pipeline a JV between Petronet and HPCL, ONGC as well as a pipeline from Chennai owned by IOCL(CBPL). Though MHB is utilised up to 163 percent the CBPL is lagging at 70 percent only. This is just an example of the overlapping facility development. Any unhealthy competition or cost cutting will impact the ultimate benefit as Dividend to the Government exchequer.

Between the Refinery and the Depot there is also an element of Marketing margin which is the profit for the OMC. From the Depot the dealer of the Retail outlet buys the MS in truck loads of around 12 Kilo Litres generally on a cash and carry basis. MS then moves on to the retail sphere, the final mile of connectivity.

9. Then we move on to the much discussed and much despised pricing for the final consumer:

((USD 89.02 *67.93)*6.29)/1000 = Rs.38.04 Rs./Ltr approximately 

You get a wee  bit extra Petrol if you refuel in the early morning hours when the sun is yet to reach its feiry form

We can clearly see that the price is 48.2 percent and taxes plus commission to the Dealer is 51.8 percent. In this also around 26 percent is going to the Union government which holds sway on the pricing decision as can be seen from the way prices remain fixed irrespective of International prices during polls though apparently OMCs are bleeding under recoveries.  This build-up again will depend on the State taxation also. Finally we are united with our dear MS.

10. We can conclude that in case there has to be a win-win for everyone, there has to be a re-look into the pricing as well as the prevailing competition among the PSU OMCs under the same umbrella and also there has to be an active and healthy interaction with all the stakeholders by the Citizens to avoid the attitude of make hay while the sun shines while actively exploring other avenues of transportation which are not so costly or complicated.

Auditor's Bias and how to handle it

While being auditors, each of us have our own area of interest in which we are passionate to a fault. This edge or rather compulsion by our past success or pleasant experience tends to involuntarily drag our minds towards that area all of us being creatures of habit. Thus being a good auditor with super specialisation actually makes you focus on that area with a microscope at the cost of a balanced audit of all the areas involved. For example, you could have success in discovering wrong TDS made in the past audits which have been praised by your professional circle. In a new audit your mind will automatically zone in on the TDS made irrespective of the internal controls and systems that exists in the organisation. This is where the conflict between specialisation or rather obsession over an area and audit assurance with professional scepticism begins.
This bias is significant since in many occasions it tends to displace our attention to trivial things instead of dispassionate professional analysis driven by materiality.
A simple cure to this obsession is following the time tested mechanism of a detailed day wise audit plan coupled with technology driven stratified sampling of the transaction which are made very easy with the advent of Computer Aided Audit Techniques like ACL (Audit Command Language) or IDEA(Interactive Data Extraction & Analysis). The duo if followed will more or less ensure that all the possible areas are audited and that the auditor does not linger near his favourite area for more than the required time.