PROJECT REPORT ON BUDGETING SYSTEM OF INDRAPRASTHA GAS LIMITED PREPARED BY VISHWAROOP SINGHAL A1802010 240 Sec-E MBA-IB (2010-12) AT NEW DELHI 1
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PROJECT REPORT ON
BUDGETING SYSTEM OF INDRAPRASTHA GAS
LIMITED
PREPARED BY
VISHWAROOP SINGHAL
A1802010240
Sec-E
MBA-IB (2010-12)
AT
NEW DELHI
UNDER THE ABLE GUIDANCE OF
INDUSTRY GUIDE: FACULTY GUIDE:
MR. SAIBAL BISWAS Ms. PAYAL SINGH
Dy. GENERAL MANAGER (FINANCE) FINANCE FACULTY
1
TO WHOM IT MAY CONCERN
This is to certify that Vishwaroop Singhal, a student of Amity International Business
School, Noida, undertook a project on “Budgeting System of IGL” at Indraprastha
Gas Ltd. From 16th May2011 to 10th July 2011.
Mr. Vishwaroop Singhal has successfully completed the project under the guidance
of Mr. Saibal Biswas, Dy. General Manager (Finance). He is a sincere and hard-
working student with pleasant manners.
We wish all success in him future endeavors.
Signature with date
Saibal Biswas
Dy. General Manager
Indraprastha Gas Ltd.
2
CERTIFICATE OF ORIGIN
This is to certify that Mr. Vishwaroop Singhal, a student of Post Graduate Degree in
MBA-IB, Amity International Business School, Noida has worked in Indraprastha
Gas Ltd, under the able guidance and supervision of Mr. Saibal Biswas, Dy.
General Manager.
The period for which he was on training was for 7 weeks, starting from 16th May
2011 to 10th July 2011. This Summer Internship report has the requisite standard for
the partial fulfillment the Post Graduate Degree in International Business. To the best
of our knowledge no part of this report has been reproduced from any other report and
the contents are based on original research.
Ms. Payal Singh Vishwaroop
Singhal
(Faculty Guide) (Student)
3
ACKNOWLEDGEMENT
I express my sincere gratitude to my industry guide Mr.Saibal Biswas, Dy. General
Manager of Indraprastha Gas Ltd., for his able guidance, continuous support and
cooperation throughout my project, without which the present work would not have
been possible.
I would also like to thank the entire team of Indraprastha Gas Ltd, for the constant
support and help in the successful completion of my project.
Also, I am thankful to my faculty guide Ms. Payal Singh of my institute, for his/her
continued guidance and invaluable encouragement.
Vishwaroop Singhal
(Student)
4
TABLE OF CONTENTS
Chapter No. Subject Page
No.
1.0 Executive Summary
2.0 Objectives of the study
3.0 Industry Profile
a. Review of literature on the industry
b. Major Players
c. Future Projections of Demand of Natural Gas
d. SWOT
4.0 Company Profile
a. Review of literature on the company
b. Present Status of IGL
c. Organization Structure
d. Competitors
e. Factors Consider Before Setting up Business
f. SWOT etc.
5.0 Overview of budgeting system
a) About budget
b) Procedure of budgeting in IGL
6.0 Research design and methodology
7.0 Reflections on what has been learned during the
placement experience
8.0 Conclusion
9.0 Recommendations
10.0 Bibliography
11.0 Annexure
12.0 Case Study
13.0 Synopsis of the project
5
EXECUTIVE SUMMARY
The present report showcases about the share prices of Indraprastha Gas Limited
(IGL) and comparison of its share prices with respect to one of its competitor GGCL
IGL was incorporated in 23rd December 1998, to implement the mandate issued by
Supreme Court for the implementation of CNG as the non-pollution gas fuel for
domestic, transport, and commercial sectors in Delhi. It is a joint venture of Gas
(India) Ltd. (GAIL), Bharat Petroleum Corporation Limited (BPCL) and Govt. of
NCT (National Capital Territory) of Delhi where the major promoters are GAIL and
BPCL who together hold 45percent of the total shares of the company.
The principal business activities of the company are production, marketing and
distribution of CNG and marketing and distribution of CNG. IGL is buying natural
gas from GAIL which is extracted by ONGC at Bombay High. GAIL purifies and
processes the gas and finally it is sent through the HBJ pipeline (Hazira-Bijapur-
Jagdishpur) to Delhi. To cater to the CNG and PNG requirements, IGL procure
natural gas from different sources out of which the major supply is of APM gas of 2.7
MMSCMD in Delhi and NCR region.
The study focuses on the depth understanding of the current budgeting system of IGL,
to study the efficient utilization and management of funds, to study the different
budgeting system for product and departments and to study the pattern of revising,
altering and preparation of budget.
The study also includes the projected financial analysis of the company over the
years and the projected P&L account, projected Balance sheet and projected Cash
flow.
Project also contains some points related to procedure of the company’s budgeting
process. It shows how it plans, prepares, approved, implement and control its budget.
The recommendations of the study have put emphasis on how the company can
improve its current budgeting system and how its shows better financial results in
future.
6
Indraprastha Gas ltd. has imparted me a great deal of knowledge during my tenure of
six weeks. Collection of information from employees of IGL in different departments
has helped me in gaining adequate knowledge, it was very interesting and overall a
great learning experience.
OBJECTIVES OF THE STUDY
The study has mainly been conduct:
To study the current budgeting system of IGL
To study the procedure used by IGL in preparation of budget.
To study the factors taken into consideration by IGL while preparing and
revising of budget.
To study the pattern of altering and controlling of budget.
7
INDUSTRY PROFILE
Review of literature of Industry
Natural Gas, containing mainly methane, is a colourless and odourless fuel that is
lighter than air and burns cleaner than most traditional fossil fuels like petrol and
diesel. It is increasingly becoming one of the popular forms of energy because of
its efficiency and environmental friendly nature. It has found use in heating,
cooling, electricity generation, etc. Natural Gas is recovered either as associated
i.e. with crude oil or free i.e. alone from reservoirs beneath the earth’s surface.
Natural gas can be transported both in gaseous and liquid form.The share of
Natural gas in total primary energy consumption in the world was 26.4 % in 2009
whereas, it was approximately 9.4% in 2009 for India (Source BP Statistical
Review, 2009).
AVAILABILITY & UTILISATION OF NATURAL GAS
1. Natural gas has emerged as the most preferred fuel due to its inherent
environmentally benign nature, greater efficiency and cost effectiveness. The
demand of natural gas has sharply increased in the last two decades at the
global level. In India too, the natural gas sector has gained importance,
particularly over the last decade, and is being termed as the Fuel of the 21st
Century.
2. Production of natural gas, which was almost negligible at the time of
independence, is at present at the level of around 87 million standard cubic
meters per day (MMSCMD). The main producers of natural gas are Oil &
Natural Gas Corporation Ltd. (ONGC), Oil India Limited (OIL) and JVs of
Tapti, Panna-Mukta and Ravva. Under the Production Sharing Contracts,
private parties from some of the fields are also producing gas. Government
have also offered blocks under New Exploration Licensing Policy (NELP) to
private and public sector companies with the right to market gas at market
determined prices.
8
3. Out of the total production of around 87 MMSCMD, after internal
consumption, extraction of LPG and unavoidable flaring, around 74
MMSCMD is available for sale to various consumers.
4. Most of the production of gas comes from the Western offshore area. The on-
shore fields in Assam, Andhra Pradesh and Gujarat States are other major
producers of gas. Smaller quantities of gas are also produced in Tripura, Tamil
Nadu and Rajasthan States. OIL is operating in Assam and Rajasthan States,
whereas ONGC is operating in the Western offshore fields and in other states.
The gas produced by ONGC and a part of gas produced by the JV consortiums
is marketed by the GAIL (India) Ltd. The gas produced by OIL is marketed by
OIL itself except in Rajasthan where GAIL is marketing its gas. Gas produced
by Cairn Energy from Lakshmi fields and Gujarat State Petroleum
Corporation Ltd. (GSPCL) from Hazira fields is being sold directly by them at
market determined prices.
5. Natural gas has been utilised in Assam and Gujarat since the sixties. There
was a major increase in the production & utilisation of natural gas in the late
seventies with the development of the Bombay High fields and again in the
late eighties when the South Bassein field in the Western Offshore was
brought to production.
Natural Gas Production in India
A large proportion of production of Natural gas in India is accounted for by ONGC
and Oil India Limited. In the last few years, a number of private players have also
been active in the exploration and production of Natural gas in India. These private
players, independently or in joint ventures, accounted for approximately 13% of
India’s Natural Gas production in FY2009(Source: Ministry of Petroleum and Natural
Gas).
India's Natural gas production reached a level of 28.4 BCM in 2009. Some large
Natural Gas finds have been recently reported which significantly increase India’s
proven reserves of Natural Gas. The supply from these new finds are expected to be
9
available for use in a two to three year timeframe. In last ten years, India’s Natural gas
production has increased at a growth rate of 6.4% p.a.
India Natural Gas Sector
SOURCE: www.naturalgas.org/business/industry.asp
10
Demand for Natural Gas in India
Natural Gas is used in a variety of applications in fertilizer and power sectors,
industrial factories, automobiles, homes, etc. Given the limited Natural Gas reserves
in India, the fertilizer and the power sectors have been the principal consuming
sectors. Natural Gas allocations for the market, so far are made by an inter-ministerial
Gas Linkage Committee based on inter-sect oral priorities. The gas pricing
mechanism has existed in India since 1997.
Consumption Trends
11
SOURCE: www.naturalgas.org/business/industry.asp
Legal Framework of the Oil and Gas Industry in India
The legal framework for exploration and production of oil and gas is provided mainly
in the following laws:
1. The Oilfields (Regulation and Development) Act, 1948 ("Oilfields Act") provides,
inter alia, for regulation of oilfields and for the development of mineral oil resources.
The Oilfields Act was amended in 1999 to provide for a New Exploration Licensing
Policy ("NELP")
2. The Petroleum and Natural Gas Rules, 1959 amended by the Petroleum and Natural
Gas (Amendment) Rules, which provide, inter alia, that no person shall prospect for
petroleum unless it has been granted a petroleum exploration license and no person
shall mine for petroleum unless it has a petroleum mining lease granted pursuant to
these rules.
3. The Petroleum Act, 1934 ("Petroleum Act"), which provides, inter alia, that no
person shall produce, refine or blend petroleum unless in accordance with the rules
prescribed by the Central Government and that no person shall store or transport
petroleum unless permitted by the Central Government to do so.
4. The Petroleum Rules, 2002 ("Petroleum Rules"), which provide, inter alia, for
permission of The Chief Controller of Explosives which is required if a person
intends to refine, crack, reform or blend petroleum.
The MOPNG oversees the entire chain of activities in the oil industry: exploration and
production of crude oil and Natural Gas; refining, distribution, and marketing of
petroleum products and Natural Gas; and exports and imports of crude oil and
petroleum products.
12
The DGH (Directorate General of Hydrocarbons) was set up in 1993 under the
administrative control of the MOPNG, with the objective of ensuring correct reservoir
management practices, reviewing and monitoring exploratory programmes,
development plans for national oil companies and private companies, and monitoring
production and optimum utilization of gas fields.
Other organizations in the Indian petroleum and Natural Gas sector include the Oil
Industry Safety Directorate, which develops standards and codes for safety and fire
fighting, training programmes, information dissemination, etc; the Oil Industry
Development Board, which provides financial and other assistance for conducive
development of the oil industry;
The Petroleum Regulatory Board Bill, 2002 was introduced in the Lok Sabha (Lower
House of the Parliament) on May 6, 2002. This Bill seeks the establishment of the
Petroleum Regulatory Board to regulate the refining, processing, storage,
transportation, distribution, marketing and sale of petroleum and petroleum products
(excluding production of crude oil and Natural Gas) so as to:
protect the interests of consumers and entities engaged in specified activities
relating to
petroleum and petroleum products,
13
NATURAL GAS COMPANIES (MAJOR PLAYERS)
Reliance
The Reliance Group was founded by Dhirubhai H. Ambani (1932-2002). The group's
annual revenues are in excess of US$ 34 billion. The flagship company, Reliance
Industries Limited, is a Fortune Global 500 company and is the largest private sector
company in India.
The Company's operations can be classified into four segments namely:
Petroleum Refining and Marketing business
Petrochemicals business
Oil and Gas Exploration & Production business
Others
Cairn Energy
Cairn is an Edinburgh-based oil and gas exploration and production company listed
on the London Stock Exchange since 1988. There are two arms to the business: Cairn
IndiaIndia is an autonomous business listed on the Bombay Stock Exchange and the
14
National Stock Exchange of India and has interests in a total of 14 blocks in India and
Sri Lanka.
Oil India Limited
Oil India Limited (OIL) is a premier National oil company, engaged in the business of
exploration, production and transportation of crude oil and natural gas. Oil India
Limited is a "Schedule A" company under the Ministry of Petroleum and Natural Gas,
Government of India.
Indian Oil Corporation Limited
Indian Oil Corporation Ltd. 18th largest petroleum company in the world and has a
current turnover of Rs. 247,479 crore (US $59.22 billion), and profit of Rs. 6963 crore
(US $ 1.67 billion) for fiscal 2007. The IndianOil Group of companies owns and
operates 10 of India's 19 refineries with a combined refining capacity of 60.2 million
metric tonnes per annum (MMTPA, .i.e. 1.2 million barrels per day). These include
two refineries of subsidiary Chennai Petroleum Corporation Ltd. (CPCL) and one of
Bongaigaon Refinery and Petrochemical limited (BRPL).
ONGC
Oil and Natural Gas Corporation Ltd. (ONGC) is engaged in E&P activities both in
Onshore and Offshore. The Corporation is now venturing out to new areas i.e.
deepwater exploration and drilling, exploration in frontier basins, marginal field
development, optimization of field development plan field recovery and other allied
areas of service sector.
15
HPCL
HPCL is a Fortune 500 company, with an annual turnover of over Rs 1,03,837 Crores
($ 25,142 Millions) during FY 2007-08, 16% Refining & Marketing share in India
and a strong market infrastructure. Corresponding figures for FY 2006-07 are: Rs
91,448 crores ($20,892 Million). The Corporation operates 2 major refineries
producing a wide variety of petroleum fuels & specialties, one in Mumbai5.5
MMTPA capacity and the other in Vishakapatnam, (East Coast) with a capacity of 7.5
MMTPA.
Engineers India Limited
Engineers India Limited was established in 1965 to provide engineering and related
technical services for petroleum refineries and other industrial projects. In addition to
petroleum refineries, with which EIL started initially, it has diversified into and
excelled in other fields such as pipelines, petrochemicals, oil and gas processing,
offshore structures and platforms, fertilizers, metallurgy and power. EIL now provides
a range of project services in these fields and has emerged as Asia's leading design
and engineering Company.
BPCL
Bharat Petroleum Corporation Limited engages in refining, storing, marketing, and
distributing petroleum products in India. It also involves in the exploration and
production of hydrocarbons. The company offers various products, including
liquefied petroleum gas (LPG), naphtha, motor spirit, special boiling point
spirit/hexane, benzene, toluene, polypropylene feedstock and more.
16
GAIL (India) Limited
GAIL (India) Limited operates as a natural gas company in India and internationally.
The company involves in the exploration, production, processing, transmission,
distribution, and marketing of natural gas. It also offers LPG and other liquid
hydrocarbons, and petrochemicals. The company owns approximately 5,800
kilometers of natural gas high pressure trunk pipeline.
Premier Oil
Premier Oil plc engages in the exploration, development, and production of oil and
gas properties. It has oil and gas producing interests principally in Asia, Middle East
and Pakistan, the North Sea, and west Africa. As of December 31, 2006, the company
had proved plus probable reserves of 722 billion cubic feet of gas and 152.1 million
barrels of oil equivalents of oil.
Adani Group
Adani Group has forayed into the Oil & Gas sector and has been awarded two oil &
gas blocks in Gujarat and Assam Gujarat and another block with an area of 95 sq.
kms. Is situated in Assam. under the recently concluded NELP VI and also plans to
participate in the upcoming NELP VII bids and is actively looking at oil and gas
blocks overseas. One Block with an area of 75 sq. kms is situated in Cambay.
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Simon Carves
In Simon Carves as a part of its offshore development, projects have been carried out
in India and Indonesia in providing oil and natural gas development facilities. In gas
processing they have carried out projects in Singapore, Indonesia and India in
providing natural gas processing facilities and gas field developments. A key part of
many of these projects is the provision of pipeline and tanks where in conjunction
with Punj Lloyd they have considerable expertise in the design and construction of
these facilities in often very difficult environments.
Petronet LNG Limited
Petronet LNG Ltd, one of the fast growing companies in the Indian energy sector, has
set up the country's s first LNG receiving and degasification terminal at Dahej ,
Gujarat, and is in the process of building another terminal at Kochi, Kerala. The
Dahej terminal has a nominal capacity of 5 million metric tones per annum (MMTPA)
[equivalent to 20 million standard cubic meters per day (MMSCMD) of natural gas],
the Kochi terminal will have a capacity of 2.5 MMTPA (equivalent to 10 MMSCMD
of natural gas)
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FUTURE PROJECTIONS OF DEMAND
India is witnessing a high GDP growth rate. Because of this, we can see rapidly
growing vehicle population which will demand better road infrastructure & thus will
drive more consumption of petroleum products. The industry is expected to grow at a
CAGR of about 8% to 10%. Over 190 MMT of refining capacity is projected by
2010. Moreover, 120 MMSCMD of additional demand for Natural Gas is expected in
the next five years. Recent gas finds and increased use of gas for power generation,
petrochemicals, fertilizers and city gas distribution has forced us to increase the
production of natural gas as it will surely change the energy requirements scene of the
whole nation.
According to India Hydrocarbon Vision 2025 report, demand for natural gas is
expected to show a sharp rise in the future with the demand reaching to 391
MMSCMD by 2024-25. The report also expects that the share of natural gas in total
energy mix to go up to 20 percent. The demand for natural gas is expected to grow at
a CAGR of more than 7 percent by 2007-08. The major force behind this demand
19
growth will be investments in power sector. Government is planning to add power
generation capacity of 41,110 MW under the Tenth Plan and over 60,000 MW in the
Eleventh Plan.
Fertilizer sector will fuel this demand further as major players switch from naphtha to
gas as feedstock.
Petroleum & Natural Gas constitutes over 16% of GDP and includes transportation,
refining and marketing of petroleum products and gas. There was $90 billion revenue
generated in FY ‘05. India has a crude oil refining capacity of about 127 MMT.
Natural gas demand was about 150 MMSCMD (2004) with only 54% being met
through domestic sources. Production of petroleum products has grown at 6.5% p.a.
during the last 3 years.
The last thirty years have seen a shift in the global energy fuel mix towards an
increased role for natural gas. Attractive for its cleaner and more efficient combustion
relative to other fossil fuels, gas has assumed a significant role in power generation,
industrial applications, residential heating and in some cases as a transport fuel as
well.
SHARE OF GAS LIKELY TO RISE TO 18% BY FY2015
20
The High Gas scenario assumes stringent sulphur constraints in the power
sector, protectionist constraints on fertilizer imports, and high economic
growth driving industrial gas use.
The Low Gas scenario assumes vigorous coal sector reforms, liberalized
fertilizer imports, and low economic growth slowing industrial gas demand.
SWOT ANALYSIS OF NATURAL GAS INDUSTRY
21
STRENGTHS WEAKNESS
Natural gas is: environmentally
clean
Natural gas is: economical and
efficient.
Natural gas: has an enviable
safety record
High Gas prices make it inefficient
to compete directly with coal.
Delay in gas production in domestic
field can slow the growth.
Slow role out of pipe line
infrastructure
OPPORTUNITIES THREATS
Failure to reform crude oil
could expand the window of
opportunity for natural gas.
For industrial users it competes
with liquid (oil based) and solid
(coal based) fuels. Thus firms
are finding it cost effective.
Major players in fertilizers
sector can switch from naphtha
to gas as feedstock.
Delay in gas production can help
sustain the demand at higher prices.
Absence of Exclusive on city gas
projects can negatively affect the
incumbent.
COMPANY PROFILE
22
Review of literature
Incorporated in 1998, IGL took over Delhi City Gas Distribution Project in 1999 from
GAIL (India) Limited (Formerly Gas Authority of India Limited).
The project was started to lay the network for the distribution of natural gas in the
National Capital Territory of Delhi to consumers in the domestic, transport, and
commercial sectors. With the backing of strong promoters – GAIL (India) Ltd. and
Bharat Petroleum Corporation Ltd. (BPCL) – IGL plans to provide natural gas in the
entire capital region.
Initial Objectives
The two main business objectives of the company are:
To provide safe, convenient and reliable natural gas supply to its customers in
the domestic and commercial sectors; and
To provide a cleaner, environment-friendly alternative as auto fuel to Delhi’s
residents. This will considerably bring down the alarmingly high levels of
pollution.
The transport sector uses natural gas as Compressed Natural Gas (CNG), while the
domestic and commercial sectors use it as Piped Natural Gas (PNG).
Growth and Development of The Organization
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Milestones Achieved
Incorporated in 1998
Started with 9 CNG stations & 1000 PNG consumers
Crossed 100 stations in 2003
Maiden dividend in FY 2002-03
Completed 12” steel pipeline in December 2002
IPO listing on 26th December 2003
Two stations commissioned in Noida in December 2004
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PRESENT STATUS OF THE ORGANISATION
The management accepts the responsibility for the health, Safety and environment
management of company. The subject being a line responsibility, every employee has
been responsible and accountable for the protection of health, Safety and
environment. The policy of company is as follows:
To give top most priority to health and safety of all the personnel and
property.
To follow all applicable codes, Standards and Safety practices in design,
operation, maintenance and modifications.
All planning, decisions and action confirm our commitment towards Health,
Safety and Environment protection aspects.
Safety audit is carried out yearly and the findings are documented for follow
up actions so as to restore safe condition.
Each employee is fully informed strict compliance of safety order/rules issued
by the Management.
Health checks of each employee are done annually.
To train all employees in their respective areas of training.
Engineer-in-charge for contacts ensures compliance of safety order/rules and
statutory requirements by contactor, transporters, visitors and other agencies
related to contracts.
Emergency drills are conducted every six months.
Each employee is to abstain from unsafe acts and prevent unsafe conditions.
It is compulsory for all the employees to take active part on safety and health
related activities on and off the job. Compliance of safety observations is done
in most effective manner.
To ensure compliance of Work-Permit System.
Use of personnel protective equipments is compulsory while at work.
Quality maintenance in all areas of activities.
To adopt such system and methods so as to ensure continual improvement.
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FUNCTIONAL DEPARTMENTS OF THE ORGANISATION
Finance department
Human resource department
Corporate secretary and legal department
Electrical department
Instrumentation department
Fire and safety department
Contract and procedure department
Planning department
PNG project department
CNG project department
CNG O & M – Operations
PNG O & M – city gas
CNG marketing department
PNG marketing department
Civil department
Mechanical department
Company secretary department
DC cell
Information technology
MD cell
Optical fiber cable department
Stores department
Business promotion department
ORGANIZATION STRUCTURE
The organizational hierarchy of the IGL is as depicted below:
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COMPETITORS
27
DIRECTORMD/DC
CGM (FINANCE)DGM
MANAGER
ADDITIONAL MANAGER
DEPUTY MANAGER
SUPRITENT
SENIOR OFFICE
ASSITANT
OFFICE ASSITAN
T
OFFICE ATTANDANT
CHIEF MGR
CGM (MKTG) CGM (PROJECT)
I. GUJARAT GAS COMPANY LIMITED (GGCL)
In 1988, Gujarat Gas Company Limited (GGCL) pioneered the private distribution of
Natural Gas in India, through the establishment of an independent network of
pipelines in South Gujarat. Today, GGCL pipeline network spans more than 2700
kilometers. GGCL has established its base in one of the most industrialized belts of
the country - the Golden Corridor of Gujarat. Specifically, the three cities of Surat,
Bharuch, and Ankleshwar form the nucleus of its current operations. GGCL has also
extended the network to Jhagadia. The potential for growth derives from the ever-
increasing energy demand-supply gap in this economically vibrant area. At present,
GGCL is establishing pipeline network in Vapi G.I.D.C. area.
GGCL is sourcing gas from multiple suppliers. Some of the major suppliers include
GAIL - A Central Government Organization, GSPC – Gujarat State owned
organization, BG EPIL (from its PMT source - a JV organization of ONGC, Reliance
and BG Group), Cairn Energy... The gas is received at various receiving stations of
GGCL. The same is subjected to the process of filtration, addition of odorant as well
as change of pressure before being supplied into the network for distribution.
Distribution operation is grouped into two lines of business
o PNG - Piped Natural Gas (for residential, commercial and Industrial
customers for heating and other purpose)
o CNG - Compressed Natural Gas (as fuel for vehicles)
Gas is supplied to various categories of customers for multi-purpose usage such as
o Residential – for cooking and water heating
o Commercial – for cooking, water heating, Jet dying, Yarn heating etc.
o Industrial – customer for heating, boilers etc.
o CNG – for running vehicles
GGCL is committed to bringing the benefits of Natural Gas to people in various
forms. In the past, it has introduced multiple specialized gas based applications like
Air-conditioning Unit, Jet Dyeing Machine, Gas driven engine coupled to Air
Compressor, COGEN etc. assures the users of energy supplies using natural gas.
28
Besides the natural advantages of NG like pro-environment, economic viability etc.
company has ensured consistent supply of gas to its customers.
II. MAHANAGAR GAS LIMITED (MGL)
MUMBAI, which is a financial capital of India houses more than 16 million people.
Mumbai is a city of seven islands having approximate 450 sq per meter area. NGV
movement is started by GAIL in the year 1992 as pilot project. After successful
commissioning, the operations where transferred to newly formed organization-
Mahanagar Gas Limited.
From a modest background of supply gas to the suburbs of Mumbai, MGL has today
become a leading gas friendly company with a customer tally of 3.88 lakhs connected
PNG users.
Mahanagar Gas Limited (MGL), a pioneering initiative to bring clean, safe efficient
and affordable Piped Natural Gas, direct to over 6,00,000 homes in Mumbai.
Presently MGL has connected more than 3.88 lakh households in and around
Mumbai.
The MGL project, which started in 1995 from Chembur, has covered major parts of
Mumbai through its distribution network i.e. from South Mumbai to Mira road
and from Sion to Mulund. MGL has already started work in South Mumbai areas like
Prabhadevi, Worli, Colaba etc. From cooking stoves to geysers and air-conditioners,
this versatile gas has today become the preferred choice for the residents of Mumbai.
Fulfilling the promise of a Clean Mumbai, MGL's Compressed Natural Gas (CNG)
powers over 56,000 taxis/cars, more than 1.30 lakh auto rickshaws, 1161 BEST
buses,50 TMT Buses, 293 Private Buses and 46 Mini Buses across the city through
it's network of 136 CNG stations having 683 dispensing points, thus contributing to
more than 800 tonnes reduction of pollutants every day.
MGL has always emphasized on Health, Safety, Security and Environment (HSS&E).
In this endeavor they have in place systems and processes that match up with the best
in the world.
Besides monitoring our system on a daily basis they also have a Customer Service
Cell with a 24 X 7 customer care number 1917, to give access to customers at all
29
times to answer all your queries, thereby providing greater convenience and better
services to Mumbaikars.
30
MARKET PROFILE OF THE ORGANISATION
The GM (marketing) spearheads the sales and marketing efforts for CNG as well as
PNG. For the purpose of marketing of CNG, NCT of Delhi has been divided into five
zones- north, south, east, west and central. Each zone is headed by marketing officer.
And for the purpose of marketing of PNG and acquiring new connections we have
divided NCT of Delhi into four zones, each zone looked after by marketing officer
who is responsible for marketing to domestic, small and large commercial consumer
in his/ her zone.
Market structure of IGL consist of three major segments i.e. CNG, PNG, R-LNG.
Flow Chart Depicting Market Segment of IGL:
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MARKET SEGMENT
CNG
BUSES
TAXIES
AUTO RIKSHAWS
LCV’S
CARS
PNG
DOMESTIC CUST
SMALL CUST
LARGE CUST
INDUSTRIAL CUST
R-LNG
INDUSTRIAL CUST
FACTORS CONSIDERED BEFORE SETTING UP A BUSINESS
Diagram representing percentage of quantity sold in CNG and PNG.
% OF QUANTITY SOLD
92%
8%
CNG
PNG
COMPRESSED NATURAL GAS (CNG)
Identify the area where no CNG station is located.
Vehicular population of CNG around that area.
Analysis of demand.
Deciding about station size according to the required location.
Research team analyzes various parameters (like requirement of stations is
small and large).
No of compressors required according to traffic size.
Taking permission from various legal authority like MCD, CPWD etc.
To facilitate the various services such as water and electricity etc
Getting available the various services such as fire protection services.
Establishment of the stations.
32
Diagram representing percentage of quantity sold in CNG
% QUANTITY CONSUMED
39%
31%
5%
21%
4% 0%
BUSES
CARS
TAXIES
MINI BUSES
LGV'S
RAILWAYS
IGL envisages a long lasting friendship between CNG and its consumers. And while
every friendship in itself is to be desired, it is said the initial cause of friendship is
from its advantages.
Furthermore, when one is apprised of the advantages of using CNG, this friendship is
certain to leap from being strong to stronger.
The advantages of using CNG are varied and distinct. The first and most important
benefit of using CNG is that it’s a ‘green fuel’.
Presented below is an outline of the benefits that CNG offers –
Green fuel: Commonly referred to as the green fuel because of its lead and
sulphur free character, CNG reduces harmful emissions. Being non-
corrosive, it enhances the longevity of spark plugs. Due to the absence of any
lead or benzene content in CNG, the lead fouling of spark plugs, and lead or
benzene pollution are eliminated.
Increased life of oils: Another practical advantage observed is the increased
life of lubricating oils, as CNG does not contaminate and dilute the crankcase
oil.
33
Mixes evenly in air: Being a gaseous fuel CNG mixes in the air easily and
evenly.
Safety: CNG is less likely to auto-ignite on hot surfaces, since it has a high
auto-ignition temperature (540 degrees centigrade) and a narrow range (5%-
15%) of inflammability. It means that if CNG concentration in the air is
below 5% or above 15%, it will not burn. This high ignition temperature and
limited flammability range makes accidental ignition or combustion very
unlikely.
Properties Unit Petrol Diesel LPG CNG
Relative density Water = 1 0.74 0.84 0.55 -
Relative density Air =1 - - 1.285 0.64
Auto-ignition
Temperature Degree C 360 280 374 540
Flammability Range % in Air 1-8 0.6-5.5 2.2-9.0 5-15
Flame Temperature Degree C 2,030 1,780 1,983 1,900
Octane Number - 87 - 93 127
PIPED NATURAL GAS (PNG)
Founding area where no PNG lines are located.
Average consumption according to various categories of PNG business.
Analysis of demand of pipe lines in particular area.
Identify area where the need to establish the pipe line.
Research team analyzes various parameters (like requirement of pipe line in
small and large area).
Preparing map of pipe line where they exactly goes out.
Taking permission from various legal authorities like MCD, CPWD etc.
34
To facilitate the various services such as water and electricity etc
Getting available the various services such as fire protection services.
Establishment of the stations.
Diagram representing percentage of quantity sold in PNG
% OF TOTAL PNG SALES
38%
7%47%
8%DOMESTICCUSTOMERS
SMALL CUSTOMERS
LARGE CUSTOMERS
INDUSTRIALCUSTOMERS
Knowing full well that Piped Natural Gas is the obvious choice for one to make, it
would be just if one called PNG Positively Natural Gas!!
PNG has several distinctions to its credit- of being a pollution-free fuel, easily
accessible minus storage troubles, and being available at very competitive rates, are
just a few of them.
When one chooses PNG, one is making a wise decision. Why not enhance your
comfort and improve your lifestyle for the years to come? Experience the versatility
and performance of this reliable energy source. With PNG you don't need to make any
choices, for its characteristics make it the best option for domestic and commercial
purposes.
Uninterrupted supply: The source of PNG supply in Delhi is the famous
Hazira-Bijaipur-Jagdishpur (HBJ) pipeline of GAIL (India) Limited. PNG
35
offers the convenience of ensuring continuous and adequate supply of PNG at
all times, without any problems of storing gas in cylinders.
Unmatched convenience: The domestic consumers have to take upon
themselves the trying task of booking an LPG cylinder refill, time and again.
And then starts the wait for the deliveryman to deliver the cylinder. Switching
over to PNG renders this entire exercise unnecessary. PNG also eliminates the
tedious routine of checking LPG refill cylinder for any suspected leakage, or it
being underweight, at the time of delivery. Moreover, the user is spared the
inconvenience of connecting and disconnecting the LPG cylinder when out of
gas. Precious space, occupied by LPG cylinders is also saved.
Safety: The combustible mixture of natural gas and air does not ignite if the
mixture is leaner than 5% and richer than 15% of the air-fuel ratio required for
ignition. This narrow inflammability range makes PNG one of the safest fuels
in the world.
Safety Tips
Natural gas is lighter than air. Therefore, in case of a leak, it just rises and
disperses into thin air given adequate ventilation. But LPG being heavier will
settle at the bottom near the floor surface. A large quantity of LPG is stored in
liquefied form in a cylinder. With PNG, it is safer since PNG installation
inside your premises contains only a limited quantity of natural gas at low
pressure i.e. 21 milibar (mbar). On leakage, LPG expands 250 times, which is
not the case with PNG. Supply in PNG can be switched off through appliance
valve (inside the kitchen) and isolation valve (outside kitchen premises),
which fully cuts off the gas supply.
Economy with PNG
PNG has been positioned to be cheaper than alternative fuels being used via
domestic LPG in case of House Hold, commercial LPG in case of Small
Commercial and LPG Bulk & LDO in case of Large Commercial. This is
besides the amount you save by avoiding underweight cylinders delivered to
you.
Billing: The user is charged only for the amount of PNG used, and no
pilferage is possible with PNG as the billing is done according to the meter. A
36
unique feature is that the user gets to pay only after consumption of gas. The
domestic consumer pays the PNG bill only once in two months. The user pays
the gas consumption charges based on the exact consumption reading provided
by the meter installed at his premises. The bill is delivered at the user’s
doorstep. List of collection centers/drop boxes.
Customer support: Round-the-clock customer support is assured through 24
hrs toll free number 1800112535 and 64543592 backed by control rooms,
which are manned by engineers and trained technicians. Thus complaints, if
any, are promptly redressed.
A versatile fuel: Natural gas is being used predominantly as a versatile fuel in
many major cities catering to domestic and commercial applications, as a
cooking fuel, for water heating, space heating, air conditioning, etc.
Environment friendly: Natural gas is one of the cleanest burning fossil fuels,
and helps improve the quality of air, especially when used in place of other
more polluting energy sources. Its combustion results in virtually no
atmospheric emissions of sulphurdioxide (SO2), and far lower emissions of
carbon monoxide (CO), reactive hydrocarbons and carbon dioxide, than
combustion of other fossil fuels. In fact, when natural gas burns completely, it
gives out carbon dioxide and water vapor. These are the very components that
we give out while breathing!
Additional Benefits of PNG that the commercial consumers can avail
No storage problems and stock accounting: PNG does not require any
storage tank or storage space since it is supplied to you through pipelines.
Also, the manpower and time that was earlier being used for ensuring
minimum stock levels of LPG, HSD and LDO, can be used elsewhere. The
other functions that accompany storing these fuels – monitoring stock levels,
checking the quality and quantity of fuels received – have also been rendered
unnecessary.
Economy with PNG: PNG has been presently positioned to be cheaper than
alternative fuels. For small commercials the pricing is indexed to 19 Kg LPG
cylinders after adjusting for heat values. For Large Commercials, pricing is
37
indexed to 90% LDO and 10% Bulk LPG again after adjusting for heat values.
These savings are in addition to the amount you save by avoiding spillage &
pilferage of alternative fuels.
No daily liaisoning: The consumer is spared the task of liasioning with oil
companies and coordinating with them for ensuring the daily supply of fuel,
because PNG is supplied directly through pipes. The daily bills, settlements
and reconciliation are also avoided as the consumer is billed once a month,
and that too as per the meter reading.
No spillage and pilferage: In case of spillage of fuels like HSD and LDO,
there are liable to be immense product losses. Also, there are considerable
chances of pilferage of these fuels. In case of PNG these losses are invariably
done away with, for PNG is supplied through pipes.
Billing - No up-front payment: The user is charged only for the amount of
PNG used, and no pilferage is possible with PNG as the billing is done
according to the meter. The commercial consumer pays on a monthly basis.
Moreover, there are no minimum consumption charges, i.e., if there hasn’t
been any consumption, there shall not be any bill. The user pays the gas
consumption charges based on the exact consumption reading provided by the
meter installed at his premises. The bill is delivered at the user’s doorstep.
Lower maintenance cost: With PNG, soot or ash accumulation and greasy
spillages are absent from your appliance. Maintenance costs are, thus, driven
down.
38
SWOT ANALYSIS OF IGL
Strengths:
The Company has been given marketing exclusivity in NCT of Delhi for three
years w.e.f. January 1, 2009.
Dominant market position and first moves advantage in NCT of Delhi.
Experienced sector leader as promoters.
As per the Petroleum and Natural Gas Regulatory Board (PNGRB)
regulations, IGL has network exclusivity up to December 2025 in the NCT
area.
IGL has continuously adopted the latest technology as a result of which the
quality of its products has also improved.
Lower debt in the books along with healthy return ratios gives confidence in
the company’s ability to raise debt for future expansion
Another major strength of company can be that it helps in controlling pollution
and hence supported by government.
Opportunities:
CNG is replacing traditional fuels like petrol & diesel. CNG is about 33 Rs
cheaper than Petrol and about 11 Rs cheaper than diesel.
Introduction of Radio Taxis and high capacity buses running on CNG in Delhi
along with increase in number of CNG variant models by car manufacturers
presents a significant opportunity for the company
Shift towards usage of PNG by industrial and commercial segment.
39
Weaknesses:
Future expansion activities would be dependent on ability to secure additional
gas supplies
Competition from alternative fuel.
Regulatory and economic changes.
Dependence on single or few supplier/ customer
Threats:
Competition from other players is possible after December 2011 as the
company’s marketing exclusivity is valid till December 2011 only.
Alternative modes of transport like metro rail pose a threat.
GAIL being one of the promoters of the company, IGL doesn’t foresee any
risk arising from dispute with them over supply of natural gas.
Due to the recent growth in CNG vehicles, especially private cars, there is a
need to add more CNG stations for which the timely availability of land from
land owning agencies is a matter of concern.
40
OVERVIEW OF BUDGETING SYSYTM OF IGL
Budget Definition
Budget a detailed plan, expressed in quantitative terms, that specifies how resources
will be acquired and used during a specified period of time.
Purposes of budgeting systems:
Planning
Facilitating Communication and Coordination
Allocating Resources
Controlling Profit and Operations
Evaluating Performance and Providing Incentives
Using a budgeting system companies can:
Improve cash flow;
Optimize product portfolio;
Minimize salary adjournment;
Increase the operational level;
Eliminate breaks in production process;
Stabilize debts level;
Precisely determine the real financing needs.
Types of Budgets
Long-Range Budgets – Capital budgets dealing with the acquisition of building and
equipment normally cover several years. A budget with a term usually longer than
one year. A long-range budget involves more uncertainty than a short-term budget
because, typically, market movements and the business cycle are more easily
predictable in the short term. On the other hand, planning for the long-term is
necessary in order to ensure sustainable profitability. Thus, while planning for the
long term is necessary, one's plan must be flexible to account for the uncertainty
inherent to it.
41
Continuous or Rolling Budget – This budget is usually a twelve-month budget that
rolls forward one month as the current month is completed. Rolling budget is a budget
prepared with a fixed planning horizon. To achieve this, the budget is constantly
being added to at the same rate as time is passing. It’s very useful for companies
experiencing rapid change, as they require forecasting for much shorter time periods.
A rolling budget could use 3-month periods or quarters instead of months. Also, a
company might have a 5-year rolling budget for capital expenditures. In this case a
full year will be added to replace the year that has just ended. This 5-year rolling
budget means that management will always have a 5-year planning horizon.
Operating Budget – the annual operating budget may be divided into quarterly or
monthly budgets. A detailed projection of all estimated income and expenses
based on forecasted sales revenue during a given period(usually one year). It
generally consists of several sub-budgets, the most important one being the sales
budget, which is prepared first. Since an operating budget is a short
budget, capital outlays are excluded because they are long-term costs. An operating
budget is the annual budget of an activity stated in terms of Budget Classification
Code, functional/sub functional categories and cost accounts. It contains estimates of
the total value of resources required for the performance of the operation including
reimbursable work or services for others. It also includes estimates of workload in
terms of total work units identified by cost accounts.
Budgeting system used in IGL
From the above type of budget system IGL follows the operating budget system
because it revised its budget after every six month and follows its budget after each
quarter.
42
IGL Budgeting comprises 2 components:
Operational Component
- Sales Budget: A sales budget is a detailed schedule showing the expected sales
for the budget period; typically, it is expressed in both dollars and units of production.
An accurate sales budget is the key to the entire budgeting in some way. If the sales
budget is sloppily done then the rest of the budgeting process is largely a waste of
time.
The sales budget will help determine how many units will have to be produced. Thus,
the production budget is prepared after the sales budget. The production budget in
turn is used to determine the budgets for manufacturing costs including the direct
materials budget, thedirect labor budget, and the manufacturing overhead budget.
These budgets are then combined with data from the sales budget and the selling and
administrative expenses budget to determine the cash budget. In essence, the sales
budget triggers a chain reaction that leads to the development of the other budgets.
The selling and administrative expenses budget is both dependent on and a
determinant of the sales budget. This reciprocal relationship arises because sales will
in part be determined by the funds committed for advertising and sales promotion.
The sales budget is the starting point in preparing the master budget. All other items
in the master budget including production, purchase, inventories, and expenses,
depend on it in some way. The sales budget is constructed by multiplying the
budgeted sales in units by the selling price.
- Production Budget The production budget is prepared after the sales budget.
The production budget lists the number of units that must be produced during each
budget period to meet sales needs and to provide for the desired ending inventory.
Production needs can be determined as follows.
43
Budgeted sales in units-------------------
Add desired ending inventory------------
Total need---------------------------------------
less beginning inventory--------------------
Required production--------------------------
XXXX
XXXX
--------
XXXX
XXXX
--------
XXXX
=====
Production requirements for a period are influenced by the desired level of ending
inventory. Inventories should be carefully planned. Excessive inventories tie up funds
and create storage problems. Insufficient inventories can lead to lost sales or crash
production efforts in the following period.
- Inventory Budget-Inventory and purchase budget represents what a business plans
to buy and how much inventory it intends to hold over a given timeframe, is based on
three factors: a business' desired ending inventory, cost of goods sold, and beginning
inventory. A business's desired ending inventory will drive that business' budgeted
purchases over a given period of time. A larger desired ending inventory will typically
lead to a larger Purchases Budget and vice-versa. While the Purchases Budget, a
component of the Inventory and Purchases Budget, represents an estimate of future
purchases, this is an accrual-based accounting figure, and it is the Disbursements for
Purchases Budget (another component of the Inventory and Purchases Budget) that
drives a company's cash flows.
- Materials Budget -The direct materials budget calculates the materials that must be
purchased, by time period, in order to fulfill the requirements of the production
budget, and is typically presented in either a monthly or quarterly format.
- Labor Budget- Expected labor cost is dependent upon expected production volume
(production budget). Labor requirements are based on production volume multiplied
by direct labor-hours per unit. Direct labor-hours needed for production are then
multiplied by direct labor cost per hour to derive budgeted direct labor costs. For
44
example, assume budgeted production of 790 units, direct labor-hours per unit of 5,
and direct labor cost per hour of $5
- Overheads Budget- It shows the expected cost of all production costs other than
direct materials and direct labor. Budgeted variable overhead costs are based on a
budgeted variable overhead rate multiplied by budgeted activity. Budgeted fixed
overhead costs remain unchanged as the activity level changes within the relevant
range.
Financial Component
- Investment Budget-An investment budget consists of planned investments and
disinvestments over a period of time (the planning period). Depending on the type of
asset there are various depreciation schedules that can be used to depreciate the asset.
- Balance Sheet
45
- Cash Flow Statement
Principles to be taken into consideration by IGL when developing a Budget
There are realistic objectives
There is a profitable business
There is a financial diagnosis as base for determining trends
There is integrity with Management Informational System
You can use what-if analysis
Normally it is figured monthly for the first year of activity, quarterly for the second
year and annually for the rest of the years.
Typically, the budget cycles occurs in four phases.
The first requires policy planning and resource analysis and includes revenue
estimation.
The second phase is referred to as policy formulation and includes the negotiation and
planning of the budget formation.
The third phase is policy execution which follows budget adoption is budget
execution—the implementation and revision of budgeted policy.
46
The fourth phase encompasses the entire budget process, but is considered its fourth
phase. This phase is auditing and evaluating the entire process and system.
PROCEDURE OF IGL BUDGETING SYSTEM
STEP 1: Planning of Budget
IGL entails identifying the sources of income and taking into account all current and
future expenses, with an aim to meet an individual’s financial goals. The primary aim
of IGL’s budget planner is to ensure savings after the allocation for spending.
Factors Considered by IGL before making Budget:-
The budget estimates include:
Projected Capital Expenditure
Demand projections
Sales quantity projections
Revenue
Cost of natural gas purchase
Operating expenses
Funding
Projected profit
Proposed dividend
Resource mobilization of capital expenditure
Projected Profit & Loss Statement
Projected Cash Flow
Projected Balance Sheet
47
For instance, Factors Considered by IGL before making budget of year 2010-11:-
Capital Expenditure Budget
IGL foresees rapid growth in CNG business in the next years primarily due to
factors like:
Approaching Commonwealth Games in Year 2010
Increase in CNG conversion in private car segment
Introduction of CNG Variants by automobile manufacturers
Addition/replacement of CNG Buses planned by DTC
Recent agreement between the Governments of Delhi, Haryana, Uttar Pradesh
and Rajasthan in respect of free movement of public transport vehicles across
the interstate borders
Augmentation of fleet of CNG buses by neighboring states
Growth in CNG demand in satellite towns of Delhi
Therefore, it is necessary for IGL to go for aggressive expansion and augmentation of
CGD infrastructure in NCT and NCR Region.
NCT
In addition to above reasons, there is one more reason for IGL to aggressively
build infrastructure in NCT of Delhi. As per the authorization letter issued by
the PNGRB to IGL for CGD operations in NCT of Delhi, only three years
marketing exclusivity has been given to IGL and during this period, IGL is
required to lay infrastructure in all the charge areas covering entire Delhi.
Hence, IGL need to have such a robust infrastructure by that time which
should not only meet the requirements laid by PNGRB but also act as an entry
barrier for new players after the exclusivity period is over after three years.
48
Accordingly, an aggressive capex plan has been prepared to meet this
objective for the financial year 2009-10.
1. CNG Project
The company plans to incur a total Capital Expenditure of Rs.7233 lakhs on
CNG project during the financial year 2010-11 which will create an additional
compression capacity of 4.90 lakhs kgs per day. With this addition, the total
compression capacity is estimated to be 41.05 lakhs kg per day by the end of
FY 2010-11. At this compression capacity, average sale of 15.78 lakhs kgs per
day is expected to be achieved during 2010-11 against the expected average
sale of 13.75 lakhs kg per day in 2009-10.
It is proposed to add 20 CNG stations during the year 2010-11 increasing the
total number of CNG stations to 237 by the end of March 2011.
The above capex includes the cost of 15 new compressors of 1200 SCMH and
29 new compressors of 600 SCMH which will be used in the new stations and
also for up gradation of the existing stations.
2. PROJECTED PIPELINE
Steel Pipeline
During the FY 2009-10, it is planned to invest Rs. 5653 lakhs on steel pipeline
network. More than 63 kms of steel pipeline will be added to the existing
network in the budget period. This is required to connect new stations and
conversion of some of the existing daughter stations to online stations.
MDPE/HDPE Pipeline
It is planned to incur a capital expenditure of Rs. 19445 lakhs on
MDPE/HDPE Pipeline and other related activity during FY 2010-11.
49
Other Capex
During the financial year 2010-11, it is planned to incur an expenditure of Rs.
2658 lakhs on other capex like construction of new stores/control rooms, DFR,
IT infrastructure etc.
NCR Region
Budget for the year 2010-11 has been prepared for Noida, Greater Noida
Ghaziabad, Gurgaon and Faridabad cities in NCR Region.
1) CNG Project
The Company has already started the expansion project in Greater Noida,
Noida and Ghaziabad. The company is expected to have 5 stations in Noida, 3
stations in Greater Noida and 2 stations in Ghaziabad by the end of 2009-10.
The company plans to add 4 stations in Noida, 5 stations in Greater Noida, 11
stations in Ghaziabad, 5 stations in Gurgaon and 5 stations in Faridabad during
the year 2010-11. With the above additions the total number of CNG stations
in these cities will be 45 by the end of 2010-11. The company plans to incur a
total capital expenditure of Rs. 13301 lakhs in the financial year 2010-11 . The
compression capacity to be added through this capex shall be approximately
7.06 lakhs kg/day.
2) Pipeline Network
50
During the financial year 2010-11, it is planned to incur a capital expenditure
of Rs.7825 lakhs on steel pipeline. Another 16933 lakhs is estimated to be
invested in MDPE/HDPE pipeline during the year.
Consolidated Capital Expenditure Budget:
Project
Total
2009-10
NCT
CNG 14587
Pipeline 18496
Other 1203
TOTAL NCT 34286
NCR
CNG 5308
Pipeline 14416
Others 600
TOTAL NCR 20324
TOTAL 54610
51
Demand projections
NCT
1. CNG
During 2010-11, average annual sale of CNG is expected to be 15.78 lakhs
kgs per day against the expected average per day sale of 13.75 lakhs kgs in
2009-10 showing a growth of 15% over last year. Growth during 2009-10 is
expected to be 20%.
2. PNG
During FY 2010-11, 80000 new PNG-Domestic customers are expected to be
enrolled increasing the total number of PNG-Domestic customers to 255000
by the end of March’2011.
During FY 2010-11, average annual sale of PNG is expected to be 1.05 lakhs
SCM per day against the expected average per day sale of 0.68 lakhs SCM in
2009-10 showing a growth of 54% over 2009-10.
NCR Region
a) CNG
52
IGL foresees substantial growth of CNG business in the satellite cities of
Delhi due to factors like:
Increase in CNG conversion in private car segment ,
Recent agreement between the Governments of Delhi, Haryana, Uttar
Pradesh and Rajasthan in respect of free movement of public transport
vehicles across the interstate borders.
Augmentation of fleet of CNG buses in these cities.
During the FY 2010-11 the projected sale of CNG in Noida, Greater Noida
Ghaziabad, Gurgaon and Faridabad is estimated at 2.5 lakh kgs per day.
b) PNG
During the FY 2010-11, IGL projects around 36000 domestic households will
convert to PNG in Noida, Greater Noida, Ghaziabad, Gurgaon and Faridabad.
IGL also foresees substantial demand for PNG from commercial and industrial
sector and expects to add approximately 50 Commercials and industrial
customers in 2010-11.
During the FY 2010-11 the projected sale of PNG in Noida, Greater Noida and
Ghaziabad is estimated at 0.46 lakh scm per day.
Projected Sales Quantity
The sales volumes of both NCT and NCR Region are expected to be as under
during 2010-11:
Particulars Total
2010-11
NCT
53
CNG (lakhs Kgs.) 5561
PNG (lakhs SCM) 625
NCR
CNG (lakhs Kgs.) 365
PNG (lakhs SCM) 169
On an overall basis, growth in CNG and PNG is expected to be 28% and 47%
respectively during 2010-11. The combined growth in sales volumes taking
CNG, PNG together is expected to be 29%.
Revenue
NCT
A. CNG
The existing selling price of CNG is Rs. 18.90 per KG and the same rate has been
considered for the first quarter and Rs.20.80 per kg has been considered thereafter.
The need for increase in CNG price has arisen due to the fact that IGL will have to
purchase KG Basin gas to feed the additional demand of CNG over and above the
allotted quota of 2 mmscmd of APM gas. The price difference between APM and
KG basin gas is more than Rs.6.25 per scm.
B. PNG
The consumer prices considered in the financial year 2010-11 are as under:
Domestic - Rs. 14.50 per SCM
Commercial - Rs. 27.00 per SCM
Industrial - Rs. 23.00 per SCM
54
The revenue of the Company on account of CNG and PNG is expected to be Rs.
124927 lakhs during the financial year 2010-11 showing a growth of about 29%
over projected sales income of 2008-09.
NCR – Sales Income
The revenue of the company on account of CNG and PNG is expected to be
Rs.10983 lakhs. The consolidated sales income of both NCT and NCR Region
is summarized as follows:
Rs. in Lakhs
Total
2010-11
NCT
CNG 112272
PNG 12655
Total – NCT 124927
NCR
CNG 7583
PNG 3400
Total – NCR 10983
Grand Total 135910
55
Cost of Natural Gas Purchase
NCT
Total purchase cost of natural gas for the financial year 2009-2010 is expected
to be Rs. 54824 lakhs. As mentioned earlier, IGL will have to purchase KG
Basin gas to feed the additional demand of CNG and PNG-Domestic over and
above the allotted quota of 2 mmscmd of APM gas. The price difference
between APM and KG basin gas is more than Rs.6.25 per scm. For supply to
Industrial customers, IGL need to buy RLNG gas through GAIL/BPC.
The breakup of gas cost considered based on above is as follows:
APM Gas from GAIL: Rs. 39317 lakhs
KG Basin Gas : Rs. 9682 lakhs
R-LNG : Rs. 5825 lakhs
--------------------
Rs. 54824 lakhs
----------------------
56
NCR
Total purchase cost of natural gas for the FY 2010-11 is expected to be Rs.6424
lakhs. While IGL has allocation of 0.2 mmscmd of APM gas for CNG and PNG-
Domestic demand for the cities of Noida & Greater Noida, the gas required for
Commercial & Industrial customers has to be met from RLNG gas. In case of
Ghaziabad, requirement of gas for CNG and PNG
Domestic has to be met by purchasing KG Basin gas and PNG-Commercial &
Industrial demand has to be met by purchasing RLNG.
The breakup of gas cost considered based on above is as follows:
APM Gas from GAIL : Rs. 2453 lakhs
KG Basin Gas : Rs. 1554 lakhs
R-LNG : Rs. 2417 lakhs
--------------------
Rs. 6424 lakhs
----------------------
The effect of cost of natural gas being used for running compressors at 5.5%
and the reconciliation difference at 2.5% has been considered in the above gas
cost.
Operating expenses
NCT
The total operating expenses are expected to be Rs. 19100 lakhs (excluding
discount to DTC) during the financial year 2010-11.
57
The increase in operating expenses during the year is attributed mainly to the
following reasons –
Repair & Maintenance expenses (Rs.1356 lakhs) – Mainly due to,
increase in number of manpower at PNG control rooms due to
expanded area/number of PNG connections and increase in AMC cost
of new compressors/Dispensers. It may be mentioned that earlier IGL
used to take AMC of new compressors/Dispensers for one year, and
thereafter these units used to be maintained in house. However, now
AMC is taken for two years in view of manpower constraints and to
save associated cost of spares required for maintenance.
Operator’s expenses (Rs.715 lakhs) - Due to increase in wages of
DSMs/Technicians and increase in remuneration of Operators w.e.f.
01.01.2009. The other reason is increase in manpower at stations as a
result of increase in sales and increase in number of stations. It may be
mentioned that due to increase in number of cars converted on CNG,
more manpower is required at stations to service this segment of
customers as the quantity of CNG taken by them at a time is much
smaller.
Power & Fuel (Rs.941 lakhs) - Due to increase in sales/number of
stations and load enhancement for running motor driven compressors.
However, there is a corresponding savings in Gas cost which otherwise
would have been used in running Gas driven compressors.
Hire Charges (Rs.475 lakhs) - Due to revision in LCV charges and
increase in sales.
Employees cost (Rs.555 lakhs) - On account of provision for increase
in salaries, annual increase in salaries and increase in manpower.
58
NCR
The total operating expenses are expected to be Rs. 421 lakhs in Noida, Rs.377
lakhs in Greater Noida and Rs.306 lakhs in Ghaziabad during the financial year
2010-11.
Funding
Present surplus funds of approximately Rs. 260 crores and the internal accruals of
2010-11 will be sufficient to meet the fund requirement during 2010-11 to finance
the projected capital expenditure. Any surplus fund during the year after meeting
the revenue and capital expenses shall be invested during the year as per the
Treasury Policy of the company. The income from such investment is expected to
be Rs. 1077 lakhs during the financial year 2010-11.
Projected Profit
NCT
Based on above, the projected Profit & Loss Account with quarterly breakup for
the financial year 2010-11 has been prepared. During the year the Profit after Tax
is expected to be Rs. 19833 lakhs.
NCR
59
During the year the consolidated profit after tax for Noida, Greater Noida and
Ghaziabad is expected to be Rs.1298 lakhs.
Consolidated Profit and Loss Account for NCR and NCT region taken
together and details are summarized as follows:
60
Projected Profit & Loss Account for the year 2010-11
Amount
Rs. In Lakhs
Income (A) 135910
Expenditure (B)
Cost of Gas 61248
Excise Duty 15239
Gross Margin (C= A-B) 59423
Other Income (D) 1077
Operating Expenses (E) 20204
PBDIT F = (C+D-E) 40296
Depreciation (G) 8639
Profit Before Tax [ H= F-G ] 31657
Tax (I) 10526
Profit After Tax ( J = H-I ) 21131
Proposed dividend
Subject to the approval of the Board and members of the Company in ensuing
Annual General Meeting, proposed dividend @ 40% amounting to Rs.6234 lakhs
61
(including dividend tax) has been considered in the cash flow. This is equivalent
to around 31% payout.
Resource mobilization of capital expenditure
As explained above, the company plans to incur total capital expenditure of
Rs. 54610 lakhs (consolidated CAPEX for NCT and NCR) during the
financial year 2010-11 and finance the same from internal accruals.
Projected Balance Sheet and cash flow (for the Financial Year 2009-10)
The projected balance sheet and cash flow for the year 2009-10 is shown in
annexure below.
STEP 2: Budget Preparation
62
Preparation of Sales Budget: - A sales budget is a detailed schedule showing the
expected sales for the budget period; typically, it is expressed in both dollars and units
of production. An accurate sales budget is the key to the entire budgeting in some
way. If the sales budget is sloppily done then the rest of the budgeting process is
largely a waste of time.
The sales budget will help determine how many units will have to be produced. Thus,
the production budget is prepared after the sales budget. The production budget in
turn is used to determine the budgets for manufacturing costs including the direct
materials budget, the direct labor budget, and the manufacturing overhead budget.
These budgets are then combined with data from the sales budget and the selling and
administrative expenses budget to determine the cash budget. In essence, the sales
budget triggers a chain reaction that leads to the development of the other budgets.
The selling and administrative expenses budget is both dependent on and a
determinant of the sales budget. This reciprocal relationship arises because sales will
in part be determined by the funds committed for advertising and sales promotion.
The sales budget is the starting point in preparing the master budget. All other items
in the master budget including production, purchase, inventories, and expenses,
depend on it in some way. The sales budget is constructed by multiplying the
budgeted sales in units by the selling price.
Preparation of expense Budget: - Selling and administrative expense budget lists the
budgeted expenses for areas other than manufacturing. In large organizations this
budget would be a compilation of many smaller, individual budgets submitted by
department heads and other persons responsible for selling and administrative
expenses. For example, the marketing manager in a large organization would submit a
budget detailing the advertising expenses for each budget period.
Preparing a Purchases Budget
Calculate the ending inventory for each quarter.
63
Enter projected unit sales for the quarter from the sales budget schedule.
Add ending inventory units and projected sales units to determine total units
needed per quarter.
Enter beginning inventory, which is the same as ending inventory for the
preceding quarter.
Subtract beginning inventory from total units needed to determine total unit
purchases for the quarter.
Enter the unit cost for each quarter.
Step 3:- Approval of Budget
In IGL, after the preparation of budget for each department, it need to be approved by
the budgeting committee which consists of four directors from each department. They
review the budget in all aspects and then if they find it up to the mark, then they show
their consent for the same and budget gets approved.
If in between of the budgeting year, any deviation in any department is noticed then
also the approval of this budget committee is required to make any changes(increase
in budget amount, in case the actual amount exceeds).
The Budget Committee is requested to consider and approve the following:
NCT
a) Capital Budget for financial year 2010-11 :
Rs. 14587 Lakhs for CNG
Rs. 18496 Lakhs on Pipeline
Rs. 1203 Lakhs for Corporate and others
b) Revenue Budget for the financial year 2010-11.
NCR
64
a) Capital Budget for financial year 2010-11 :
Rs. 5308 Lakhs for CNG
Rs. 14416 Lakhs on Pipeline
Rs. 600 Lakhs for Corporate and others
b) Revenue Budget for the financial year 2010-11.
Step 4:- Implementation of Budget:-
This includes the dissemination of approved budget to different departments as
well as updates the same approved budget in the software SAP used by company.
A sound foundation is necessary to compete and win in the global marketplace.
The SAP ERP application supports the essential functions of the business
processes and operations efficiently and is tailored to specific needs of company.
IGL while using SAP perform two functions:
Data storage: after the preparation and approval of budget for each department,
company used to update the budgeted information in the software SAP under each
department head.
Data analysis: once the budgeted data has been entered in the SAP, it is then
analyzed to review that whether the budgeted amount is exceeding the amount
limited by the company for each department or not. If yes, then the software will
automatically reject the data and it will then send for correction.
Step 5:- control and evaluation:-
After the budget has been prepared, approved and implemented, the process of
control is been taken place. Under the controlling process the expected budget is
being matched with the actual figures after every 3 months. If any deviations are
recorded i.e if the actual figure exceeds the expected figure then there is a need to
change the expected budget figure in accordance with the actual. This process of
65
make changes in expected budget is done in every 6th month. This change in
expected budget which is prepared in every 6th month is known as revised budget.
A Revised Estimate for the FY 2009-10 has been prepared considering the
provisional unaudited results upto September 2009 and actual performance during
October & November 2009
Revised Revenue Estimate for Financial Year 2009-10
Sales Quantity
NCT
I. CNG
During the period April-September 2009, the company has sold 2425 lakhs
kgs, at an average of 13.25 lakhs kgs per day, of CNG as against budget of
2600 lakhs kgs, at an average of 14.21 lakhs kgs per day. Considering the
actual sale of CNG during first half year ended 30 th September 2009, the sale
for the second half-year ended 31st March 2010 has been revised to 2641 lakhs
kgs , at an average of 14.51 lakhs kgs per day against the original budget of
2960 lakhs kgs, at an average of 16.26 lakhs kgs per day.
The company thus expects to achieve sale of 5066 lakhs kgs of CNG at an
average of 13.88 lakhs kgs per day during the current year 2009-10 against the
budgeted quantity of 5561 lakhs kgs at an average of 15.23 lakhs kgs per day.
The major reasons for projected sales being less than what was envisaged in
Budget are:
66
1. Delay in the addition of new buses in the DTC fleet. Earlier it was expected
that around 1050 new buses would be added by the end if Oct 2009 against
which only 110 buses were added.
2. Reduction in the number of blue line buses as a part of Delhi Govt’s plan to
phase out these buses before Commonwealth Games (More than 1000 blue
line buses had been taken off the road )
3. Deferring of Delhi Govt’s plan for corporatizsation of private buses.
( replacing blue line buses)
4. Extension in the deadline to make around 10000 diesel operated LGVs CNG
powered from June 30, 2009 to Sep 2009 and then further extending it to end
of March 2010.However, it is expected that since the Govt has fixed the last
date for booking of CNG vehicles as 31st December 2009,it is expected that
the conversion process may pick up some pace in Jan 2010 onwards
II. PNG
The company achieved sale of 314 lakhs SCM of piped natural gas against the
budgeted quantity of 295 lakhs SCM during the period April-September 2009.
During the current financial year, the company expects to achieve sale of 656
lakhs SCM of piped natural gas as against the budgeted quantity of 625 lakhs
SCM.
The major reasons for projected sales being less than what was envisaged in
Budget are:
1. Delay in availability of municipal permissions.
2. Earlier both GAIL & BPCL had indicated that the additional R-LNG
quantity (on long term basis) may be available from Oct’09 onwards. As per
the latest understanding given, this additional R-LNG quantity is now likely to
start by Jan’2010
67
3. Necessary infrastructure (including laying of pipelines) to supply gas to
targeted industrial customers in NCR towns is still in progress.
The details of sales quantities of NCT are summarized below
Sales Quantity
Product Unit Budgeted
2008-09
Revised
Estimates
2008-08
Volume Variance
Increase/ (Decrease)
CNG Lakhs kg 5560.53 5066.02 (494.51)
PNG Lakhs scm 624.88 656.13 31.25
Total Lakhs scm 7909.17 7292.62 (616.55)
2. Total sales excludes sale of natural gas.
NCR
1. CNG
The expected CNG sales in Noida and Greater Noida are being revised to 245
Lakhs Kgs against the Budgeted volume of 365 Lakhs kgs.
Reason for downward revision of sales target are :
1. CNG sales in Ghaziabad could commence from August ‘2009.
2. Noida DTC Depot was non operational from April end to Oct 09 and
additional buses have also not arrived as per the expected schedule
3. The transport department has started to phase out around 250 Blue line
buses plying across Noida region w.e.f Dec 2009, which shall be
affecting CNG sales in Noida and G.Noida region.
68
4. In case of UPSRTC as well, additional buses have not been added to
the existing fleet in Noida & Greater Noida.Also, Its Depot in Greater
Noida is yet not ready for operations
2. PNG
It was anticipated in the original budget that around 20000 Domestic
connections, 30 Commercial customers and 17 Industrial customers would
be added by the end of FY 09-10 in NCR (Noida, Greater Noida &
Ghaziabad) and accordingly PNG sale of 169 lakhs SCM was budgeted.
However, due to the reasons as mentioned above, the expected number of
connection is now being revised to 4627 Domestic connections, 30
Commercial customers and 17 Industrial customers in Noida and Greater
Noida. Accordingly, projected sales during the year will be 53 lakhs
SCM, approximately.
The details of sales quantities of NCR are summarized below:
69
Sales Quantity
Product Unit Budgeted
2008-09
Revised
Estimates
2008-09
Volume Variance
Increase/(Decrease)
CNG Lakhs kg 365.00 244.83 (120.17)
PNG Lakhs scm 168.93 52.83 (116.10)
Total Lakhs scm 647.08 373.55 (273.53)
Note: 1. PNG includes sale to industrial customers
2. Total sales excludes sale of natural gas
SALES VALUE
During the period April to September 2009, the company achieved sales
income of Rs. 56878 lakhs against the budgeted figure of Rs.60518 lakhs (sale
value is net of discount to DTC).
Further, during the financial year 2009-10, the company is expected to achieve
a sale income of Rs.124076 lakhs against budgeted figure of Rs.135909 lakhs.
(Sales value is net of discount to DTC).
70
The consolidated details are summarized below:
Sales Income Rs. Lakhs
Product Budget till
30.09.2009
Actual till
30.09.2009
Budget
2009-10
Revised
Estimate
2009-10
Variance
Increase/
(Decrease)
CNG 53508.18 50019.87 119855.39 108650.84 (11204.56)
PNG 7009.71 6105.07 16053.94 13652.61 (2401.34)
NG 753.08 1772.96 1772.96
Total 60517.89 56878.01 135909.33 124076.41 (11832.93)
Details in respect of NCT and NCR are given in Annexure-I (B) & I (C)
respectively.
Cost of Gas
The cost of gas has been revised downward to Rs.50379 lakhs against the
budgeted figure of Rs.61248 lakhs. This decrease is due to primarily due to
decrease in sales volume by 890 lacs SCM . Also the projected average cost of
natural gas is lower than the estimates made in Budget.
71
Operating Expenses
During the period April-September 2009, the total operating expenses were
Rs.9248 lakhs against the budget of Rs.9371 lakhs for the corresponding period.
Accordingly, the projected operating expenses have been revised downward to
Rs.20050 lakhs against the budget of Rs.20204 lakhs.
REASONS FOR VARIANCE
Overall Projected operating expenses for the year will be less than the estimates
made in Budget. Increase in certain heads of operating expenses is attributed
mainly to the following reasons –
Operator’s expenses (Rs.281 lakhs) – Due to increase in operators
manpower as a result of increase in number of stations.
Employees cost (Rs.189 lakhs) – On account of increase in number of
employees inducted.
Legal & Professional Charges (Rs.357 laksh) – On account of
Consultancy charges to A T Kearney which was not forseen at the time
of budget.
Other Operating expenses (Rs 73 lacs)- Due to increase in direct and
indirect manpower and increase in sales Volume.
The operating expenses for half year ended Mar’10 have been reviewed and is
projected to be Rs.10803 lakhs against a budget of Rs 10833 lakhs for the period.
72
Other Income
During the period April-September’ 2009, the company earned other income of
Rs.1136 lakhs mainly on account of the short-term investment of surplus funds in
mutual fund/fixed deposit with banks, sale of tenders, insurance claims received,
excess liabilities written back etc. against the budget of Rs.504 lakhs. It is
expected that the company will earn other income of Rs.1549 lakhs during the
year 2009-10 against the budget of Rs.1077 lakhs. The increase is mainly due to
increase in income from mutual fund investments/Fixed deposits with banks being
made out of surplus funds available with the company.
Profit for the Year
Based on the above, the projected Net Profit for the financial year 2009-10 is now
estimated to be Rs.21881 lakhs against the budget of Rs.21131 lakhs. The details
of profitability have been prepared and the same is summarized as under:
73
Details of Profit and Loss 5.40372( Rs. In lacs)
ITEMS BGT-H1 ACT-H1 BGT-H2 RE-H2
Budget-
FY09
Rev.Est-
FY09
Sales Quantity
CNG (lacs Kgs) 2709.84 2509.43 3215.69 2801.42 5925.53 5310.85
PNG (lacs SCM) 345.47 314.59 448.33 394.37 793.81 708.96
NG (lacs SCM) 83.54 124.92 208.46
Total Quantity (lacs SCM) 3895.37 3685.48 4660.88 4189.15 8556.25 7874.63
INCOME
TOTAL SALES 60517.89 56878.01 75391.44 67198.39 135909.33 124076.41
EXPENDITURE
Total Material Consumed 26049.54 22829.80 35198.18 27549.54 61247.71 50379.34
Excise Duty (CNG) 6804.94 6308.02 8434.48 7389.08 15239.43 13697.10
Total Gross Margin 27663.41 27740.20 31758.79 32259.77 59422.20 59999.97
Total OperatingExpenses 9370.51 9247.97 10833.40 10802.51 20203.91 20050.48
Other Income 504.03 1135.94 573.03 413.08 1077.05 1549.02
PBDIT 18796.93 19628.17 21498.41 21870.34 40295.35 41498.51
Depreciation 3939.08 3794.58 4699.46 4853.60 8638.54 8648.18
PROFIT BEFORE TAX
(PBT)
14857.86 15833.59 16798.95 17016.74 31656.81 32850.33
Taxation 4935.69 5325.86 5590.48 5643.58 10526.18 10969.44
Profit After Tax (PAT) 9922.16 10507.73 11208.47 11373.15 21130.63 21880.89
74
Revised Capital Budget for Financial Year 2009-10
CNG Project
At the time of formulation of budget, it was planned to add 53 new CNG
stations (33 IGL stations, 8 DTC Stations and 12 OMC stations) during the FY
2009-10 thereby increasing the number from 181 to 234.
In spite of abnormal delays in allotment of land by DDA & L&DO , it is being
proposed to add 96 new CNG stations by the end of FY 2009-10 Detailed
break-up of 90 stations which are to be added during Oct’09 to Mar’10 are as
follows:
Mother/ Online
D' Booster/
Daughter
IGL./
DTC OMC OMC
NCT 24
2
6 3
Noida 1 1
Greater Noida 2
Ghaziabad 2 14
Gurgaon 7
Faridabad 10
28
2
7
3
5
Accordingly, the capital expenditure estimates have been revised from Rs.19905
lakhs to Rs.22152 lakhs. Estimates also include the cost of augmentation of the
75
facilities at existing stations , which is an ongoing effort to reduce the long queue
at CNG Stations.
PNG Project
As per the budget Rs.24275 lakhs were to be spent on the Piped Natural Gas
project during the financial year 2009-10 against which the revised estimates have
been kept at Rs.20521.
Although the capital expenditure have been reduced, the projected no. of PNG
connections are expected to surpass the Budgeted numbers.
Steel pipeline
As per the budget Rs 8637 lacs were to be spent on steel pipeline and related
capex during the FY 2009-10 against which the revised estimate is Rs 6840
lacs.
Corporate
The budget for the financial year 2009-10 included Rs.1803 lakhs on account of
corporate related expenditure. This included amounts to be spent on the IT related
activities, furniture / fixtures/stores building etc.
The budget estimates for the financial year 2009-10 have been revised from
Rs.1803 lakhs to Rs. 1500 lakhs.
Capacity Expansion
With the projected number of stations to be added, the CNG compression
capacity is expected to be 40.62 lacs kgs/day by the end of this financial year
which is marginally less the budgeted estimate of 41.78 lacs kgs/ day.
76
The details of capital expenditure are summarized below:-
PARTICULARS
Budget
FY 09-10
RE
FY 09-10
NCT
CNG 14,587 17,966
PNG 13,248 11,126
STEEL P/L 5,247 2,400
Total NCT-A 33,083 31,492
NCR
CNG 5,317 4,185
PNG 11,027 9,396
STEEL P/L 3,389 4,440
Total NCR-B 19,734 18,021
Corp. Capex-C 1,803 1,500
Total Capex (A+B+C) 54,620 51,013
77
Operating and other revenue expenses for the year 2009-10
S.N
O PARTICULARS
BGT-
Q1
BGT-
Q2
BGT-
H1
ACT-
Q1
1
Operating Expenses at CNG
Stations 651.91 712.09
1364.0
0 761.48
Dealers' Commission 247.66 271.31 518.98 231.58
Stores and Spares Consumed 545.37 589.85
1135.2
2 512.84
2 Power & Fuel 617.02 671.66
1288.6
8 640.99
3 Rent 177.05 197.03 374.08 185.82
Hire Charges 316.73 345.47 662.20 295.47
Rates & taxes 8.80 10.79 19.59 6.10
Repair & Maintenance 722.98 786.25
1509.2
3 544.20
Employee cost 705.55 712.29
1417.8
4 624.57
6 Insurance 24.63 26.76 51.38 22.75
Legal and Professional charges 57.37 60.07 117.45 93.76
Advertisement 46.88 51.76 98.64 17.60
Security Expenses 134.33 150.59 284.92 107.30
Other Operating Expenses 189.81 215.22 405.03 253.96
Financial Charges 58.88 64.39 123.27 60.76
TOTAL
4504.9
7
4865.5
3
9370.5
1
4359.1
9
78
ACT-Q2 ACT-H1 BGT-Q3 BGT-Q4 BGT-H2
789.94 1551.42 786.82 819.96 1606.78
259.16 490.74 300.47 313.88 614.35
593.83 1106.67 646.66 668.25 1314.90
648.36 1289.36 740.14 769.09 1509.23
189.31 375.13 220.86 233.66 454.52
309.85 605.32 381.30 396.88 778.17
22.51 28.62 12.97 14.69 27.66
712.79 1256.98 866.98 903.60 1770.58
698.00 1322.56 719.03 725.77 1444.80
19.45 42.20 28.89 31.02 59.91
184.58 278.34 62.77 65.47 128.25
40.39 57.99 56.63 61.50 118.13
116.06 223.36 169.97 181.46 351.43
225.27 479.24 244.98 263.74 508.72
79.29 140.04 71.31 74.66 145.97
4888.79 9247.97 5309.77 5523.62 10833.40
4938.63
79
RE-Q3 RE-Q4 RE-H2
Budget
FY10 RE-FY10 % incr/(decr.)
849.94 849.94 1699.88 2970.78 3251.30 9%
279.89 299.49 579.38 1133.32 1070.12 -6%
593.83 617.58 1211.41 2450.13 2318.08 -5%
713.20 734.60 1447.80 2797.91 2737.15 -2%
209.31 233.66 442.97 828.60 818.10 -1%
340.83 357.87 698.70 1440.38 1304.02 -9%
9.10 9.10 18.21 47.25 46.83 -1%
784.06 823.27 1607.33 3279.80 2864.31 -13%
851.56 877.10 1728.66 2862.64 3051.22 7%
25.75 27.75 53.51 111.30 95.71 -14%
184.58 139.58 324.16 245.70 602.50 145%
40.39 40.39 80.78 216.77 138.77 -36%
133.47 146.82 280.28 636.35 503.64 -21%
253.96 253.96 507.93 913.75 987.17 8%
60.76 60.76 121.51 269.23 261.56 -3%
5330.64 5471.87 10802.51 20203.91 20050.48 -1%
80
RESEARCH DESIGN AND METHEDOLOGY
Methodology is the bone of a project. It has also an important aspect as regards to
IGL (Indraprastha Gas limited) concerning with regulation of Ministry of Petroleum
and Natural Gas. I have gone very deeply in preparing the project & I devoted
my full attention to get the accurate & real data collection. For this purpose I
became in close contact with sources of data collection by personally &
through Internet. Hence my research design is experience based and method of data
collection is basically secondary.
The Methodology contains the following things:-
Sources of Data:- Sources of collection of data for a project report has
a very important role. So, the sources must be very reliable. For this
purpose I did my best efforts to get proper & correct information.
(A) I have taken the figures, information & data in connection with
Profit & Loss A/c, Balance Sheet, from the annual report of the
company through website of the company.
(B) With the help of Internet I have got the information, data &
figures about Natural Gas industry, beginning of Natural Gas
industry in India, Recent Developments of Natural Gas Industry,
history of Natural Gas Industry, global & Indian scenario of
Natural Gas industry.
(C) I have collected the information from the website of Ministry of
Petroleum and Natural Gas, regarding norms, objective, eligibility
etc.
81
(D) I have collected the data, information & figures from the printed
annual report of Indraprastha Gas Limited (IGL) for the purpose
preparing of charts of Gross Sales, Net Profit, EPS etc.
(E) I have also get the figures, information & data from the chief
manager (Finance) & other staff of the company with the
discussion personally.
Methods of Data Collection:- For a project report methods of data
collection has also an important role in connection with accuracy &
exact information. So, I adopted both the methods primary as well as
secondary method of data collection.
(A) Primary Data:- Throughout the preparation of project report I
was in the contact of Chief Manager (Finance) & staff of finance
department to get the information.
(B) Secondary Data: - I collected the information figures & data in
connection the preparation of project report from Balance-sheet &
Profit and loss a/c of Indraprastha Gas Limited (IGL). I have also
collected the information, data & figures from annual report of
Indraprastha Gas Limited (IGL). I have collected the information
from the Internet in connection with the where about Natural Gas
Industry.
82
REFLECTION OF LEARNING DURING THE
PLACEMENT
I was working in Finance department, during my training period for 7 weeks,
where I was taught the basic training consisted of two phase. It includes the
practical and theoretical knowledge. The main sources of theoretical knowledge
were insights of my project guide respected Mr. Saibal Biswas, practical
knowledge induced me in live working project. It was a project of “Trend analysis
of share prices of IGL with respect to its competitor (GGCL)”. The basic work to
be done was the analysis of firm on various parameters like financial parameters,
business performance, management activity, etc. according to latest changes made
by MOPNG.
The project provided me platform to use my analytical and management skills
to calculate various ratios and needed information. The basic source of data
was the information provided by the firm itself, hence validity and authenticity
of data also needed to be taken into consideration. The Responsibility assign
to me to collect all information regarding project and prepare project using
updated data available from finance department of IGL.
Learning about how they feed and maintaining general business transactions in
SAP (Systematic Analysis Process) while preparing budget.
83
Understanding the procedure of rectifying the entry that was wrongly passed
in operating system.
Understanding the transactions passed in accounts record in respect of the
entry forward by C & P department to Finance department.
Getting an insight into the various criteria describe by MOPNG.
Collecting information and data relating to the various important aspects of
share market and keep an close eye in changes occurred in the share prices of
IGL
CONCLUSION
From the above analysis over the budgeting system of the IGL, I conclude the
following:
IGL follows the operating budget system because it revised its budget after
every six month and follows its budget after each quarter.
Procedure of IGL budgeting system includes the following: Planning of
Budget, preparation of budget, approval of budget, implementation and
control & evaluation.
Factors Considered by IGL before making Budget:- The budget estimates
include:
Projected Capital Expenditure
Demand projections
Sales quantity projections
Revenue
84
Cost of natural gas purchase
Operating expenses
Funding
Projected profit
Proposed dividend
Resource mobilization of capital expenditure
Projected Profit & Loss Statement
Projected Cash Flow
Projected Balance Sheet
Under the controlling process the expected budget is being matched with
the actual figures after every 3 months. If any deviations are recorded i.e if
the actual figure exceeds the expected figure then there is a need to change the
expected budget figure in accordance with the actual. This process of make
changes in expected budget is done in every 6 th month. This change in
expected budget which is prepared in every 6th month is known as revised
budget.
Company is a debt free company. This is because of their well and good
budgeting system as they used to revised their budget after every 6 months and
they can make required changes within time.
If there is any deviation recorded in the actual figure while making
comparison with its budgeted figure then they used to exceed it with the
required amount in their revising budget and the next year’s budget is then
adjusted with that same amount.
They are good at controlling their budget as compared to other
organizations in a way that:
Generally other companies used to prepare their budget by taking the figures
either 5% more or 5% less than the actual. While on the other hand IGL used
85
to take the exact figures into account while preparing the budget and make
changes in it as and when required. This makes their budgeted system more
consistent and reliable for all the departments.
RECOMMENDATIONS
Company should involve employee’s ideas while preparing the budget.
Company should delegate authority to each department of making changes in
the budgetary figures as and when required so as to:-
Save time.
For efficient decision making regarding budget.
The departments are more aware of the concerned problem so they can
solve it in better way than any other authority.
Every department should have power to prepare their own budget according to
their need and then take approval from higher authority. This will help in
improving accountability in different department for their budget.
86
An inspection committee should be made to check the estimated budget
proposal come from different department before making the approval of that
budget.
A budgeting suggestion box should be made in order take opinion of
employees on budget so that every member of organization can show their
involvement in budgeting process.
Provide the investors and other interested outsiders with better information so
that they can take their decision efficiently.
BIBLIOGRAPHY
BOOK REFERRED
I. M. Pandey
S.P. Gupta
R. P. Rastogi
WEBSITES REFRENCES:
http://www.google.com
http://www.bseindia.com
http://www.wekipedia.com
http://www.igl.com
87
http://www.gujaratgas.com
http://www.petroleum.nic.in/ng.htm
http://www.naturalgas.org/business/industry.asp
http://equitymaster.com
http://moneycontrol.com
NEWSPAPERS & MAGAZINES
Economic Times
Business standard
“Outlook Money”
“Business Today”
ANNEXURE
REVISED ESTIMATES OF PROFIT AND LOSS ACCOUNT FOR THE
YEAR (2009-10)
(In lacs)
ITEMS
BGT-
H1
ACT-
H1
BGT-
H2
RE-
H2
Budget
FY09-
10
Rev.Est
FY09-
10
Actual
FY08-
09
Sales Quantity 14.81 13.71 17.67 15.39 16.23 14.55
CNG 2709.8 2509.4 3215.6 2801.4 5925.53 5310.85 4603.8
88
(lacs Kgs) 4 3 9 2 1
PNG
(lacs SCM)
345.47 314.59 448.33 394.37 793.81 708.96 535.45
Natural
Gas (lacs
SCM)
83.54 124.92 208.46 7.12
Total
Quantity (lacs
SCM)
3895.3
7
3685.4
8
4660.8
8
4189.1
5
8556.25 7874.63 6573.5
7
INCOME
TOTAL
SALES
INCOME
60517.
89
56878.
01
75391.
44
67198.
39
135909.
33
124076.
41
96213.
73
EXPENDITU
RE
Total Material
Consumed
26049.
54
22829.
80
35198.
18
27549.
54
61247.7
1
50379.3
4
41076.
68
Excise Duty
(CNG)
6804.9
4
6308.0
2
8434.4
8
7389.0
8
15239.4
3
13697.1
0
10936.
66
Total Gross
Margin
27663.
41
27740.
20
31758.
79
32259.
77
59422.2
0
59999.9
7
44200.
38
Total
OperatingExpe
nses
9370.5
1
9247.9
7
10833.
40
10802.
51
20203.9
1
20050.4
8
14193.
05
Other Income 504.03 1135.9
4
573.03 413.08 1077.05 1549.02 2622.0
4
PBDIT 18796.
93
19628.
17
21498.
41
21870.
34
40295.3
5
41498.5
1
32629.
38
Depreciation 3939.0
8
3794.5
8
4699.4
6
4700.2
8
8638.54 8494.85 6743.3
6
PROFIT
BEFORE
TAX (PBT)
14857.
86
15833.
59
16798.
95
17170.
06
31656.8
1
33003.6
5
25886.
02
Taxation 4935.6 5325.8 5590.4 5695.7 10526.1 11021.5 8638.5
89
9 6 8 0 8 5 9
Profit After
Tax (PAT)
9922.1
6
10507.
73
11208.
47
11474.
36
21130.6
3
21982.1
0
17247.
43
PROJECTED CASH FLOW STATEMENT FOR THE YEAR OCTOBER 1, 2009
TO MARCH 31, 2010
(Rs In Lacs)
PARTICULARS Q3 Q4 Total
SOURCES OF FUNDS
Profit After Tax (PAT) 5719 5755 11474
Add: Depreciation 2205 2495 4700
security deposit - PNG customers 1576 900 2476
Total Sources of Funds 9501 9150 18651
APPLICATION OF FUNDS
Payment for Purchase of Fixed Assets 9391 28312 37703
Dividend Payment 0
Investments/Redemption of investments 1000 (13666) (12666)
Defered Tax 325 368 693
Increase/(decrease) in working capital (1215) (5864) -7080
Total Application of Funds 9500 9150 18650
Opening Cash and Bank Balance 17143 18000 17143
Opening Balance in Mutual Funds 6666 6810 6666
Closing Cash and Cash Eq. 24810 11144 11144
PROJECTED BALANCE SHEET (FOR THE FINANCIAL YEAR( 2009-10)
Particulars As on March 31, As on Sept 30, As on March 31,
90
2010 2009 2010
Budgeted Audited Unaudited
Sources of Funds
Share Capital 14000 14000 14000
General Reserve 69944 64849 69772
Loan Funds 0 0 0
Deposit from customers 6822 3909 6385
Deferred Tax Liability 2283 1915 7978
Sources of Funds 93049 84674 98135
Application Funds
Fixed Assets
Gross Block 131143 88647 139250
Depreciation 46364 41557 46258
Net Block 84778 47090 92993
CWIP 13044 12697
Investment 0 6666 -6000
Current Assets
Inventories 2844 2509 2800
Sundry Debtors 4718 4041 4009
Cash & Cash
Equivalent 2543 17143 17143
Other Current Assets 200 209 219
Loans & Advances 4039 3937 4022
Total Current Assets 14345 27840 28194
Less: Current Liab. and
Provn. 12555 9619 10500
Less: Proposed
Dividend 6564 6552
Net Current Assets -4774 18221
Application of Funds 93048 84674 98135
CASE STUDY
New Delhi – A Case Study of the CNG revolution
91
Not very long ago in 1993, during the English cricket tour of India, when the visitors
lost a match, they attributed part of their loss to the air pollution in Delhi – the capital
city of India [8]. Perhaps they were bad losers, but we must admit that the pollution
levels were dangerously high enough for it to be listed amongst the world’s most
polluted cities. Vehicular emissions, which accounted for 70% of the air pollution,
would morph into deadly smog during the foggy winters resulting in an increase in
respiratory illnesses, with children and senior citizens being the worst affected. With
the economy shifting gears around the same time amidst increasing middle class
aspirations, with about 500 new vehicles being added every day, a turnaround seemed
highly improbable.
Ever since then, Delhi has won the US Department of Energy’s first ‘Clean Cities
International Partner of the Year’ award in 2003 for ‘‘bold efforts to curb air pollution
and support alternative fuel initiatives’’ [7]. In a unique display of judicial activism,
the Supreme Court of India ordered the responsible government to switch its public-
transit system to a cleaner-burning fuel in response to citizens concerns about air
pollution. Buoyed by the public pressure, the government of New Delhi reluctantly as
is typical of a developing nation, complied and enforced regulations to convert its
entire fleet of diesel and gasoline dependent public transport system to Compressed
Natural Gas (CNG) by 2002. It’s funny to note that the court actually slapped a fine of
about $450 on the Union government, for repeatedly seeking a modification in the
order [4]. To its credit, once the government set about preparing a comprehensive
action plan by passing the desired legislation and setting up the infrastructure
necessary for such a transition, it earned the recognition of drafting one amongst the
top 12 best policies in the world, as per a study conducted by the World Wide Fund
for Nature (WWF) and E3G [1].
Between 2000 and 2008, the Carbon emissions plummeted by 72%, while the SO2
emissions decreased by 57% on account of 3500 CNG buses, 12000 taxis, 65000 auto
rickshaws (tuk-tuks) and 5000 mini buses plying on CNG [1]. CNG is mainly
comprised of methane, which upon combustion mainly emits CO2 and H2O and
being lighter disperses very quickly, whereas gasoline and diesel being more
complex, emit more harmful emissions such as NOX and SOX. Owing to the recent
volatility in the oil prices and continued patronage of CNG by the government by way
of subsidies, the general public has begun to increasingly incorporate CNG kits in
92
their private vehicles, which facilitates them to run on dual fuel mode. Encouraged by
the public response, the Ministry of Petroleum and Natural Gas has set about an
ambition plan of bringing 200 cities under the supply network of CNG and Piped
Natural Gas (PNG) by 2015 [5]. For a country which depends on 70% of oil imports,
the recent indigenous gas discoveries in the K.G Basin and elsewhere have only
brightened our outlook for lesser dependence on foreign oil, enabling us to save
valuable foreign exchange. In view of growing awareness for cleaner air and climate
change, there’s many a lesson to be learnt from Delhi’s resurgence.
SYNOPSIS OF THE PROJECT
93
ABOUT THE COMPANY
Incorporated in 1998, IGL took over Delhi City Gas Distribution Project in 1999 from GAIL (India) Limited (Formerly Gas Authority of India Limited).
The project was started to lay the network for the distribution of natural gas in the National Capital Territory of Delhi to consumers in the domestic, transport, and commercial sectors. With the backing of strong promoters – GAIL (India) Ltd. and Bharat Petroleum Corporation Ltd. (BPCL) – IGL plans to provide natural gas in the entire capital region.
The two main business objectives of the company are -
To provide safe, convenient and reliable natural gas supply to it’s customers in the domestic and commercial sectors.
To provide a cleaner, environment-friendly alternative as auto fuel to Delhi’s residents. This will considerably bring down the alarmingly high levels of pollution.
The transport sector uses natural gas as Compressed Natural Gas (CNG), the domestic and commercial sectors use it as Piped Natural Gas (PNG) and R-LNG is being supplied to industrial establishments.
OBJECTIVES OF THE PROJECT
To study the current budgeting system of IGL
To study the procedure used by IGL in preparation of budget.
To study the factors taken into consideration by IGL while preparing and
revising of budget.
To study the pattern of altering and controlling of budget.
94
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