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COSTING STRUCTURE & SENSITIVITY ANALYSIS

A. Research Methodology
Study objectives or Learning Objectives: To know how the costing calculation is done in order to carry out the
per unit cost of the finished product.
To know how the final cost of products arises after including all the
expenses which are incurred in Hazira plant during production of the
products.
As calculation is done automatically in SAP system so how that
calculation is done that has been shown in the report.
In Sensitivity Analysis to know how the % rise in cost differs at
different levels during general condition as well as in present
condition.
Scope of the study: The scope of study includes the calculation of cost which is done in
the SAP system automatically in that also there is so much complexity is
there so in order to reduce the complexity this type of calculation is done.
There is need to derive Activity Based Costing to firm the cost of each input.
In Sensitivity Analysis company can save the cost durig present condition.

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Data collection sources : (1) Primary sources:


Cost summary of ONGC-Hazira Plant of the finished products as well
as worked in SAP system also.
(2) Secondary sources: As secondary sources I have studied different magazines, books and
web sites.
(D) Data analysis: Tables is used as data analysis tools.
(E)Limitations of the study: Some of the information of the company is highly confidential, so I had
to restrict my self up to the data given by the company only.
No. of employee available for sharing the information is less because
all are busy in their own work.
While preparing the project I had to use hypothetical data whenever
needed because of the unavailability of some of the required data.

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1.AN OVERVIEW OIL


& NATURAL GAS INDUSTRY
Almost all oil and natural gas are found deep underground in tiny
holes in rocks. Millions of years ago a sea covered much of what is now dry
land. In prehistoric times, tiny plants and animals lived in the sea. When
these creatures died, they sank to the bottom of the sea, and got buried in
layers of mud and sand. As the ages passed, this organic material sank
deeper and deeper. The earth's crust changed its shape, and put intense
pressure and heat on what was once only plants and tiny animals. Heat
from the earth's interior and the weight of the overlying rocks gradually
changed the energy-containing substances in the accumulated plants into
hydrocarbon liquids and gases. As millions of years passed, these deposits
turned into chemicals that are now called hydrocarbons.
Hydrocarbons are simple molecules made up of carbon and hydrogen
atoms joined together in chains or in rings. These molecules, being light and
mobile, migrated upwards through the rocks but eventually became trapped
beneath impermeable rock structures in the earth's crust. That is where oil
and natural gas come from. Some were created millions of years ago, some
were created thousands of years ago, and some are being created right
now!
Much of the oil and gas production now comes from underneath the
sea-bed. As the technology for extraction continues to advance, production
becomes possible from deeper and deeper waters. But the supplies are
limited. Every drop of oil burnt adds to the monumental environment
problems already created by pumping gases like carbon dioxide into the
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atmosphere. Many scientists worry that this continual release of carbon


dioxide is an important cause of global warming.
Natural gas is usually found underground near an oil source. It is a
mixture of light hydrocarbons including methane, ethane, propane, butane,
and pentane. Other compounds found in natural gas include carbon dioxide,
helium, hydrogen sulphide, and nitrogen. It is found around the world, but
the largest reserves are in the former Soviet Union and the Middle East.
This gas is lighter than air and is highly flammable, made up mainly of a gas
called methane. Methane is a simple chemical compound that is made up of
carbon and hydrogen atoms. Natural gas usually has no odour and cannot
be seen. Before it is sent to the pipelines and storage tanks, it is mixed with
a chemical that gives it a strong odour, almost like rotten eggs. The odour
makes it easy to detect a leak.
Natural gas is the cleanest burning fossil fuel. When it is burned, it
gives off less carbon dioxide than oil or coal, virtually no sulphur dioxide,
and only small amounts of nitrous oxides. Natural gas is mostly composed
of methane and other light hydrocarbons. Both the carbon and the hydrogen
in methane combine with oxygen when natural gas is burned, giving off
heat. Coal and oil contain proportionally more carbon than natural gas,
therefore giving off more carbon dioxide per unit of energy produced.
Natural gas gives off 50% of the carbon dioxide released by coal and 25%
less carbon dioxide than oil, for the same amount of energy produced.
Carbon dioxide is the most important greenhouse gas contributing to global
warming.

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To find oil and natural gas, companies drill through the earth to the
deposits deep below the surface. The oil and natural gas are then pumped
from below the ground by oil rigs. They then usually travel through pipelines.
At oil refineries, crude oil is split into various types of products by
heating the thick black oil. The products include gasoline, diesel fuel,
aviation fuel, home heating oil, oil for ships, and oil to burn in power plants
to make electricity. Oil is used for transportationcars, airplanes, trucks,
buses, and motorcycles.
Oil is stored in large tanks until it is sent to various places to be used.
Oil is also made into many different productsfertilizers for farms, clothes,
toothbrush, plastic bottle, and plastic pen. There are thousands of other
products that come from oil. Almost all plastic comes originally from oil. Oil
is transported in huge pipelines and tanker ships to places where it is made
into other products.
The origin of the oil industry in India can be traced back to the last part
of the 19th century when petroleum was discovered in Digboi in north-east
India. Thereafter large numbers of oil fields have been discovered both
inland and off-shore. This has led to the setting up of refineries to process
the oil and gas for use in various sectors.

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1. INTRODUCTION TO ONGC
ONGC-A GEM AMONG THE NAVRATNAS
The Oil and Natural Gas Corporation Ltd, popularly known to the
people as ONGC is today the Numero Uno among the Navratna Public
Sector Companies of India. It was set up in 1956 and has made significant
contribution in industrial and economic growth of the country. ONGC is a
leader in India engaged mainly in exploration, development and production
of Crude oil, Natural gas and some Value Added Products.
Now ONGC is Indias largest producer of Crude oil, Natural gas and
LPG. It also produces other value added products such as NGL, C2-C3,
Aromatic Rich Naphtha and Kerosene.
Internationally its wholly owned subsidiary ONGC Videsh Limited has
number of existing and up-coming interest in selected Oil patches including
development of large gas field in Vietnam Off-shore. It was converted into a
Public Limited company in June 1993 following new liberalized economic
policy adopted by Government of India in July 1991 sought to deregulate
and de-license the core sector (including Petroleum Sector) with partial
disinvestment of Govt. equity in PSUs & other measures. During March 1999
ONGC, M/s. Indian Oil Corporation a down-streaming Giant and M/s. Gas
Authority of India Limited the only gas marketing company agreed to have
cross-holding in each others equity to pave the way for long term strategic
alliance amongst themselves, both for the domestic and overseas business
opportunities in the Energy Value Chain.

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A. History
1947 - 1960
During the pre-independence period, the Assam Oil Company
in the northeastern and Attock Oil company in northwestern part of the
undivided India were the only oil companies producing oil in the country,
with minimal exploration input. The major part of Indian sedimentary basins
was deemed to be unfit for development of oil and gas resources.
After independence, the national Government realized the importance
oil and gas for rapid industrial development and its strategic role in defense.
Consequently, while framing the Industrial Policy Statement of 1948, the
development of petroleum industry in the country was utmost necessity.
Until 1955, private oil companies mainly carried out exploration of
hydrocarbon resources of India. In Assam, the Assam Oil Company was
producing oil at Digboi (discovered in 1889) and the Oil India Ltd. (a 50%
joint venture between Government of India and Burmah Oil Company) was
engaged in developing two newly discovered large fields Naharkatiya and
Moran in Assam. In West Bengal, the Indo-Stanvac Petroleum project (a
joint venture between Government of India and Standard Vacuum Oil
Company of USA) was engaged in exploration work. The vast sedimentary
tract in other parts of India and adjoining offshore remained largely
unexplored.
In 1955, Government of India decided to develop the oil and natural
gas resources in the various regions of the country as part of the Public
Sector development. With this objective, an Oil and Natural Gas Directorate
was set up towards the end of 1955, as a subordinate office under the then
Ministry of Natural Resources and Scientific Research. The department was
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constituted with a nucleus of geoscientists from the Geological survey of


India.
A delegation under the leadership of Mr. K D Malviya, the then Minister of
Natural Resources, visited several European countries to study the status of oil
industry in those countries and to facilitate the training of Indian professionals for
exploring potential oil and gas reserves. Foreign experts from USA, West
Germany, Romania and erstwhile U.S.S.R visited India and helped the
government with their expertise. Finally, the visiting Soviet experts drew up a
detailed plan for geological and geophysical surveys and drilling operations to
be carried out in the 2nd Five Year Plan (1956-57 to 1960-61).
In April 1956, the Government of India adopted the Industrial
Policy Resolution, which placed mineral oil industry among the schedule 'A'
industries, the future development of which was to be the sole andexclusive
responsibility of the state.

Soon, after the formation of the Oil and Natural Gas Directorate, it
became apparent that it would not be possible for the Directorate with its
limited financial and administrative powers as subordinate office of the
Government, to function efficiently. So in August, 1956, the Directorate was
raised to the status of a commission with enhanced powers, although it
continued to be under the government. In October 1959, the Commission
was converted into a statutory body by an act of the Indian Parliament,
which enhanced powers of the commission further. The main functions of
the Oil and Natural Gas Commission subject to the provisions of the Act,
were "to plan, promote, organize and implement programmes for
development of Petroleum Resources and the production and sale of
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petroleum and petroleum products produced by it, and to perform such


other functions as the Central Government may, from time to time, assign to
it ". The act further outlined the activities and steps to be taken by ONGC in
fulfilling its mandate.
1961 - 1990
Since its inception, ONGC has been instrumental in transforming the
country's limited upstream sector into a large viable playing field, with its
activities spread throughout India and significantly in overseas territories. In
the inland areas, ONGC not only found new resources in Assam but also
established new oil province in Cambay basin (Gujarat), while adding new
petroliferous areas in the Assam-Arakan Fold Belt and East coast basins
(both inland and offshore).
ONGC went offshore in early 70's and discovered a giant oil field in
the form of Bombay High, now known as Mumbai High. This discovery,
along with subsequent discoveries of huge oil and gas fields in Western
offshore changed the oil scenario of the country. Subsequently, over 5 billion
tones of hydrocarbons, which were present in the country, were discovered.
The most important contribution of ONGC, however, is its self-reliance and
development of core competence in E&P activities at a globally competitive
level.
After 1990
The liberalized economic policy, adopted by the Government of India
in July 1991, sought to deregulate and de-license the core sectors (including
petroleum sector) with partial disinvestments of government equity in Public
Sector Undertakings and other measures. As a consequence thereof,

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ONGC was re-organized as a limited Company under the Company's Act,


1956 in February 1994.
After the conversion of business of the erstwhile Oil & Natural Gas
Commission to that of Oil & Natural Gas Corporation Limited in 1993, the
Government disinvested 2 per cent of its shares through competitive
bidding. Subsequently, ONGC expanded its equity by another 2 per cent by
offering shares to its employees.
During March 1999, ONGC, Indian Oil Corporation (IOC) - a
downstream giant and Gas Authority of India Limited (GAIL) - the only gas
marketing company, agreed to have cross holding in each other's stock.
This paved the way for long-term strategic alliances both for the domestic
and overseas business opportunities in the energy value chain, amongst
themselves. Consequent to this the Government sold off 10 per cent of its
share holding in ONGC to IOC and 2.5 per cent to GAIL. With this, the
Government holding in ONGC came down to 84.11 per cent.

In the year 2002-03, after taking over MRPL from the A V Birla Group,
ONGC diversified into the downstream sector. ONGC will soon be entering
into the retailing business. ONGC has also entered the global field through
its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made major
investments in Vietnam, Sakhalin and Sudan and earned its first
hydrocarbon revenue from its investment in Vietnam.

ONGC today is the only fullyintegrated petroleum company in India,


operating along the entire hydrocarbon value chain:
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Holds largest share (57.2 per cent) of hydrocarbon acreages in India.

Contributes over 84 per cent of Indians oil and gas production.


Every sixth LPG cylinder comes from ONGC.
About one-tenth of Indian refining capacity.

B. Organizational Structure

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C. Board of Directors

Mr. R S Sharma

Chairman & Managing Director

Dr. A K Balyan

Director (HR)

Mr. A K Hazarika

Director (Onshore)

Mr. N K Mitra

Director (Offshore)

Mr. D K Pande

Director (Exploration)

Mr. U N Bose

Director (T&FS)

Mr. U Sundararajan

Director

Mr. Rajesh V Shah

Director

Mr. M M Chitale

Director

Mr. A M Uplenchwar

Director

Mr. Anil Razdan

Director

Mr. Ashok Chawla

Director

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D. Head Office and Regional Offices


Corporate Office / Headquarters: Tel Bhavan, Dehradun
Registered Office: Jeevan Bharti Towers, New Delhi

Plants/ Assets/Basins/Regions/Institutes/Major Projects


A. Assets/Plants:

Sr. No. Name of Asset


Mumbai High Asset
Neelam & Heera Asset
Bassein & Satellite Asset
Uran Plant
Hazira Plant
Ahmedabad Asset
Ankleshwar Asset
Mehsana Asset
Rajamundry Asset
Karaikal Asset
Assam Asset
Tripura Asset

Location
Mumbai
Mumbai
Mumbai
Uran
Hazira
Ahmedabad
Ankleshwar
Mehsana
Rajamundry
Karaikal
Nazira
Agartala

B. Basins:
1.
2.
3.
4.
5.

Western Offshore Basin


Western Onshore Basin
KG Basin
Cauvery Basin
Assam & Assam-Arakan Basin
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Mumbai
Baroda
Rajamundry
Chennai
Jorhat
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6.
7.

CBM- BPM Basin


Frontier Basin

Kolkata
Dehradun

C. Regions:
1.
2.
3.
4.
5.

Mumbai Region
Western Region
Eastern Region
Southern Region
Central Region

Mumbai
Baroda
Nazira
Chennai
Kolkata

D. Institutes:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Keshava Deva Malaviya Institute


of Petroleum Exploration (KDMIPE)
Institute of Drilling Technology
(IDT)
Institute of Reservoir Studies
Institute of Oil & Gas Production
Technology
Institute of Engineering & Ocean
Technology
Geo- data Processing &
Interpretation Center (GEOPIC)
ONGC Academy
Institute of Petroleum Safety
Health & Environment
Management
Institute of Biotechnology &
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Dehradun
Dehradun
Ahmedabad
Navi
Mumbai
Navi
Mumbai
Dehradun
Dehradun
Goa
Jorhat
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10.
11.

Geotectonics Studies
10. School of Maintenance
Practices
11. Regional Training Institutes

Vadodara
Navi
Mumbai,
Chennai,
Sivasagar &
Vadodara.

E. Services:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Mumbai
Mumbai
Dehradun
Baroda
Mumbai
Mumbai
Mumbai
New Delhi
New Delhi
Dehradun

11.

Chief Drilling Services


Chief Well Services
Chief Geo-Physical Services
Chief Logging Services
Chief Engineering Services
Chief Offshore Logistics
Chief Technical Services
Chief Info-com Services
Chief Corporate Planning
Chief Human Resource
Development
Chief Employee Relations

12.

Chief Security

Dehradun

13.

Company Secretary

New Delhi

14.

Chief Marketing

New Delhi

15.

New Delhi

16.

Chief Corporate Affairs & Coordination


Chief Corporate Communication

17.

Chief Material Management

Dehradun

18.

Chief Technical Services

Dehradun

19.

Chief Health, Safety &

Mumbai

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Dehradun

New Delhi

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20.

Environment
Chief Legal

New Delhi

21.

Chief Medical

Dehradun

22.

Chief Internal Audit

New Delhi

23.

Chief Commercials

New Delhi

24.

Chief Exploration and


Development

Dehradun

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E. OBJECTIVES
Vision
To be a World-class Oil and Gas Company integrated in energy business
with dominant Indian leadership and global presence.
World Class
Dedicated to excellence by leveraging competitive advantages in R&D
and technology with involved people.
Imbibe high standards of business ethics and organizational values.
Abiding commitment to safety, health and environment to enrich
quality of community life.
Foster a culture of trust, openness and mutual concern to make
working a stimulating and challenging experience for our people.
Strive for customer delight through quality products and services.
Integrated In Energy Business

Focus on domestic and international oil and gas exploration and


production business opportunities.

Provide value linkages in other sectors of energy business.


Create growth opportunities and maximize shareholder value.
Dominant Indian Leadership
Retain dominant position in Indian petroleum sector and enhance
India's energy availability
Mission
To be an Indian Integrated Energy Multinational (PSU); Target: A
Turnover of 50 Billion US dollars in 5 years.
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Global Ranking

Is Asias best Oil & Gas Company, as per a recent survey conducted
by US-based magazine Global Finance.

Ranks as the 2nd biggest E&P company (and 1st in terms of profits),
as per the Platts Energy Business Technology (EBT) Survey 2004.

Is placed at the top of all Indian Corporate listed in Forbes 400 Global
Corporate (rank 133rd) and Financial Times Global 500 (rank 326th),
by Market Capitalization.

Is recognized as the Most Valuable Indian Corporate, by Market


Capitalization, Net Worth and Net Profits, in current listings of
Economic Times 500 (4th time in a row), Business Today 500,
Business Baron 500 and Business Week.

ONGC ranks among the top 10 Oil and Gas companies in world in
terms of market capitalization.

ONGC has been ranked 273rd in the Forbes 2000-Worlds biggest and
most powerful companies as measured by composite ranking for
sales, profits, assets and market value.

F. FINANCIAL DETAILS

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Financials

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3. HAZIRA GAS PROCESSING COMPLEX


The industrial pride of india
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The ONGC Gas processing unit is located at Hazira on the suburbs of


Surat city in Gujarat.

HGPC plant was specifically laid for processing

Natural gas, which is found at Bombay High. This plant comes under the
Mumbai Region Business Centre (MRBC).
Hazira Gas Processing Complex was set up in September 1985 to
receive gas from Mumbai High initially and subsequently to process sour
Natural Gas from Bassein and other offshore fields. Sour gas along with
associate condensate is transported through two sub-sea pipelines: one 36
diameter(231 kms) and the other 42 diameter (244 kms) from bassein
offshore process platform to Hazira plant.

From here the natural gas

production is carried out which on earlier stage is supplied to GAIL and HBJ
(Hazira Bijapur Jagdishpur) pipeline.
With the discovery of Bombay High begun the growth of Mumbai
region. From a small beginning Exploratory Bombay High with Indias first
offshore Sagar-Samrat. ONGC has come along way. After its success in
Bombay High ONGC discovered various other fields in western offshore.
Among the various discoveries in western offshore, South Bassein proved to
be one of the biggest gas fields in Asia. Total recoverable reserves are
estimated to be of order of 200 billion cubic meters which is phenomenal
when compared to such fields in the world. The exploration of bassein field
paved way for development of number of gas based industries in Gujarat
and Northern India, covering Delhi to bring gas to shore and the process
before it is distributed to consumers, ONGC had chosen a 625 hectares of
land in Hazira plant about 20 km away from surat town which has now
grown to gigantic complex sprawling in 705 hectares with following certain
units plants built with state of the art technology at a cost of Rs. 1300 crores

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and process of growth is continued. It has gas processing capacity of 41


MMSCMD (Million Metric Standard Cubic Meter per Day). The whole Plant
is completely automated where no one can find a single person working in
the field area.

This fully automated plant is maintained and inspected

regularly with the responsible group of people.

PRODUCTS
1. SWEET NATURAL GAS
2. LPG (LIQUIFIED PETROLEUM GAS)
3. ARN (AROMATIC RICH NAPHTHA
4. SKO (SUPERIOR KEROSENE OIL)
5. ATF (AVIATION TURBINE FUEL)
6. HSD (HIGH SPEED DIESEL)
7. HEAVY CUT
8. SULPHUR
1. KRIBHCO

3. GAIL
5. HPCL
7. RELIANCE INDIA LTD

CUSTOMERS OF ONGC
2. ESSAR
4. IOCL
6. BPCL

DESPATCH OF PRODUCTS
1. RAIL

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2. ROAD
3. PIPELINE
4. SHIP

PRODUCTS DISPATCHED
1. LPG ROAD, PIPELINE, RAIL
2. NAPHTHA SHIP, PIPELINE, RAIL
3. SKO ROAD, PIPELINE
4. SULPHUR ROAD
NATURAL GAS is sold to GAIL and marketing is done by GAIL.
LPG is sold to IOCL, HPCL, BPCL and for domestic purpose.
NAPHTHA is exported to Singapore, Hong Kong, South Korea, Japan
etc through ship.
SKO is sold to local customers as well as HSD also.
ATF is used for internal purpose as well as HSD also.
SULPHUR is sold to chemical companies.
These all are the Value Added Products.

COMPETITORS OF ONGC
1. ESSAR OIL
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2. BPCL
3. HPCL
4. RIL
5. GPCL
6. IPCL
The main competitor of ONGC is Reliance Petrochemicals Ltd.
MAIN PLANT
1. GAS TRUNKLINES
2. GAS SWEETENING UNIT (GSU)
3. DEW POINT DEPRESSION (DPD)
4. LPG RECOVERY UNIT
5. CONDENSATION FRACTIONATE UNIT (CFU)
6. CAUSTIC WASH UNIT (CWU)
7. GAS DEHYDRATION UNIT (GDU)
8. KEROSENE RECOVERY UNIT (KRU)

AUXILLIARY PLANT
CO-GENERATION PLANT
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MAIN UTILITIES AND OFFSITES


1. RAW WATER TREATMENT PLANT
2. LPG STORAGE SPHERES
3. NGL STORAGE TANKS
4. NAPHTHA STORAGE TANKS
5. KEROSENE STORAGE TANKS
6. HSD/ATF STORAGE TANKS
7. FIRE WATER STORAGE TANKS
8. RAW WATER RESERVOIR.

A. FINANCIAL HIGHLIGHTS

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Statement showing Revenue and Surplus of Hazira plant


Particular / Period

2004-05 ( Actual
for 12 months )

(Amount in Rs. Crores)


2005-06 ( Projected
for 9 months up to
Dec 05 )
5210

Revenue ( A )
5394
Expenditure
Statutory levies
474
373
Expenses*
152
130
Depreciation
43
29
Total ( B )
669
532
Surplus ( A B )
4725
4678
* Expense do not include input and Headquarter cost.
MOU Target v/s Achievement Apr-Nov 05
Product
LPG
Naphtha
SKO
Gas sales
HSD

Unit
TMT
TMT
TMT
MMSCM
TMT

Target
335.100
686.900
100.000
6116
8.960

Actual
383.438
805.491
113.653
6553.916
9.092814

Achievement
115.32
117.26
113.65
107.16
101.48

Total VAPS

TMT

1130.96

1314.675

116.24

Actual
386.438
805.491
113.653
6553.916
9.092814
1488.25

Achievement
104.75
103.36
113.65
100.34
101.48
104.94

PC Target v/s Achievements (Apr-05)


Products
LPG
Naphtha
SKO
Gas sales
HSD
Total VAPs

Unit
TMT
TMT
TMT
MMSCM
TMT
TMT

Target
368.93
779.29
100.00
6532
8.96
1418.19

4. COSTING STRUCTURE OF HAZIRA PLANT


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INTRODUCTION

ONGC Hazira follows cost centre accounting system. It has an ERP


system called SAP (system application & products of database). SAP is
used world over by most of the corporate giants and is well known for its
capabilities for integration of data. In ONGC, SAP system facilitates
integration of financial data with costing data, production data and sales
and distribution data. Thus in SAP, all the basic data for costing in Hazira
plant are picked up form various modules of SAP like FI(Finance)
module, Production module, S&D module and MM(Material Management
module). This is one of the distinct advantage of SAP that it avoids
duplicity of data entry and is used a common data base for different
purposes.
SAP is a system that integrates and automates all facets of business
operations. This includes planning, manufacturing, and sales, while more
recent ERP software products encompass marketing, inventory control,
order tracking, customer service, finance and human resources as well.

5. Methods of Costing at ONGC Hazira plant

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COSTING STRUCTURE & SENSITIVITY ANALYSIS

ONGC Hazira plant follows cost centre accounting method for the
purpose of costing of products and reporting of cost data to management
and various other external and internal agencies. Cost centre accounting
is a method for applying resource costs to an organization. The
accounting system identifies each of the organizational parts of the
traditional functional structure and applies the identifiable costs to that
part of the structure.
Thus, in cost centre accounting, entire organization is divided into
parts and an attempt is made to identify and book costs related to these
parts separately so that cost incurred on each of such parts can be found
out separately for further use in cost control and other management
decisions.

6. Certain terms
S.K.P.I.M.C.S

28

COSTING STRUCTURE & SENSITIVITY ANALYSIS

In ONGC Hazira plant, the costing system is run on ERP system


called SAP. Entire costing calculations are done by this ERP system only.
Thus cost in Hazira plant and SAP system go hand to hand and it is
difficult to understand the costing system of Hazira plant if we make an
attempt to understand it in isolation without taking into the SAP system.
Therefore, to understand the cost system of the Hazira plant certain
terms must be understood.
These terms are used by the costing system of SAP. Some more
important terms have been explained here below:
1. Cost object:
A cost object, in SAP terminology, is a cost carrier. In other words, it is
an object with reference to which costs are incurred. For example, cost
centre is a cost object. Thus, LPG plant is a cost centre and therefore it is
a cost object too as various costs are incurred to run the LPG plant. In
SAP the cost objects are:
1.1 Cost centre
1.2 Plant maintenance order
1.3 Work break down structure (WBS)
1.4 Process order
1.5 Internal order
Each of these cost objects have been explained hereafter:
1.1

Cost centre:

S.K.P.I.M.C.S

29

COSTING STRUCTURE & SENSITIVITY ANALYSIS

Entire ONGC Hazira plant has been divided in around 61 cost centres.
A cost centre can be defined as a unit with reference to which cost is
incurred. The list of cost centres of Hazira plant is given as follows:
LIST OF COST
COST CENTRE

CENTRES OF HAZIRA PLANT


COST CENTRE DESCRIPTION

CODE

PLANT COST CENTRES


MUMHPPL101
SLUG CATCHER UNIT
MUMHPPL102
GSU PLANT
MUMHPPL103
LPG PLANT
MUMHPPL105
DPD PLANT
MUMHPPL106
SRU PLANT
MUMHPPL107
GDU PLANT
MUMHPPL108
KRU PLANT
MUMHPPL301
CFU PLANT
UTILITY COST CENTRES
MUMHPUT204
IG PLANT
MUMHPUT202
UTILITY WATER
MUMHPUT205
COOLING WATER SYSTEM
MUMHPUT206
DMW PLANT
MUMHPUT201
WWTP PLANT
MUMHPUT102
ELECT DIST SYST
MUMHPSP928
COGEN OFFICE
MUMHPUT101
COGEN POWER PLANT
MUMHPUT105
HAZIRA TURBINE I & II
MUMHPUT108
HAZIRA TURBINE III
MUMHPUT103
MP BOILERS
MUMHPUT104
STEAM GENERATION
MUMHPUT106
HZR- HITACHI BOILER
MUMHPUT107
HAZIRA THERMAX BOILR
MUMHPUT203
PLANT/INSTT. AIR
MAINTENANCE COST CENTRES
MUMHPMT101
MAINT-PROCESS-MECH
MUMHPMT102
MAINT ELECT
MUMHPMT103
MAINT-PROCESS-INSTT.
MUMHPMT902
HAZIRA MAINTN CIVIL

S.K.P.I.M.C.S

30

COSTING STRUCTURE & SENSITIVITY ANALYSIS

MUMHPMT901
MUMHPMT105
MUMHPMT104

MAINT_COMMON
HAZIRA MAINT -E&T
MAINT-ESTATE

OPERATION SUPPORT COST CENTRES


MUMHPSP930
CORROSION MONITORING
MUMHPSP931
CONDITION MONITORING
MUMHPSP911
CHEMISTRY-PTAU
MUMHPSP912
OPERATION OFFICE/GM(
MUMHPSP915
PLANT TRAINING
MUMHPSP932
R.E(P) OFFICE
MUMHPPTAU1
PROCESS ANALYSIS UPG
MUMHPSP905
HAZIRA QAD / EM
ADMINISTRATIVE SUPPORT COST CENTRES
MUMHPSP910
PROJECT GROUP
MUMHPSP901
PROJECT HEAD'S OFFIC
MUMHPSP902
F&A
MUMHPSP903
P&A/LEGAL/IR
MUMHPSP904
MM
MUMHPSP929
HAZIRA INFO COM
MUMHPSP914
SHE
MUMHPSP913
ERG
MUMHPSP916
MEDICAL
MUMHPSP919
TOWNSHIP
MUMHPSP917
SECURITY & VIGILANCE
SALES & DISTRIBUTION COST CENTRES
MUMHPSP923
TRANSPORT-BASE OFFIC
MUMHPTP910
PRODUCT STORAGE OFFI
MUMHPTP901
PRODUCT DESPATCH OFF
MUMHPTP301
DESPATCH-PIPELINE
MUMHPTP321
DESPATCH-RAIL
MUMHPSP927
HAZIRA PP& EVACUATION
MUMHPTP341
DESPATCH-ROAD
SECONDARY COST CENTRES
MUMHPECXP1
HAZIRA LOG E&C_CAP
MUMHPECXP2
HAZIRA LOG E&C_RE
MUMHPGEEXP HAZIRA GEN EXP

S.K.P.I.M.C.S

31

COSTING STRUCTURE & SENSITIVITY ANALYSIS

From the list, it can be seen that there are 7 broad categories of cost
centres in Hazira plant namely:
1.1.1 Plant cost centres:
All the major plants of ONGC Hazira plant have been identified with a
separate cost centre. For example, gas sweetening unit (GSU) plant has
been identified with cost centre MUMHPPl102. Similarly, LPG unit has
been identified with cost centre MUMHPPl103 and the like.
Whenever costs are incurred for any of the plants, these costs are
booked in respective plants cost centres.
1.1.2. Utility cost centres:
For the purpose of running the plant, various utilities like water, steam,
power, inert gas etc are required. ONGC Hazira plant has its own utility
plants to generate/produce and consume these utilities. Like, for power
and steam generation, Hazira plant has its own captive power plant
which generates power sufficient to run the plant on its own.
Each of such utility plants too, has been identified with separate cost
centres. For example, MUMHPUT204 represents inert gas plant;
similarly, water utility plant has been given code MUMHPUT 202.
1.1.3 Maintenance cost centres:
In order to capture separately the maintenance activities which are
carried out in the plants, separate cost centres have been created for
each of maintenance activities. For electric maintenance in the plant, cost
centre MUMHPMT102 has been created which captures all the electrical
maintenance cost incurred in Hazira plant. Similarly, for mechanical

S.K.P.I.M.C.S

32

COSTING STRUCTURE & SENSITIVITY ANALYSIS

maintenance, cost centre MUMHPMT101 has been created. In the same


manner, for civil maintenance, infocomm maintenance, etc, separate cost
centres, as indicated in the list above have been created.
1.1.4 Operation support cost centres:
To support operations of the plant, a huge team of engineers and
other technical experts has been engaged in Hazira plant. This team
ensures that every activity of the plant goes on smoothly without
interruption as even a single days plant shut down can result in loss of
millions of rupees.
For identifying cost of each of such operation support separately, a
separate cost centre has been created in SAP system. Like, for condition
monitoring group of the plant (which continuously monitors the condition
of the plant), cost centre, MUMHPSP931 has been created. Similarly,
chemistry section of the plant which monitors quality controls has been
identified with cost centre MUMHPSP911.

1.1.5 Administrative support cost centres:


All the administrative departments like human resources & employee
relations department, finance & accounts section, material management
section, health, safety & environment section etc have been identified
with separate cost centres to capture cost of each of these departments.
Finance & accounts section has been given cost centre code
MUMHPSP902. Again, material management sections cost centre is
MUMHPSP904 and the like.

S.K.P.I.M.C.S

33

COSTING STRUCTURE & SENSITIVITY ANALYSIS

1.1.6 Sales & distribution cost centres:


Hazira plant produces various products like gas, LPG, ARN, SKO, and
HSD. These products are dispatched to customers through various
modes of transportations. Mainly dispatches are through pipeline, rail and
road. Gas is dispatched to GAIL through pipeline, while other liquid
products are dispatched through rail, road and as well as through
pipelines.
To identify cost of dispatch of goods by each of modes of
transportation, cost centres have been created in SAP for each of these
modes. For example, for dispatch through pipeline, cost centre
MUMHPTP301 has been created. Similarly, for rail dispatch, cost centre,
MUMHPTP321 is created.
Again, to capture cost of storage of products, cost of marketing
section

of

Hazira

separate

cost

centres,

MUMHPTP910

&

MUMHPSP927have been created.

1.1.7 Secondary cost centres:


Secondary cost centres are those cost centres in which no direct cost
is booked. They receive cost from primary cost centres (i.e. the cost
centres in which direct costs are booked). The purpose of secondary cost
centres is to ensure proper allocation of cost to appropriate products and
activities.
In Hazira, there are three secondary cost centres, namely,
MUMHPECXP1, MUMHPECXP2 & MUMHPGEEXP.

S.K.P.I.M.C.S

34

COSTING STRUCTURE & SENSITIVITY ANALYSIS

1.1.7.1 Purpose of MUMHPECXP1 & MUMHPECXP2:


There is a section in Hazira plant called project group section. This
section takes care of implementation of all the revenue and capital
projects of Hazira plant. In other words, it executes & monitors all the
repair & maintenance jobs and also the projects for construction of some
capital asset like plant, building etc.
Project group section of Hazira plant has been identified with a
separate cost centre called MUMHPSP910. Costs of project group
section are initially booked in this cost centre.
Since, this section is engaged in execution and monitoring of revenue
as well as capital projects, some part of its cost should go to revenue
while the other part should logically be capitalized with the cost of assets
which come into being through capital projects which are executed and
monitored by it.
To facilitate this, secondary cost centres, MUMHPECXP1 and
MUMHPECXP2 have been created.
The flow of cost of the project group cost centre can be understood
through the following diagram:

S.K.P.I.M.C.S

35

COSTING STRUCTURE & SENSITIVITY ANALYSIS

The basis for location of cost of project group cost centre is as under:
The basis for allocation of cost of MUMHPSP910 to secondary cost
centres MUMHPECXP1 & MUMHPECXP2 is the number of manpower
engaged in revenue projects and capital projects. Thus if total cost
booked in a particular period in cost centre MUMHPSP910 is say Rs. 100
and during that period 7 persons

of project group cost centre were

engaged revenue projects and rest of 3 persons were engaged in capital


projects, Rs.70 shall be allocated to products and Rs..30 will be
capitalized with the cost of capital projects executed and monitored by
project group section.
1.1.7.2 Purpose of MUMHPGEEXP:
There is certain expenditure which is treated in ONGC as nonallocable. That is to say that these expenses are not allocated to
products. These expenses are expenditure like prior period expenses,
foreign exchange loss, write off of assets, advances etc.

S.K.P.I.M.C.S

36

COSTING STRUCTURE & SENSITIVITY ANALYSIS

All such expenditure which is initially booked in any of the 60 cost


centres mentioned above. However, since these expenses are nonallocable, before the allocation of cost starts, they are taken out from the
primary cost centres and transferred to the cost centre MUMHPGEEXP.
Thus the purpose of MUMHPGEEXP is to capture all the nonallocable expenditure.
1.2 Plant & maintenance order (PM order):
SAP system provides facility to capture cost as well as maintenance
history of each of the equipments of a plant. This is facilitated by use of
plant maintenance order.
A pm order is a cost object that capture maintenance cost of an
equipment.
In the SAP system of Hazira plant, details like its description and
specification, its location, the date of its commissioning, etc of equipment
is maintained. This detail is called equipment master. Each of such
equipment has been given a unique number by which it is identified.
Further, each such equipment has been attached to a cost centre
depending upon its location & use.
For keeping record of repair & maintenance of each of these major
equipments, the facility of pm orders is used. Whenever repair or
maintenance of a equipment is done, a pm order is created in the SAP
system. SAP gives a unique number to each of such pm orders. In that
pm order details like:
a) The equipment for which repair or maintenance job is being carried
out,
S.K.P.I.M.C.S

37

COSTING STRUCTURE & SENSITIVITY ANALYSIS

b) The scheduled as well as actual date of start of R&M job,


c) The scheduled as well as actual date on which the R&M job was
finished,
d) The cost of stores & spares or any other expenditure incurred in
carrying out the job,
e) The time (in hours) taken to complete the R&M job.
Thus, it can be seen that significant amount of information is collected
in these pm orders for further use in reporting and analysis. For detailed
analysis, even pm orders too have been broadly classified in the
following types:
Order type code
Pm15
Pm20
Pm25
Pm30
Pm35
Pm40
Pm45
Pm50
Pm55
Pm60
Pm65
Pm70

Order type
Malfunction report orders
Modular repair order
Threshold orders
Maintenance request orders
Crisis management orders
Preventive maintenance orders
Calibration orders
Refurbishment orders
Refurbishment orders workshop
Refurbishment orders OEM/ external
Audit orders
PM order for IMR activities

This further classification of order types helps in more deep analysis of


R&M of an equipment. Appropriate order type is selected by the person
creating order, depending upon the nature of R&M work to be carried out.

S.K.P.I.M.C.S

38

COSTING STRUCTURE & SENSITIVITY ANALYSIS

1.3 Work break down structure (WBS):


WBS too is a SAP term. Whenever a cost is incurred for a capital
project which will result in creation of a capital asset, the cost is not
booked in a cost centre or pm order. Such cost is booked in a WBS so that
this type of cost can be captured separately.
Thus cost of a capital project is initially booked in a WBS. Then on
completion of the project, all the cost collected in a WBS is transferred to
the capital asset to which it pertains.

1.4 Process order:


A process order is a cost object to capture cost of production of final
products. It should be noted here that no direct cost is booked in a
process order. Costs initially booked in cost centres, pm orders flows into
process orders and thereby arrives at final cost of the products.
1.5

Internal order:
Internal order is similar to WBS. However, while WBS is used for a
normal capital project, internal order is used for a special capital asset
i.e. An Oil or Gas well.
When an oil well is drilled, huge cost is incurred in its drilling. To keep
a separate record of cost incurred for such well, separate internal order is
created in SAP for each well drilled. All the costs incurred in drilling of
that well is initially booked in that particular internal order. Then if it is
found that the there exists oil or gas in that well, all the cost of the
S.K.P.I.M.C.S

39

COSTING STRUCTURE & SENSITIVITY ANALYSIS

internal order is transferred to the capital asset i.e. Oil or gas well.
However, if it is found that there is no oil or gas in the well drilled, all
the cost booked in the internal order is transferred to cost centre which
gets allocated further depending upon the mapping in SAP. However,
since no drilling activity takes place in Hazira plant, internal orders are
not used costing system of Hazira plant.

2. Statistical key figure (SKF)


In SAP SKF means the basis for allocation of cost from one cost
object to other and finally to finished products. From the above
discussion, it is clear that costs are initially booked in cost objects like
cost centres, pm orders, WBS and internal orders. In order to allocate
these costs booked, it is required to define some basis so that cost
booked can be allocated to products. For example, as explained above,
the cost of project group cost centre MUMHPSP910 is allocated to
secondary cost centres MUMHPECXP1 & MUMHPECXP2 on the basis
of number of persons of project group sections engaged in revenue
projects and in capital projects. Thus SKF for allocating cost of
MUMHPSP910 is manpower. At the end of each period, when allocation
of cost takes place, it is determined that how many employees of project
group cost centres were engaged in revenue projects and how many
were engaged in capital projects. These numbers are fed in SAP system
and on the basis of SKF fed, SAP makes automatic calculations and
allocation of cost takes place.
Similarly, the cost of transportation cost centres like products dispatch
rail (MUMHPTP321), product dispatch pipeline (MUMHPTP301) is

S.K.P.I.M.C.S

40

COSTING STRUCTURE & SENSITIVITY ANALYSIS

allocated to products on the basis of quantity of final products dispatched


through these mode of transports. Thus SKF for these transport cost
centres is dispatch quantity. These dispatch quantities are fed in SAP
system at the end of every period on the basis of which allocation of cost
booked in transportation cost centres takes place.
Again for some of the cost centres, basis has been fixed permanently,
depending upon past experience and records. For example, it has been
determined that waste water treatment plant of Hazira plant processes
waste water coming out of various other plants in the following
proportion:

MUMHPPl101

Slug catcher unit

MUMHPPl102

GSU plant

20.00%

MUMHPPl103

LPG plant

40.00%

Thus every time, the

cost MUMHPPl105
plant

Dpd plant

15.00%

of waste water treatment

Sru plant
Cfu plant

15.00%
5.00%

MUMHPPl106
MUMHPPl301

5.00%

cost
(MUMHPUT201)

centre
gets

allocated to the above plant cost centres proportionately. Thus SKF for
allocation of waste water treatment plant cost is fixed percentage.
3. Activity type:
For the purpose of allocation of some of the cost centres, SAP system
uses utility called activity. It is assumed that some cost centres are
engaged in rendering services to other cost centres. Thus these cost
centres generate activities which are consumed by other cost centres.
For example, electrical maintenance cost centre of Hazira plant is
engaged in electrical maintenance of all other cost centres of the plant.
S.K.P.I.M.C.S

41

COSTING STRUCTURE & SENSITIVITY ANALYSIS

Thus electrical maintenance cost centre generates activity called maintn


(maintenance) and the same is consumed by other cost centres.
SAP system facilitates (through pm orders) keeping a record of
consumption by all other cost centres of activity maintn during a period.
At the end of the period, the cost of electrical maintenance cost centre
will get allocated to other cost centres on the basis of this record.

7.Cost cycles:
This is one of the important parts of costing system in SAP. A cost
cycle is a small computer programme which facilitates allocation of cost
initially booked in different cost objects like cost centres, pm orders, WBS
etc to final products. In this computer programme, mapping is done which
defines how cost will flow from one cost object to other and finally to
finished products and the basis of such flow.
At the end of the period, when this computer programme (i.e. Cost
cycle) is executed and SAP system, on the basis of mapping done in that
programme and the inputs provided, automatically makes all the complex
calculations and provides final output in the form of product costs.

S.K.P.I.M.C.S

42

COSTING STRUCTURE & SENSITIVITY ANALYSIS

8. Allocation of cost in the costing system of


Hazira plant
Once we obtain an understanding of the above terms, it becomes
easier to understand the cost allocation system of Hazira plants.
As stated above, the entire process of allocation of cost of Hazira
plant is automated through cost cycles already created in SAP system.
Cost cycles are executed one by one and the allocation takes place
accordingly. Thus, it does not involve any manual calculations.
For the purpose of allocation of costs in Hazira, the following cost
cycles are executed:
I. Cost cycle for separating non allocable expenses
II. Cost cycle for allocation of cost of support cost centres to other
cost centres which receive services of these support cost centres
III. Cost cycle for allocation of cost of maintenance cost centres to
plant maintenance orders.
IV. Cost cycles for allocation of plant maintenance orders to other
cost centres.
V. Cost cycle for allocation of cost booked in WBS to final capital
assets
VI. Cost cycle for allocation of cost of operation support cost centres
to plant & utility cost centres
VII. Cost cycle for allocation of utility & plant cost centres cost to
finished products
S.K.P.I.M.C.S

43

COSTING STRUCTURE & SENSITIVITY ANALYSIS

Each of these cost cycles have been explained hereunder one by one:
8.1Cost cycle for separating non allocable expenses
In ONGC, certain elements of expenditure are considered as nonallocable. In other words this expenditure is not allocated to final
products. This expenditure includes:

1. Prior period expenditure


2. Leave encashment
3. Ex-gratia & bonus
4. Financial costs
5. Advances, inventory and assets written off
6. Statutory levies like sales tax, excise duty etc
7. Donations, etc
In SAP, any expenditure can be booked only when some cost object is
specified at the time of booking of such expenditure. Therefore, to book
the above mentioned non- allocable expenditure cost object (normally a
cost centre) has to be specified. For this reason, it becomes necessary to
take this expenditure out of the costing activities before allocation begins.
For the purpose of separating this expenditure, a cost cycle called
distribution cost cycle is executed. This cost cycle takes out from all the
cost centres the non-allocable cost elements and put them in cost centre
MUMHPGEEXP. No further allocation of these cost elements from

S.K.P.I.M.C.S

44

COSTING STRUCTURE & SENSITIVITY ANALYSIS

MUMHPGEEXP takes place in any of the cost cycles which are executed
after distribution cost cycle.

8.2Cost cycle for allocation of cost of support cost centres to other


cost centres which receive services of these support cost centres:
As mentioned above, there are several support cost centres which
render services to other cost centres. For example, finance & accounts
section (cost centre MUMHPSP902) renders services to all the other cost
centres. Similarly, human resources & employee relations section (cost
centre MUMHPSP903) too renders services to all other cost centres.
These cost centres known as administrative support cost centres.
Cost of these cost centres is allocated to all the other cost centres
which are receiving services of these support cost centres.
This is done by executing support cost centres assessment cycle
after executing this cost cycle, the cost in the administrative support cost
centres become nil.
8.3Cost cycle for allocation of maintenance cost centres to plant
maintenance orders:
The cost of maintenance cost centres of Hazira plant does not straight
away get allocated to the cost centres who receive their services. The
cost of these maintenance cost centres is routed through plant
maintenance orders. In other words, first the cost of maintenance cost
centres will get allocated to plant maintenance orders then from plant

S.K.P.I.M.C.S

45

COSTING STRUCTURE & SENSITIVITY ANALYSIS

maintenance orders, the cost will get allocated to other cost centres
which are maintained by these maintenance cost centres.
The flow diagram here below shows the flow of cost of maintenance
cost centres:

MAINTENANC
E COST
CENTRE

PM Order
1

PM Order
2

PM Order
3

Cost
Centre1

Cost
Centre 2

Cost
Centre 3

The entire process of allocation of cost of maintenance cost centres to


other cost centres through plant maintenance orders can be understood as
under:

8.3.1 Creation of plant maintenance order:


Whenever the maintenance people are requested to carry out
maintenance work in any of the plants, they are mandatory required to
create a plant maintenance order in SAP system. When a plant
S.K.P.I.M.C.S

46

COSTING STRUCTURE & SENSITIVITY ANALYSIS

maintenance order is created, SAP system allots a unique number to such p


m order. The maintenance order contains all the details related to that
particular maintenance job for which it has been created. Like, the nature of
maintenance job, the place in plant where the job is to be carried out, the
plant officer on the request of whom the maintenance job is to be carried
out, the scheduled date as well as actual date of start of maintenance job,
the scheduled as well as actual date of completion, the time (in hours) taken
for the job and the cost (stores, spares, or any other expenditure) incurred
for the maintenance job.
8.3.2 Confirmation of job in the plant maintenance order:
When the maintenance job is over, the person carrying out job is
required to confirm the completion of job in the SAP system. While
confirming the job, he is required to fill up all the details of job relating to
completion such as date and time of completion, time taken for the job etc.
8.3.3 Closing of plant maintenance order:
After confirming the completion of job in the plant maintenance order,
the concerned person is required to change the status of the plant
maintenance order to close. Once the plant maintenance order is closed,
no further modification in the information fed in that order can be changed.
Nor can that order be used for any other purpose. Thus, closing of plant
maintenance order is important to ensure correctness of data fed therein.

8.3.4 Computation of maintenance cost at the end of the period:


The activity of allocation of cost takes place at the end of the period
for which product cost is to be calculated.

S.K.P.I.M.C.S

47

COSTING STRUCTURE & SENSITIVITY ANALYSIS

It has been stated above that in every plant maintenance order, the
time (in hours) taken for completion of the job is booked. For allocation of
cost booked in maintenance cost centre, this time forms basis.
We take an example to explain how cost of a maintenance cost centre
gets allocated to plant maintenance orders:
Suppose, during the month of April 06, the cost centre MUMHPMT101
(mechanical process maintenance cost centre), carried out 10 maintenance
jobs at various locations in the plant. These jobs are as under:

Pm order
no
10012658
10012793
10012806
10012883
10012886
10012887
10012888
10012906
10012915
10012916

Nature of job done


Repairing of abnormal sound from
acid transfer pump in SRU plant at
locationct-3
Fixing up of pressure gauge
problem in LPG sphere (c2)
Repairing of mdea tank leakage
from tank no. 31E301 in GSU plant
Fixing up of coupling disconnected
in CFU plant at location no.
62P604B
Repairing of poor pumping of
chemical from NGL tank of KRU
Cleaning of air filter of 63B601A at
GSU plant
Fixing up malfunctioning of motor
no. 90FIC1304 in KRU
Cleaning of suction strainer at
location p901b in LPG plant
De-choking the sampling point at
slug catcher
Repairing of flange leakage at
location 77LV1303 in Wwtp plant
Total

Location

Cost centre for


which R&M
carried out

Time
taken for
job done

Cost
incurred
Nil

Sru plant

MUMHPPl106

2 hours

LPG
storage
area
GSU plant

MUMHPTP910

5 hours

2,500.00

MUMHPPl102

6 hours

6,000.00

Cfu plant

MUMHPPl301

4 hours

10,000.00

Kru plant

MUMHPPl108

2 hours

Nil

GSU plant

MUMHPPl102

3 hours

1,500.00

Kru plant

MUMHPPl108

4 hours

2,000.00

LPG plant

MUMHPPl103

8 hours

1,000.00

3 hours

3,000.00

4 hours

2,500.00

41 hours

28,500.00

Slug catcher MUMHPPl101


unit
Wwtp
MUMHPUT201

It should be noted here that in real situation far more than 10 plant
maintenance orders are prepared by a maintenance section during a month.
However, for the sake ok convenience and simplicity, we have assumed that
S.K.P.I.M.C.S

48

COSTING STRUCTURE & SENSITIVITY ANALYSIS

only 10 plant maintenance orders were created by the maintenance section


during a month.
The cost of a maintenance cost centre is allocated on the basis of
normal capacity of the cost centre.
For the sake of convenience, we assume that the normal capacity of
MUMHPMT101 is to render 50 hours of service during a month.
From the above list, it can be seen that the work done by
MUMHPMT101 during the month is only 41 hours. Thus 9 hours remained
idle. However, it should be noted that in a company like ONGC, a
maintenance section is not always engaged in maintenance work only.
There are several other works which the people of a maintenance cost
centre have to perform like, attending meetings, trainings, preparation of
files for various purposes like approvals, sanctions for expenditure,
preparation of miscellaneous reports etc,
Therefore, it is assumed that remaining hours are got consumed in
these other works.
Therefore the work distributions in hours for the maintenance cost
centre MUMHPMT101 in the above example will be as under
(i) Hours consumed in maintenance jobs: 41 hours
(ii) Hours consumed in other misc work: 09 hours
Total

: 50 hours

S.K.P.I.M.C.S

49

COSTING STRUCTURE & SENSITIVITY ANALYSIS

Now, for 41 hours we have 10 different pm orders but for rest of the 09
hours we dont have any pm orders.
For this purpose, there is a facility in SAP which, at the end of the
period automatically creates a pm order which shows these remaining hours
of normal capacity of that cost centres.
Thus we assume that at the end of the period, SAP generated one
more pm order (no. 10012917) with 09 hours.
Now, we assume that during the month of April, the cost booked in the
cost centre MUMHPMT101 was as follows:
(i) Expenditure: Rs. 500000/(i) Depreciation of the assets used by the cost centre: 50000/When the cycle for allocation of maintenance cost centres is executed,
SAP first calculate cost per hour by dividing the cost booked in the
maintenance cost centre by the normal capacity of that cost centre.
In the above example, the rates will be as under:
Rate of expenditure per hour = 500000 / 50 = Rs. 10000 per hour
Rate of depreciation per hour = 50000 / 50 = Rs.1000 per hour.
Now the allocation of cost will be as under:

Pm order
no

Cost centre for


which repair &
maintenance
job carried out

Time
taken
for job
done

Exp rate
per hour

Depreciati
on rate
per hour

Exp cost
of the
job done

(a)

(b)

(c)

(d)

(e)

(f)=(cxd)

Hours

Rs
/hours

Rs /hours

Rs

10012658 MUMHPPl106

S.K.P.I.M.C.S

1,000

20,0

Dep
cost of
the job
done
(g)=(cx
e)

Direct
cost
incurre
d

Total
cost of
job done

(h)

(i)=(f+g+
h)

Rs

Rs

Rs

2,

22,0

50

COSTING STRUCTURE & SENSITIVITY ANALYSIS


10,000
10012793 MUMHPTP910

5 10,000

1,000

10012806 MUMHPPl102

6 10,000

1,000

10012883 MUMHPPl301

4 10,000

1,000

10012886 MUMHPPl108

2 10,000

1,000

10012887 MUMHPPl102

3 10,000

1,000

10012888 MUMHPPl108

4 10,000

1,000

10012906 MUMHPPl103

8 10,000

1,000

10012915 MUMHPPl101

3 10,000

1,000

10012916 MUMHPUT201

4 10,000

1,000

41 10,000

1,000

9 10,000

1,000

50 10,000

1,000

10012917 MUMHPSP901

00
50,0
00
60,0
00
40,0
00
20,0
00
30,0
00
40,0
00
80,0
00
30,0
00
40,0
00
410,
000
90,0
00
500,
000

000
5,
000
6,
000
4,
000
2,
000
3,
000
4,
000
8,
000
3,
000
4,
000
41,
000
9,
000
50,
000

00
57,5
00
72,0
00
54,0
00
22,0
00
34,5
00
46,0
00
89,0
00
36,0
00
46,5
00
479,
500
99,0
00
550,
000

2,
500
6,
000
10,
000
1,
500
2,
000
1,
000
3,
000
2,
500
28,
500
-

It may be noted here that the past pm order (no. 10012917) here is
the one which is automatically generated by SAP system in case there is an
underutilization of normal capacity of the cost centre. The cost centre
MUMHPSP901 which is presumed to be the cost centre where services
have been rendered by this pm order. Is a general cost centre cost of which
flows to all the plants and utility cost centres in suitable proportion. By
picking up this general cost centre, SAP system ensures that the cost of
unutilized (or utilized in general work) hours of maintenance cost centre gets
spread over to all the cost centres fairly.
Cost cycles for allocation of plant maintenance orders to other cost
centres:
Through this step, the cost of plant maintenance orders flows to other
cost centres where the maintenance job has been carried out.

S.K.P.I.M.C.S

51

COSTING STRUCTURE & SENSITIVITY ANALYSIS

In the above example, the cost shown in column i of the table above
will flow to respective cost centres appearing in column b.

8.5 cost cycle for allocation of cost booked in WBS to final capital
assets:

The term WBS has been explained in the start at point no. 1.3. In
ONGC, when cost is incurred for a capital project which is expected to be
completed over a period of time, it is not directly booked in the account
pertaining to capital work in progress. There is a separate series of accounts
in which cost is first booked. Further, the cost booked under these accounts
is not booked with reference to a cost centre, but it is booked with reference
to a WBS. Then at the end of the period, the cost booked under these
WBSs is transferred to accounts related to capital work in progress or in
case the capital project is complete, to the final fixed asset.
For this transfer of cost to capital work in progress /final fixed asset,
the cost cycle for allocation of cost from WBS to capital WIP / final fixed
asset is executed.

8.6 Cost cycle for allocation of cost of operation support cost centres
to plant & utility cost centres:
This is a sample cost cycle in which the cost of operation support cost
centres like cost centre MUMHPSP930 (corrosion monitoring section),
MUMHPSP931 (condition monitoring section) etc, gets allocated to all other
plants & utility cost centres.

S.K.P.I.M.C.S

52

COSTING STRUCTURE & SENSITIVITY ANALYSIS

Under this cycle only, cost of certain utility cost centres like
MUMHPUT101 (co-gen power plant), MUMHPUT105 (gas turbine i & ii),
MUMHPUT106 (gas turbine iii), MUMHPUT103 (mp boiler), MUMHPUT106
(Hitachi boiler) flows to final cost centres of these utilities like
MUMHPUT102 (power utility cost centre) & MUMHPT 104 (steam utility cost
centre).

8.7 Cost cycle for allocation of utility & plant cost centres cost to
finished products:
So far, we have discussed six steps of cost cycles above. As a result
of these steps, all the cost of Hazira plant gets allocated to two types of cost
centres namely:
Utility cost centres like power, water, steam etc.
Plant cost centres like LPG plant, GSU, KRU etc.
From these two type of cost centres, the cost ultimately flows to finished
products like GAS, LPG, ARN, SKO, HC & HSD
8.7.1 The basis of allocation to finished products:
While implementing SAP system in ONGC, Hazira plant, on the basis
of past 15 years experience, it was determined that how much of various
inputs will be required to produce on unit of finished product. For example,
for generation of one unit of LPG, the following inputs are as required:
Natural gas
Steam
Inert gas

: 2 units
: 3.5 units
: 7 units

Power

: 4 units

De-mineralized water: 1 unit


Cooling water

S.K.P.I.M.C.S

: 2 units

53

These standards have been fed in SAP system for every finished
product which is produced in Hazira. In SAP terminology, it is called
recipe. This recipe in fact, forms the basis for allocation of cost of plant
and utility cost centres to finished products. This recipe is revised every
time when there is a major change in the production process which
results in change in the input requirements of finished products. Every
day, the production people make a process order for production of each
of finished products. At the end of the day, the actual quantity of finished
products produced is confirmed in that process order. This process order
is linked to the recipe. Through this link, it calculates the total inputs
required for production of the quantity of finished product confirmed at
the end of the day. And finally at the end of the period for which cost is to
be ascertained, SAP system sums up all the inputs required as well as
the out put of finished products for allocation of cost. It may please be
noted here that the actual system in SAP is complex. For the sake of
convenience, certain steps have been eliminated in the example below.

Process
order no
1100054052
1100054053
1100054054
1100054055
1100054056
1100054057
1100054058
1100054059
1100054060
1100054061
1100054062
1100054063
1100054064
1100054065
1100054066
1100054067
1100054068
1100054069
1100054070
1100054071
1100054072
1100054073
1100054074
1100054075
1100054076
1100054077
1100054078
1100054079
1100054080
1100054081
1100054082

Process order description


LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant
LPG through LPG plant

Qty of LPG Qty of LPG actually


planned
produced
Metric tonne
Metric tonne
200
218
225
215
225
223
220
222
230
232
210
200
250
240
215
215
220
210
235
233
210
207
220
224
200
198
225
230
225
220
220
220
230
226
210
206
250
241
215
214
220
223
235
233
210
201
220
212
200
196
225
214
225
222
220
214
230
228
210
203
250
245
6880
6785

8.7.2 Example of calculation of cost of LPG produced from LPG plant:


Suppose, during the month of April, 30 batches of LPG were produced
and accordingly, thirty process orders were generated as follows:

As mentioned above, we assume that the recipe for production of LPG


from LPG plant is as under:
1. Natural gas

: 2 units

2. Power

: 4 units

3. Steam

: 3.5 units

4. De-mineralized water : 1 unit


5. Inert gas

: 7 units

6. Cooling water

: 2 units

Again, the cost booked in various cost centres which produce the input
materials required for production of LPG as well as the output of these cost
centres are shown in the table below. And on the basis of output quantity
and the cost, per unit cost of these items too is shown in the column f of
the table:
Cost centre
(a)

Cost centre out


put
(b)

MUMHPPl102

Gas

MUMHPUT102
MUMHPUT104

Out put
quantity
(c)

Unit of
output
(d)

Cost incurred
during April
(e)

12000 Tm3

1500000

Power

750000 Kwh

1000000

750000 Mt

500000

MUMHPUT206

Steam
De-mineralized
water

1000000 KL

750000

MUMHPUT204

Inert gas plant

1000000 Mt

900000

MUMHPUT205

Cooling water

2000000 KL

1200000

Rate ( Rs /
unit of output)
(f)=(e/c)
125.
00
1.3
3
0.6
7
0.7
5
0.9
0
0.6
0

Now, when the total quantity of LPG produced and per unit cost of
inputs required for production of LPG are available, we can calculate the
cost of production of LPG. This calculation is shown in the table below:

Input

Qty of input
required to
produce one
unit of LPG

LPG
produced

(a)

(b)

(c)

Total input
consumptio
n in
production
of LPG
(d)=(bxc)

Gas

6785

13570

Power

6785

27140

3.5

6785

23747.5

6785

6785

Inert gas plant

6785

47495

Cooling water

6785

13570

Steam
De-mineralized
water

Cost of per
unit of input
(e)
125
.00
1
.33
0
.67
0
.75
0
.90
0
.60

Cost of LPG
produced
(f)=(dxe)
1,696,
250
36,
187
15,
832
5,
089
42,
746
8,
142
1,804,
245

Thus cost of production of 6785 MT of LPG is Rs 1,804,245/Therefore cost of production of 1 MT of LPG will be = 1,808,245/6875
= Rs. 263.02 per MT
This is how the cost of production of finished product is arrived at finally.

Conclusion:
From the above discussion, it is clear that ONGC, Hazira plant has
sound system of costing. Through this project, an attempt has been made to
describe the costing method of the plant is a simple manner. The system is
yet more complex than what has been described here. Incorporating and
explaining all of its complexities and explaining them in this project was not
possible as almost all of its costing system is handled by SAP system which
involves great amount of back ground calculations on the basis of
programming designed therein.

9. EXPLAINATION OF CALCULATION
FIRST COST CYCLE C2HPOO HAZIRA SUPPORT COST CYCLE
The first cost cycle which is executed is C2HPOO (Hazira support
cycle). This cost cycle has certain segments. In each segment, cost of one
(or more) cost centres gets allocated to other cost centres.
Each of the segments of this cost cycle has been briefly described
here below:
SEGMENT 1:HPLOGISEXP: LOGISTICS EXPENSE:
In this segment, the cost booked in cost centre MUMHPSP923
(TRANSPORT-BASE OFFICE) gets allocated to all the other cost centres in
proportion to the expenditure booked in the receiver cost centres.
SEGMENT 2: HPLOGISDEP: LOGISTICS DEPRECIATION:
In

this

segment,

the

depreciation

booked

in

cost

centre

MUMHPSP923 (TRANSPORT-BASE OFFICE) gets allocated to all the


other cost centres in proportion to the expenditure booked in the receiver
cost centres.
SEGMENT 3: HPOTHERSUP: OTHER SUPPORT EXPENSES AND
DEPRECIATION:
Through this segment of the cost cycle, the expenditure and
depreciation of the support cost centres like Finance, P&A, Material
Management section etc gets allocated to all the other cost centres in
proportion to the expenditure booked in the receiver cost centres.

The receiver cost centres in this segment are all the cost centres
except the support cost centres.
SEGMENT 4: HPENGSEREX: HAZIRA PROJECT GROUP EXPENSES:
Under this segment, the cost of cost centre MUMHPSP910 (Hazira
project group cost centre) is allocated to two secondary cost centres
namely, MUMHPECXP1 & MUMHPECXP2.
The project group section of the Hazira plant is engaged in execution
of revenue and capital projects. On the basis of manpower of project group
section, engaged in revenue and capital projects, the cost of this section
flows to these two cost centres MUMHPECXP1 & MUMHPECXP2. For
example, if during a quarter, out of total 40 people of the project group
section, 30 were engaged in revenue projects while rest 10 were engaged in
capital projects and the total cost incurred by the project group section
during that quarter was 100 Rs., then, rs.25 will flow to cost centre
mumhpecxp1 and remaining rs.75 will flow to cost centre MUMHPECXP2.
SEGMENT 5: HPESCAPEX: HAZIRA PROJECT GROUP EXP ASSET
In the fourth segment above, the cost from project group cost centre
flows to cost centre MUMHPECXP1 & MUMHPECXP2.
In this segment, the cost of cost centre MUMHPECXP1 flows to
capital projects which were under execution by the project group section.
Continuing the example of segment 4, Rs. 25 which are attributable to
capital projects, will flow to these capital projects in proportion to the cost
booked in these respective capital projects.

SEGMENT 6: HPESCAPDP: HAZIRA PROJECT GROUP DEP


The depreciation of project group section which flows to cost centre
MUMHPECXP 1 is not capitalized with the cost of capital projects in the
segment 5. This depreciation amount is thus not capitalized. This
depreciation is, through this segment, gets transferred to cost centre
MUMHPECXP. Thus, this depreciation is treated as general depreciation
and flows to all the cost centres (except support cost centres).
SEGMENT 6: HPESREV: HAZIRA PROJECT GROUP REVENUE JOBS
The cost of project group cost centre which has flown to cost centre
MUMHPECXP2 which is attributable to revenue jobs, flows to all the cost
centres (excluding support cost centres) in this segment in proportion to
cost booked in the receiver cost centres.
SEGMENT 7: HPMAINTCMN: HAZIRA MAINTENANCE COMMON:
The

cost

of

cost

centre

MAINTENANCE

COMMON

MUMHPMT901 which is not allocated through plant maintenance orders, is


allocated under this segment to all the other maintenance cost centres in
proportion to the actual expenditure booked in the receiver cost centres.
SEGMENT 8: HPCIVILMTN: HAZIRA MAINTENANCE CIVIL:
The cost of cost centre MAINTENANCE CIVIL MUMHPMT902
which is not allocated through plant maintenance orders is allocated under
this segment to all the other maintenance cost centres in proportion to the
actual expenditure booked in the receiver cost centres.

CALCULATION OF COSTS ALLOCATED THROUGH COST CYCLE


C2HPOO:
In the separate sheet enclosed here, an attempt has been made to
make calculations with hypothetical figures. In the first two columns of
expense & depreciation under heading cost initially booked it shows the
amount of expenditure & depreciation booked under various cost centres of
Hazira plant.
In the next columns, it shows how the cost initially booked in different
cost centres gets allocated to various other cost centres.

The basis of

allocations of cost from one cost centre to others is the same as mentioned
in the brief description above of various segments of the cost cycle.
Finally, the last two columns under heading cost in various cost
centres after cycle C2HPOO shows the cost in various cost centres after
execution of cost cycle C2HPOO. From these columns it can be observed
that after execution of cycle C2HPOO, cost in some of the cost centres
(mainly support cost centres) will to other cost centres (mainly operations
related cost centres). This way, the cost of support cost centres will become
zero.
It can be seen that after execution of cost cycle C2HPOO, the cost of
following cost centres will become zero:
MUMHPSP901
MUMHPSP902
MUMHPSP903
MUMHPSP904
MUMHPSP914
MUMHPSP915
MUMHPSP916
MUMHPSP917
MUMHPSP919
MUMHPSP929
MUMHPSP910
MUMHPSP923
MUMHPMT901
MUMHPMT902

PROJECT HEAD'S OFFICE


F&A
P&A/LEGAL/IR
MM
SHE
PLANT TRAINING
MEDICAL
SECURITY & VIGILANCE
TOWNSHIP
HAZIRA INFO COM
PROJECT GROUP
TRANSPORT-BASE OFFIC
MAINT_COMMON
HAZIRA MAINTN CIVIL

SECOND COST CYCLE C4HPAO HAZIRA OPERATION COST CYCLE I


Under the second cost cycle C4HPAO, cost of some more cost
centres gets allocated to other cost centres who receive their services. The
sender cost centres in this cost cycle mainly are operation support cost
centres like, chemistry section, corrosion monitoring section, condition
monitoring section etc.
Like the first cycle, this cycle too has various segments, each one of
them has been explained briefly here below:
SEGMENT 1: HPPRODOPSUP: HEAD OPERATION OFFICE:
In this segment cost of cost centre MUMHPSP912 head operation
office gets allocated to all the plants & utility cost centres in proportion to the
costs initially booked in the receiver cost centres.
SEGMENT 2: HPPRESENGEX: RESIDENT ENGINEER (PRODUCTION):
In this segment cost of cost centre MUMHPSP932 RESIDENT
ENGINEER (PRODUCTION) gets allocated to all the plants & utility cost
centres in proportion to the costs initially booked in the receiver cost
centres.
SEGMENT 3: HPWWTPEXP: WASTE WATER TREATMENT PLANT
EXPENSES:
WWTP (waste water treatment plant) of Hazira process the water
coming out of various plants before its disposal into the river tapti. On the
basis of past experience, an estimate has been made of the quantity of
waste water coming out of various plants which is processed by WWTP. On
the basis of these quantities, a ration has been developed for allocation of
cost of WWTP to various other plant cost centres. This ratio is as under:

COST
CENTRE
MUMHPPL101
MUMHPPL102
MUMHPPL103
MUMHPPL105
MUMHPPL106
MUMHPPL301

PLANT
SLUG CATCHER UNIT
GSU PLANT
LPG PLANT
DPD PLANT
SRU PLANT
CFU PLANT

RATIO
5
20
40
15
15
5

The ratio mentioned above has been fed in this segment of the cost
cycle and sap system follows this ratio for allocation of cost of WWTP to
these plant cost centres.

SEGMENT 4: HPPPPEMEXP: PLANNING, PRODUCTION EVACUATION


COST:
The cost centre MUMHPSP927 product planning and evacuation
which is engaged in marketing of various products which are produced in
Hazira plant, is allocated to transportation cost centres on the basis of
quantity of products dispatched through various mode of transportation viz,
rail, pipeline and road.
Thus the receiver cost centres in this segment are:
MUMHPTP301
MUMHPTP321
MUMHPTP341

DESPATCH-PIPELINE
DESPATCH-RAIL
DESPATCH-ROAD

SEGMENT 5: HPPAUEXP: PROCESS ANALYSIS, UP GRADATION:


Under this segment the cost of cost centre MUMHPPTAU1 PROCESS ANALYSIS, UP GRADATION flows to all other plants & utility
cost centres on the basis of cost booked in the receiver cost centres.

SEGMENT 6: HPQAEQMEXP: QUALITY & EQUIPMENT MANAGEMENT:

Under this segment the cost of cost centres MUMHPSP905 - HAZIRA


QAD / EM flows to all other plants & utility cost centres on the basis of cost
booked in the receiver cost centres.
SEGMENT 7: HPCHEMEXP: CHEMISTRY EXPENSES:
Under this segment the cost of cost centres MUMHPSP911 chemistry
section flows to all other plants & utility cost centres on the basis of cost
booked in the receiver cost centres.
SEGMENT

8:

HPERGEXP:

ECONOMIC

RESOURCE

GROUP

EXPENSES:
Under this segment the cost of cost centres MUMHPSP913 erg
section flows to all other plants & utility cost centres on the basis of cost
booked in the receiver cost centres.
SEGMENT9: HPCORREXP: CORROSION MONITORING SECTION
EXPENSES:
Under this segment the cost of cost centres MUMHPSP930
CORROSION MONITORING section flows to all other plants & utility cost
centres on the basis of cost booked in the receiver cost centres.
SEGMENT 10: HPCONDEXP: CONDITION MONITORING SECTION
EXPENSES:
Under this segment the cost of cost centres MUMHPSP931
condition monitoring section flows to all other plants & utility cost centres on
the basis of cost booked in the receiver cost centres.

SEGMENT 11: HPUTWTREXP: UTILITY WATER EXPENSES:


Under this segment the cost of cost centre MUMHPUT202 UTILITY
WATER SECTION flows to cost centre MUMHPSP913 (ERG GROUP) from
where it ultimately goes to all other plants & utility cost centres on the basis
of cost booked in the receiver cost centres.
SEGMENT 12: HPCOGENEXP: COGEN OFFICE EXPENSES:
Co-gen office is engaged in servicing the following cost centres.
MUMHPUT104
MUMHPUT105
MUMHPUT108
MUMHPUT206

STEAM GENERATION
HAZIRA TURBINE I&II
HAZIRA TURBINE III
DMW PLANT

Thus, it is obvious that the cost of co-gen office should flow to these
above mentioned cost centres only.
Accordingly,

under

this

segment

the

cost

of

cost

centre

MUMHPUT928 co-gen office flows to these cost centres in the following


proportion:
COST CENTRE
MUMHPUT104
MUMHPUT105
MUMHPUT108
MUMHPUT206

COST CENTRE NAME


STEAM GENERATION
HAZIRA TURBINE I&II
HAZIRA TURBINE III
DMW PLANT

PROPORTION
30.00
40.00
20.00
10.00

This proportion is based on estimation as to how much time of co-gen


office is normally devoted to serve various cost centres mentioned above
based on the volume of work in these cost centres.
SEGMENT 13: HPPRODDES: PRODUCTION DESPATCH EXPENSE:
The cost centre MUMHPTP901 product dispatch office which is
engaged in dispatch of various products which are produced in Hazira plant,
is allocated to transportation cost centres on the basis of quantity of

products dispatched through various mode of transportation viz, rail,


pipeline and road.
Thus the receiver cost centres in this segment are:

MUMHPTP301
MUMHPTP321
MUMHPTP341

DESPATCH-PIPELINE
DESPATCH-RAIL
DESPATCH-ROAD

SEGMENT 14 TO 17: PRODUCT DISPATCH RELATED EXPENSES:


Under these four segments cost of product dispatch incurred in the
following cost centres is allocated to various product related cost centres on
the basis mentioned against each of these sender cost centres:
COST
CENTRE

COST CENTRE NAME

MUMHPTP910

PRODUCT STORAGE OFFI

MUMHPTP301

DESPATCH-PIPELINE

MUMHPTP341

DESPATCH-ROAD

MUMHPTP321

DESPATCH-RAIL

BASIS OF ALLOCATION
DISPACTH QUANITY OF VARIOUS PRODUCTS
DISPACTH QUANITY OF VARIOUS PRODUCTS
THROUGH PIPELINE
DISPACTH QUANITY OF VARIOUS PRODUCTS
THROUGH ROAD
DISPACTH QUANITY OF VARIOUS PRODUCTS
THROUGH RAIL

And the receiver cost centres in these all the four segments are the
product related cost centres as under:
MUMH10P2TA
MUMH10P2TH
MUMH10P2TL
MUMH10P2TN
MUMH10P2TS

HP- TRANSPORTATION ARN


HP-TRANSPORTATION-HC
HP-TRANSPORTATION-LPG
HP-TRANSPORTATION-NGL
HP-TRANSPORTATION-SKO

THIRD COST CYCLE C4HPB0 HAZIRA OPERATION COST CYCLE II


The third cost cycle of Hazira costing system is a small cycle with only
6 segments.

The main objective of this cost cycle is to transfer the cost of various
cost centres related to power generation and steam generation in to single
cost centres pertaining to power & steam so that cost of generation of power
& steam can be calculated.
In Hazira, for the purpose of identification of cost separately, for each
of gas turbines and also for each of the boilers, separate cost centres have
been created and cost relating respective turbines / boilers are booked in
the respective cost centres related thereto.
However, ultimately only one power cost and one steam cost is
calculated for the purpose of product costing. For this purpose, it is required
to transfer the cost booked in different cost centres of gas turbines to a
single cost centre of power. Similarly, it is required to transfer the cost of
different cost centres relating various boilers to a single cost centre of
steam.
For this purpose, this cost cycle has been designed.
Therefore under this cost centre, 100% cost of one cost centre flows
to another as under.
COST FLOWS FROM
MUMHPUT101
MUMHPUT105
MUMHPUT108

COGEN POWER PLANT

MUMHPUT103
MUMHPUT106
MUMHPUT107

MP BOILERS

HAZIRA TURBINE I&II


HAZIRA TURBINE III

HZR- HITACHI BOILER


HAZIRA THERMAX BOILR

COST FLOWS TO
ELECTICITY
MUMHPUT102 DISTRIBUTION
SYST

MUMHPUT104

STEAM
GENERATION
SYSTEM

Thus it is clear that cost finally comes to one cost centre i.e.
MUMHPUT102 (FOR POWER) and MUMHPUT104 (FOR STEAM) from

where single rate for cost of power generation and steam generation can be
calculated.
FOURTH COST CYCLE C4HPC0 HAZIRA OPERATION COST CYCLE III
This cost cycle has one segment only in which entire cost in sulphur
recovery unit cost centre (MUMHPPL106) gets transferred to gas
sweetening unit (MUMHPPL102).
Thus the cost of SRU ultimately goes to natural gas. This is because,
for the purpose of production of natural gas from sour gas, it is absolutely
necessary to establish sulphur recovery unit for environmental point of view.
Thus the sole purpose of SRU is to produce natural gas only.
ALLOCATION OF COST TO FINISHED PRODUCTS
After execution of the above referred cost cycles, the cost of various
cost centres gets accumulated in few cost centres mainly plant & utility type
cost centres.
From these cost centres, the cost gets allocated to finished products
through

process

orders

(already

explained

in

earlier

sections

above).Detailed calculations of how cost gets allocated to finished products


is shown in next few pages.

11.SENSITIVITY ANALYSIS

TABLE-1: PRICE RISE IN GENERAL CONDITION


Inputs

Units/ Unit
of LPG

Unit of
Measure

Rate (Rs /
unit of
output)
C

Cost for 1 unit LPG Production

D = (A x C)
At Present
rates

Natural gas
Power
Steam
De-mineralized
Water
Inert Gas
Cooling Water
Total Cost
Incidence
% rise in Cost

2
4
3.5
1
7
2

E=Dx
1.01
1%

F=Dx
1.02
2%

G=Dx
1.05
5%

TM3
Kwh
MT

125
1.33
0.67

250
5.32
2.345

252.50
5.37
2.37

255.00
5.43
2.39

262.50
5.59
2.46

KL
MT
KL

0.75
0.9
0.6

0.75
6.3
1.2

0.76
6.36
1.21

0.77
6.43
1.22

0.79
6.62
1.26

265.92

268.57
1.00%

271.23
2.00%

279.21
5.00%

TABLE-2 : PRICE RISE IN PRESENT CONDITION


Inputs

Units/ Unit
of LPG

Unit of
Measure

Natural gas
Power
Steam
De-mineralized
Water
Inert Gas
Cooling Water
Total Cost
Incidence
% rise in Cost

Rate (Rs /
unit of
output)
C

2
4
3.5
1
7
2

Cost for 1 unit LPG Production with


increase in NGL & Power
D = (A x C)

E=Dx
1.01
1%

F=Dx
1.02
2%

G=Dx
1.05
5%

252.50
5.37
2.35

255.00
5.43
2.35

262.50
5.59
2.35

TM3
Kwh
MT

125
1.33
0.67

At Present
rates
250
5.32
2.345

KL
MT
KL

0.75
0.9
0.6

0.75
6.3
1.2

0.75
6.30
1.20

0.75
6.30
1.20

0.75
6.30
1.20

265.92

268.47
0.96%

271.02
1.92%

278.68
4.80%

Table-1 suggests about price rise in general condition in which the


cost of all the inputs increases together. Table shows the percentage of
increase in cost over at present rate at different levels.

Table-2 shows the present condition in which there is price rise in only
2 items i.e. Natural gas and Power, where as in other raw materials price is
stable
So from the Table-2 we can see if there is an increase in 1% of natural
gas & power there is 0.96% rise in cost, where as in 2% & 5% there is
1.92% & 4.80% rise in cost respectively.
In general condition there should be 1% increase in overall cost of all
the raw material but due to cost control practices at ONGC the cost of
steam, de-mineralized water, inert Gas and cooling water can be controlled
and it can save 0.04% total cost. In the same way though there is 2% and
5% increase in natural gas and power it can save 0.08% and 0.20% of total
cost
During the F.Y 2005-06 LPG productions was 1172 TM3.
LPG production in general condition at 1% = 1172 268.57= 314764.04
2% = 1172 x 271.23= 317881.56
5% = 1172 x 279.21= 327234.12
LPG production at present condition at 1% = 1172 x 268.47= 314646.84
2% = 1172 x 271.02= 317635.44
5% = 1172 x 278.68= 326612.96
LPG saved at

1% = 314764.04 - 314646.84=117.2
2% = 317881.56 - 317635.44=246.12
5% = 327234.12 - 326612.96=621.16

12.Improvement Opportunities
Sr.
No.

Area

Opportunities

Operations

Costing Method

Concept of
Costing

Costing tools

Value chain
analysis

Optimization of manpower
and its utilization
Benchmarking with Global
majors
Small group activities can
be organized to improve
employee productivity.
At present, distribution
based costs are loaded
on every cost centre.
ONGC should derive
Activity based costing to
firm the cost of each
input.
In present competitive
era, profit can only be
achieved with cost
optimization, not by
adding margin of profit to
costs.
Benchmarking of similar
industry should be
undertaken to align the
costs of ONGC to Global
majors.
Use of simple tools like
sensitivity analysis,
SWOT etc can be used in
day-to-day cost analysis
Models should be
developed to identify the
optimum value chain for a
given input scenario.

Impact
Reduction in
manpower
Path for improvement
in Delivery, Cost,
Quality and Safety
shall be evolved.
Cost which are
disproportionately
higher can be trimmed

Six Sigma (DMAIC)


methodologies shall
identify such costs.

TQM philosophy of
Plan/Do/Check & Act
can be adopted for the
whole site.
This will identify the
impact of % swing in
cost constituents.
Although complex, but
such analysis shall be
realized through right
product-mix and
utilization of resources

13.Bibliography
1. www.ongcindia.com

2. www.ongc.net
3. www.ongctsg.com
4. OPERATION RESEARCH J.K. SHARMA