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PARCO Internship Report
INTRODUCTION1
PARCO Internship Report
Petroleum energy plays a pivotal role in the socio economic development of a
country, especially for a developing country like Pakistan, where demand for
petroleum products is fast increasing.
Incorporated in May 1974, Pak Arab Refinery Ltd. (PARCO) has now been in
existence for 27 years as a joint venture between the government of Pakistan
(GOP) and Abu Dhabi. Its authorized capital is Rs. 5 billion and paid up capital
is Rs. 2160 million of which 60% is held by the GOP and 40% by Abu Dhabi
petroleum investments of Abu Dhabi.
This long awaited project has been setup despite facing numerous obstacles and
hurdles during the 1998-99 period and despite international sanctions.
PARCO is presently engaged in the transportation of petroleum product on
behalf of oil marketing companies OMC’s from Karachi to Mahmood Kot near
Multan and to Faisalabad and Machike near Lahore through its 1,230 kms.
Pipeline. Parco’s pipeline system includes a network of highly sophisticated
telecommunication facilities and a comprehensive supervisory control and data
acquisition system.
Originally, Parco’s pipeline network was functioning up to Mahmood Kot near
Multan, a distance of 864 kms. And operating on the basis of two pumping
stations at Karachi and Shikarpur with an annual pumping capacity of 2.9
million tons. Two additional intermediary pumping stations commissioned in
1994 at Bubak (Sindh) and at Fazilpur (Punjab) increased the pumping capacity
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PARCO Internship Report
to 4.5 million tons per annum. Later, with further technological upgrading of
the system the pumping capacity was increased to 6 million tons. This
additional capacity is a major step towards meeting the increasing requirements
of petroleum products in the central and northern areas of the country, which
account for over 60% of the country’s demand of petroleum products. This
increased capacity will also come in extremely handy for transporting 4.5
million tons of crude and 1.5 million tons per year of products through the
existing pipelines. This timely initiative by PARCO will relieve a lot of
pressure on road movement.
In June 1997, PARCO completed its 364 Kms. MFM pipeline extension project
and extended its operations to Faisalabad and Machike. The project design
allows for further expansion of the pipeline from Faisalabad at Kharian besides
Sahiwal and from Mahmood Kot to Peshawar.
PARCO’s pipeline system consists of 7 pumping stations namely:
PS-1 Korangi
PS-2 Bubak
PS-3 Shikarpur
PS-4 Fazilpur
PS-5 Mahmood Kot
PS-6 Kot Bahadur Shah
PS-7 Faisalabad Not operational as yet)
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PARCO Internship Report
Also, there are four terminal stations namely:
TS-1 Keamari
TS-2 Mahmood Kot
TS-3 Faisalabad
TS-4 Machike
PARCO delivers the products at Mahmood Kot through a further pipeline
connection of 4.5 kms. To the joint oil marketing companies facilities called
JIMCO.
All PARCO terminals and pumping stations have been designed according
to the latest international standards and laid out in a standardized fashion for
ease of operation. PARCO crosses country installations have been adjudged
to be comparable to the best available in the international oil industry.
The refinery will be on stream by September 2000, which will place
PARCO in a unique position, with an additional capability to exploit the
future trends of the oil industry in Pakistan.
BOARD OF DIRECTORS
Dr. Gulfaraz Ahmad Chairman
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PARCO Internship Report
Mr. Mohammad Nasser Al-Khaily Director/Vice Chairman
Dr. Shahid K. Hak Managing Director
Mr. G.A Sabri Director
Mr.Abdus Sattar Director
Mr. Iftikhar Alam Director
Mr. Ismail J. Al-Ramahi Director
Mr. Naseer Al-Qahtani Director
Dr. Hans-Heinz Horrak Director
The company manages by professional management. The relationship
between workers and management are coordinated. The employees are
quite satisfied with their management. The workers are drawing handsome
salaries. The management is also satisfied with the performance of
employees.
Financial Year
The financial year of the company begins from 1st July to 30th June.
Banker’s Of the Company
Following are the Banker’s of the company.
ANB-AMRO Bank
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PARCO Internship Report
Allied Bank of Pakistan Ltd.
ANZ Grindlays Bank
Bank Al-Falah Ltd.
Bank of America
Crescent Investment Bank Ltd.
Deutsche Bank
Emirates Bank International
Gulf Commercial Bank Ltd.
Habib Bank Ltd.
Mashreq Bank
Muslim Commercial Bank Ltd.
National Bank of Pakistan
National Development Finance Corporation
Pakistan Kuwait Investment Co. (Pvt.) Ltd.
Standard Chartered Bank
The Bank of Khyber
The Bank of Punjab
United Bank Ltd.
Auditor’s of the Company
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PARCO Internship Report
The auditors of the company are Taseer Hadi Khalid & Co. Chartered
Accountants.
NUMBER OF DEPARTMENTS
Finance Department.
Human Resource Department.
Process.
Personnel & Administration.
Electrical / Instrument.
Mechanical
Technical Services.
Health & Safety Environment.
Engineering Services
Company Secretary
Mr. S.M. Mahboob
Corporate Office
Corporate Headquarters,
Korangi Creek Road,
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PARCO Internship Report
Karachi- 75190,
Pakistan.
Registered Office
Avari Plaza,
Adjacent to Hilton Hotel,
87, Shahrah-e-Quaid-e-Azam,
Lahore. Pakistan.
Refinery Office
Qasba Gujrat, Mahmood Kot,
Distt. Muzaffargarh,
Pakistan.
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PARCO Internship Report
NEED FOR THE REFINERY
Due to the following reasons PARCO’S mid country refinery project come into
existence:
Petroleum product demand in Pakistan has outstripped local production
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PARCO Internship Report
Demand in northern region of Pakistan is more than 60% of Pakistan’s
total requirement.
Furnace Oil being a viscous product cannot be transported over long
distance in pipeline to meet requirement of power plants in the vicinity
of Mahmood Kot. It is more economical to transport Crude Oil to Mid –
Country Refinery and produce products including furnace Oil.
Indigenous refining capability brings additional security and the desired
flexibility of product supply with respect to imports.
PARCO Mid country Refinery has a lead of at least 3-5 years on any
other refinery project in the country giving market positioning benefits
and ensuring maximum commercial advantage.
PARCO 1,228-km cross-country pipeline network is already available
for crude/ product transportation.
Enables PARCO to diversify into marketing of LPG and other Fuel
products.
Refinery coupled with the White Oil Pipeline Project (WOPP) gives
PARCO a competitive advantage to meet up-country demand.
REAPING THE BENEFITS
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PARCO Internship Report
PARCO’S Mid-Country Refinery will be a source of great pride and benefit
for the people of Pakistan, since it has been put up in the last 2 years despite
very heavy odds and economic retractions on Pakistan. The following
benefits are:
EMPLOYMENT OPPORTUNITIES
PARCO’S Mid-Country Refinery has created employment opportunities
for 10.000 people, especially during the construction phase and gives a
chance to people to enhance their skills. Further they will expand it for
marketing point of view and opportunities of employment created.
FOREIGN EXCHANGE SAVING
The operation of the Refinery will result in greater foreign exchange saving
($ 100 million per year) for the country by reducing the import of petroleum
products and stream line transportation logistics and generating nearly $24
million per year in taxes, duties, and dividends.
DEVELOPMENT OF ALLIED INDUSTRIES
In addition to the production of petroleum products, the refinery is expected
to become a nucleus for the development of downstream petrochemical
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PARCO Internship Report
units in the area, and it will provide and opportunity for the development of
the allied industries in the area.
All these benefits will contribute to the economic growth of the country and
thus will be considerable value for all Pakistanis.
MISSION STATEMENT OF PARCO
To provide the country and the oil marketing companies (OMC’s)
with as good a service in the area of product transportation, as it has
in the past with the pipeline transportation.
To maximize production of middle distillates and full oil to meet the
national demands of petroleum products which is currently around 18
million metric tons, increasing at rate of 5% per annum.
OBJECTIVES OF PARCO
The following long term corporate objective, which are inherently embodied in
the name of the company are:
(P) Professional and Progressive Corporate outlook.
(A) Aggressive Pursuit of Technical Excellence, Advanced Planning.
(R) Reliability of Service
(C) Consistency in performance
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PARCO Internship Report
(O) Organized, Systematic Development.
LOCATION
CONSTRUCTION
The major cost involved in any organization is in the shape of construction
cost. The total cost of the refinery is around US$886 million of this colossal
amount, US$50 million have been spent on environmental protection measures
and US$ 28 million have been spent on buildings and civil works, including the
housing complex hospital, school, refinery buildings, approach roads etc.
ADVANTAGES OF REFINERY LOCATION
PARCO select the location due to the following advantages.
It is sensible and strategic location from a commercial and national
Security point of view.
Serves major consumption centers catering to a population of 35
million with a current / projected significant deficit.
It is located close to power plants with an annual demand of over 1
million tons of furnace oil.
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PARCO Internship Report
Streamlines the movement of crude oil and petroleum products thus
reducing burden on country’s rail / road transportation.
It is close to petrochemical demand centers giving advantages for
future growth into bulk petrochemicals.
Utility supplies have been secured through adjacent power plants and
there is plenty of water to meet refinery requirement.
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CAPACITY
“Capacity is the minimum rate of output for a facility”
The Refinery complex includes 11 onsite units process units besides numerous
off site / utilities units and other permanent facilities with 51 tanks to store the
crude oil, intermediate feeds stocks and finished products.
PARCO’S mid-country Refinery will have a refining capacity of 100,000
barrels per day or 4.5 million tons per annum making it the largest in the
country.
PROCESS UNITS AND CAPACITIES
Unit code Unit BPSD100 Crude distillation 100,000110 Vacuum distillation 42,800200 Naptha Hydrotreater 25,650300 CCR platformer 16,350284 Diesel max 22,450130 Visbreaker 15,560801 Kerosene merox 20,000802 LPG merox 4,500411 Gas concentration Liquid: 22050
Gas: 11.242 (MMSCFD)810 Amine treating F.G.: 7.721 (MMSCFD)
SWS: 9,963820 Sulphur recovery 115 MTPD
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FINANCE DEPARTMENT
Finance department is the center point of my internship. Finance department is
the backbone of every organization. In MCR finance department has several
sections. The Finance department is responsible for the entire accounting
process of the organization, regarding the recording of the transactions,
designing the accounting, preparing of financial statements and computer
application to the accounting process.
In MCR only Trial Balance prepare, all Accounts are maintained in Karachi
head office. Sophisticated techniques are used, LAN & WAN systems, Inter
Com facility through MCR to Head Office Karachi is very beneficial to
maintain the accounts of PARCO.
From this quick and better work is possible. These techniques are very effective
and prove efficient for growth and progress of this organization. Now it will
possible to check and collected the information or routine work of any
employee of PARCO.
DESIGNATIONS
Mid-Country Refinery has following local staff Designation grade wise.
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PARCO Internship Report
1. DEPUTY MANAGING DIRECTOR (Operation).
2. MANAGER.
3. DEPARTMENT HEAD :
Chief Accountant
4. SECTION HEADS :
Senior Accountant
5. GRADE-V :
Accountant I
6. GRADE-VI :
Accountant II
7. GRADE-VII :
Accountant III
8. GRADE-VIII :
Assistant Accountant I
9. GRADE-IV :
Assistant Accountant II
10. TRAINEE :
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PARCO Internship Report
Hierarchy level of Finance department.
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PARCO Internship Report
Sections of Finance Department
Accounting matter of finance department is deal both in the Refinery office
and Head office. Head office deals Banking section, Payroll section, Insurance
Section, Import Section, Income Tax accounting while Refinery office deals
initial stage of business transaction, recorded and maintained. Refinery finance
department consists of billing payable Section, Receive able Section, Impressed
or cash section, MIS Section, Invoice Section, Cost, Budget & Sales Section.
Also other section which are not directly linked with accounts but also
necessary. I would like to mention these sections Oil accounting Section,
Purchase Section or store or supplies, shipping Section, Commercial
department. All final accounts are maintained in Head Office INCOME
STATEMENT AND BALANCE SHEET. In the Refinery office only Trial
balance posting complete.
The main functions of these sections are record the business transactions.
Sections are restricted up to the recording and maintaining the accounting data.
For proper maintain the accounts, used coding techniques on their voucher.
There are four kinds of vouchers.
CASH VOUCHER: These vouchers are prepared for payment of petty cash.
CHEQUE VOUCHER: CHEQUE payments made by these vouchers.
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PARCO Internship Report
PAYABLE VOUCHER: This voucher is prepared at the time of making
payment to any party. In accounting term, party name will be debited and
income, taxes and advances will be credited.
JOURNAL VOUCHER: This is also known Adjustment voucher. This
voucher is prepared for adjusting any entry.
Vouchers are prepared after every transaction. Write narration about these
vouchers. These vouchers are signed by certain authorities e.g. (prepared by,
checked by, approved by, punched by, Verified by).
IMPREST/CASH SECTION:
Scrutinizing of vouchers / cash disbursements & maintenance of record
(REFINERY & PIPELINE) of the following activities: -
Cash withdraw from Bank.
Payment of Medical Allowance
Payment Petrol Subsidy.
Payment Hardship Allowance
Payment of Out Station Allowance (Rs.100/= per day.)
Payment of Tea Allowance (Rs.8.4/= per day to every employee.)
Payment of Office Entertainment & Refreshment
Payment of Utilities
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PARCO Internship Report
Advances to Employees against Expenses.(If necessary)
Statement of General Expenses (T.A & D.A, Suppliers labor etc)
Grade I – Payment made by the Head Office.
Grade II- Entertainment 1000/= per month and current value of 250 liters petrol
paid.
Grade III – Rs.600/= per month as entertainment and current value of 200
liters petrol are paid.
Grade IV- Rs.400/=per month as entertainment and 175 liters petrol paid.
Grade V to IX- Petrol subsidy 150 liters paid to the employees.
Salaries of Refinery employees paid by Head Office.
Custom Staff payment and submission of Monthly summary to corporate
office to recoverable from OMCS.
Bloom field Hall School (Advances & Reimbursement of Expenses)
Payment of Salaries to casual Staff.
Preparation of journal Vouchers of Expenses Statement against advance and
maintenance of record.
Maintenance of Cash Book
Checking of Vouchers, coding and posting and dispatch to Head Office.
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PARCO Internship Report
BILLING PAYABLE SECTION
This section received the bills or invoices that including tax amount that may
differ according to the nature of bill and paid within 10 days. Payments of
Daily wages, Casual employee (Non-permanent Staff) are made through
CHEQUE. For this Payment till Rs.5000/= may issue CHEQUE without
crossing. All party payment is made through cross CHEQUE. There is no
deduction of tax till Rs.24999/= up to this amount certain taxes will be
deducted from the total amount of bill. 3.5 % tax deducted on all receipt of
Inventories. 5 % tax deducted on Services e.g. hospitals, clubs, schools, other
utilities. 7.5 % tax on Rent, 10 % amount deducted as commission of supplier.
This section made the payment to contractors who provide the Inventories or
Supplies and Services. Payable section refunded the amount that has paid to
parties or contractors in their bills. Food beverage tax is non -refundable.
Now here the question arises, what is the procedure of Bills payment?
Chief Accountant received the Bills from concern parties. Bills are checked by
payable section. They tally the amounts of 1-Purchase order 2-Material Receipt
Statement 3- Invoice and made vouchers that approved by the chief
Accountant. These bills are paid by CHEQUES and recorded in CHEQUE
voucher. After posting all record dispatch to Head Office.
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PARCO Internship Report
RECEIVEABLE SECTION
This section, we may call banking section. It deals revenues. If there is capital
in our banks, The amount of taxes will be credited. The record of all
transaction maintained through Bank Reconciliation Statement. PARCO
receive Demand Draft (D.D) or Telegram (T.T).
BANKING LODGEMENT is prepared on the amount by selling its product
that PARCO sale via its own Brand Name “Pearl”. The revenue through sale
of Oil Marketing Companies (OMC’s) deals Head Office. Central Excise Duty
(CED) paid advance Rs.85 per metric ton. Whenever the product is being sold,
the shipping department prepare the four copies of Article Removal 1(AR1)
and Article Removal 2 (AR2). One copy held in its own possession and
remaining copies are send to Receive able Section, Concerned party, and in the
office of Excise and Taxation. AR2 is prepared when product sold through
Under Bound. Government store Under Bounder Product in the warehouses.
Duties and Taxes are paid later on. AR1 received Receive able Section of
Refinery office.
Refinery office use these banks: National Bank of Pakistan (NBP). Allied Bank
of Pakistan (ABL) Muslim Commercial Bank (MCB).
CHEQUE VOUCHER is used for TAX LODGEMENT. Taxes are deposit by
each party.
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PARCO Internship Report
JOURNAL VOUCHER is used for the adjustment of taxes. When party paid
amount. Bank is debited and the Party Name credited. When duty paid.
Central Excise duty is debited and Bank account credited. We prepare Journal
Voucher or make adjustment when Central Excise Duty is paid. This section
used the term Tax Withdraw Voucher or Journal Voucher (JV) Or Journal
Receipts (JR).
MIS SECTION
Management Information System Section prepares the Trial Balance via the
posting of journal voucher through coding that made in computer systems by
using the BASIC LANGUAGE programming.
MIS Section receive Journal vouchers from pay able section, cash section, and
sales tax section. By posting in specific code, these posting adjust in Trial
Balance automatically for programming.
Every section has coding system, either Budget cost or Center cost. They post
these vouchers by using these coding system. BASIC LAGUAGE
programming convert it in to Trial Balance by using these codes in specific
heads. Information Technology Department provides the facility of
programming. Some programming are installed in Visual Basic M/S Excel,
named PPT personnel Protection Equipment and Library System etc. Oracle
programming is also installing.
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PARCO Internship Report
INVOICE SECTION
We may call this section Sales section. The product of refinery sold via
OMC’s, PEARL, and direct to the direct consumer. Pipe line and Gantry
means of transportation. Parties submit the Projection/ Agreement and the
amount of that product, they required in the projection. Payment made through
D.D or T.T. In this amount taxes also included.
When Invoice Section prepare invoice, it deduct the sales tax amount 15 % of
sale, Central and Excise Duty Rs.85 per metric ton and development surcharge
from the Sales and calculate the Net amount. After posting dispatch to Head
Office.
Parties submit projection before some days of delivery. In shipping
department, there are Control Room1 (CR1) and Control Room 2 (CR 2) that
are used as gate pass. Invoice Section receive the Delivery Advice (D.A)
which shipping department prepare. This D.A includes capisty and number of
tanker.
COST AND BUDGETING & SALES TAX
This Section deals the Budget control and Sales taxes.
Cost and Budget:
Budget is allocated for every year. This period start from 1st July to30th June.
We can classify the budget in to two main heads, Revenue Budget and Capital
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PARCO Internship Report
Budget. Revenue Budget is allocated for operating expenses which are helpful
for generate the revenue e.g. telephone, store and supplies etc. Capita Budget
is allocated for fixed expenses e.g. furniture and fixture, machinery etc.
These are allocated in proper heads, either about Revenue items or Capital
items. This will helpful in better coding and maintaining the record. Each
department demanded required budget. When ever any thing is required
Indent Sheet is prepared. This is written issue order which is approved by
finance department. To fulfill the need of any thing which is mentioned in
Indent Sheet, calls quatations from various department. Suitable quatation
accepted and place purchase order. Purchase department prepares Material
receipts statement (MCR), when material received. From this received material,
issue to the demanded department, and prepare Material Issue Requisition
(MIR). Every department prepared the coordinate, in the form of summary.
This summary is send via approval of Manager. Board of Director approved it.
When Managing Director singed it, then send to related department.
Sales Tax:
Sales Tax has coordinated relationship between sales output invoices and
purchase input invoices. If amount of sales output invoices increases, we will
have to pay sales tax, and if the amount purchase input invoices increase, we
recover amount of tax. So for we adjust either we pay or pay. In case of
favorable balance, we will not received and carry forward for next transaction.
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PARCO Internship Report
Four copies of Invoices are classified as such. First original invoice, send to
consignee, Second duplicate copy send to Parco commercial department,
triplicate copy receive Parco finance department and quadruplicate copy send
to shipping/clearance department. 99 % parties are registered that pay the sales
tax 15 % and remaining unregistered parties that pay the sales tax 15 % plus 1.5
% deduct as sales tax, not as the whole 16.5 % deduct as sales tax. Sales tax
pays up to 15th date to next month. Head Office purchases the crude oil by the
Letter of Credit. We can refund the sales tax amount under Section 22(1) a,
Sales tax act 1990. We adjust the favorable balance, carry forward for next
transactions.
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PARCO Internship Report
MATERIAL MANAGEMENT
“Material Management is concerned about short range decisions about supplies,
inventories, production level, staffing patterns, schedules and distribution.”
MATERIAL IMPORTANCE FOR PARCO
Material is important for PARCO because the Refinery will optimize product
supply logistics and ensure efficient and economic availability of petroleum
products to the central and northern regions of the country, which about for
over 60% of the country’s total requirement.
Impact of inventory:
Inventory has direct impact on the profitability of the organization. Parco can
not keep much more inventory, because if they do so, they bear much more cost
of holding.
FUNCTIONS OF THE MATERIAL
MANAGEMENT
PURCHASING:
Parco will import three vessels per month, approximately carrying 64,000
metric tons each from Saudi Arabia.
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PARCO Internship Report
SUPPLIER:
The supplier of the crude oil for Parco is ARAMCO. PARCO entered a crude
oil sales agreement with ARAMCO for the purchase of 30,000 barrels/day of
light ARABIN crude. The agreement was signed at Dahran on Jun 18,2000.
CONTRACTING:
Contract for the transportation of crude oil for the MID-COUNTRY Refinery,
from Saudi Arabia and Abu Dhabi, was signed with Pakistan National Shipping
Corporation (PNSC) on July 18,2000.
INVENTORY MANAGEMENT
“INVENTORY IS A STOCK OF ANY THING HELD TO MEET THE
FUTURE DEMAND OF ORGANIZATION”.
TYPES OF INVENTORY
RAW MATERIAL:
Raw material used by the Mid-Country Refinery is the crude oil ( light Arabian
crude) which is purchased from Saudi-Arabia and Abu Dhadia.
FINISHED GOODS
Finished goods of PARCO Mid-Country Refinery are
LPG Regular Gasoline
HOBC JP-4
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PARCO Internship Report
Jet A-1 Kerosene
LDO HSD
Fuel Oils
INVENTORY CONTROL SYSTEM
Inventory control system has two types of systems
CONTINUOUS REVIEW SYSTEM
When ever the number of the units are drawn out of the inventory stores they
judge the position of the inventory that whether it is a time to reorder of not. In
this way t he inventory is controlled.
PERIODIC REVIEW SYSTEM
The second method of inventory control system is periodic review system. In
this system the inventory position is judge periodically instead of continuously.
In a p system the lot size may change form one order to the next, but time
between orders is fixed.
INVENTORY CONTROL SYSTEM AT PARCO
PARCO USING THE PERIOD reviews system. It means that lot size vary
but the time between orders is fixed. As PARCO will import three vessels
per month approximately carrying 64,000 metric tons each, but the first
vessel brought 66,000 metric tons of crude oil for the Mid –Country
Refinery.
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PARCO Internship Report
QUALITY CONTROL
Total quality management (TQM) stresses three principles:
Employee involvement
Continuous improvement
Customer satisfaction
EMPLOYEE INVOLVEMENT
One of the important elements of TQM is employee involvement. Employee
involvement consist of
CULTURAL CHANGE
In TQM, every one in the organization must share the view that quality control
is an end itself. It is possible only if the environment of the organization is
good. For this purpose PARCO spent US$50 million on environmental
protection measures and established a friendly environment.
INDIVIDUAL DEVELOPMENT
Individuals motivated by giving awards and incentives. PARCO give their
employees the following awards.
Long Service Award
PARCO distributed the 7, 10, 15 and 20 years service awards among their
employees.
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PARCO Internship Report
Best Station Award:
Every year one of Parco’s terminal pumping stations is given “the best station
award” after being assessed on the standard of its house keeping and safety.
CONTINUOUS IMPROVEMENT
PARCO improve the quality continuously. For optimization and product
quality control, the facility of advance process control is available in the
system. PARCO has a laboratory also whose function is to check the quality of
products. If the quality of products are not satisfied they are reprocessed until
of products acquire the desired quality standards.
CUSTOMER SATISFACTION
PARCO gearing to deliver the correct quantity of high quality products to
consumers tank on timely basis, through the safest and shortest routes and at
the lowest costs. Further more the objective of this initiative is to provide
excellent consumer service, where customer complaints are promptly attended.
Also where measures are instituted to ensure that the customer is properly
informed and that lessons are learnt to prevent re-occurrence of errors. Parco’s
existing infrastructure and expertise should assist in achieving this aim and
establishing a marketing network.
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SIGNIFICANT OF ACCOUNTING
Summary of Significant Accounting Policies are as follow.
Basis of Presentation
These accounts have been prepared in accordance with International
Accounting Standards, as applicable in Pakistan.
Accounting Conversion
These accounts are prepared under the historical cost ‘convention’ as modified
by capitalization of exchange differences.
Fixed Assets and Capital Work-in-Process
Fixed assets except land are stated at cost less accumulated depreciation. Land
and capital work in progress are stated at cost. Cost in relation to certain fixed
assets and capital work –in- progress signifies in historical, exchange
differences e.g. (Assets and liabilities in foreign currencies are translated into
rupees at the specifics rate of exchange announce by the State Bank of
Pakistan. Prevailing on the balance date, except those which are covered under
exchange risk cover scheme, which are translated at cover rate.
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PARCO Internship Report
Exchange gain/loss on loan relating to assets that have been fully depreciated is
directly charge to profit and loss account) and financial charges on borrowing
for financing the project until such projects are completed or become
operational.
Depreciated is charged to income applying the straight line method, where by
cost of an assets are written of over its estimated useful life without taking into
accounts any residual value. Full year depreciated is charged on addition while
no depreciation is charged on items disposed off during the year.
Maintaining and repaired are charged to income as and when incurred, major
renewals and improvements are capitalized and the assets so replace, if any, are
retired. Gains and losses are disposals of assets (If any) are included in income
currently.
Assets Subject to Finance lease
Assets subjects to finance lease are stated at the lower of present value of
minimum lease payments under the lease agreement under the fair value of
assets, the related obligation of the lease are accounted for as liabilities. Assets
acquired under the finance lease are depreciated over the useful life of the
assets on the straight line method at the rate given:, Depreciation on lease assets
is taken to profit and loss accounts.
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PARCO Internship Report
Borrowing Cost
Borrowing costs that are attributed to the acquisition, construction, or
production of fixed assets have been capitalization as the part of cost of the
relevant asset.
Investment:
Long Term
These are stated at cost. Provision is made for decline, other than temporary, in
the value of investment, if any.
Short Term
These are stated at the lower of cost or market value.
Stores & Spares
These are valued at the moving average cost, while items considered obsolete
are carried at nil value. Items in transit are valued at cost comprising invoice
value plus other charges paid thereon.
Revenue Recognition:
Revenue from Transportation
Revenue from transportation of petroleum is recognized on delivering the
products.
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PARCO Internship Report
Investment
Return on investment recognized at the rate specified in the respective
investment scheme and accrued for the period. The income is recognized on
the assumption that such investments will be held till the next terminal date.
Staff Retirement Benefits:
Gratuity
The company operates a defined benefits funded gratuity scheme for all
supervisory staff. Contributions are made annually to the fund on the basis of
actuarial recommendations @ 7.32 % of basic salary, cost of living, allowance
and indexation. The actuarial valuation is performed once every three year and
the most recent actuarial valuation of the scheme was carried out at 30 th June
1997, which reflected the fair value of the fund’s assets and liabilities at
Rs.24.845 million and Rs.25.171 million respectively. The actuarial valuation
was carried out using “Projected Unit Credit Method”.
For Non–supervisory staff, contribution for gratuity is made on the basis of
entitlement of the employees at the Balance Sheet date.
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PARCO Internship Report
Pension Fund
The company operates a defined befits funded pension scheme for all
supervisory staff. Contribution made annually to the fund on the basis of
actuarial recommendation @ 20 % of the basic salary, cost of living allowance
and indexation. An actuarial valuation is performed once in three years and the
most recent actuarial valuation of the scheme was carried out at 30th June 1997,
which reflected the fair value of the fund’s assets and the liabilities at
Rs.42.197 million and Rs.54.270 million respectively. The actuarial valuation
was carried out using “Projected Unit Credit Method”.
Starting from the year 1997, the company is also operation a defined benefit
funded pension scheme for all workmen staff. Contributions are made annually
to the fund on the basis of actuarial recommendations. Based on the first
actuarial valuation carried out on 01 January 1997, contributions are made at
the rate of 4% per annum in addition to initial contribution of Rs.899,000.
Provident Fund
In addition, the company also operates a defined contribution Provident Fund
for all its regular permanent employees. Contributions are made equally by the
company and the employees @8.33% of basic salary, cost of living allowance
and indexation to the fund.
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Taxation:
Current
Provision for current taxation is based on taxable income at the current rates of
taxation after taking into account tax credits available if any.
Deferred
Provision for deferred taxation is made on all material timing differences using
the liability method.
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RATIO ANALYSIS
Ratio analysis of financial statements refers to the process of Determining and
Presenting the relationship of items and group of items in the statements.
Ratio analysis however is not an exact science but a useful art. It is a
Statistical yardstick providing a measure of relationship between two
Accounting figures. Ratio analysis can be of use both in the trend or structural
Analysis and static analysis. Great care is needed while calculating meaningful
ratios and in interpreting them. Although there are several ratios which can be
employed by an analyst, yet the type of ratio, he would use entirely depends on
the purpose for which the analysis is done i.e., a creditor would keep himself
abreast about the ability of a concern to cover up its current obligations and so
would care about current and liquid ratios, turnover of receivable, coverage of
interest by the level of earning etc.
So the Financial statement analysis is the process of identifying of financial
strengths and weaknesses of the firm by properly establishing relationship
between the items of the balance sheet and the profit and loss account.
The need for ratios arises due to the fact that absolute figures are often
misleading. For example, if sale increases from Rs.300,000/= to
Rs.350,000/=, it may not be a good thing as appears. The increase in sales may
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be affected at the cost of a disproportionate rise in expenses. Absolute figures
are only valuable if they are studied in relation to each other.
Expenses of Ratios
Expenses of ratios is done in the following ways:
1- Actual ratios are arrived at by dividing one number by another e.g. current
asset to current liability is 2 : 1
2- Ratio between two numerical facts usually over a period of time e.g. Stock
turnover is three times a year.
3- Ratio between two numerical may be expressed in percentage.
Advantages of Ratio Analysis
It helps to give comprehensive financials statements in evaluating aspects of
any undertaking in respect of financial health, operation efficiency and
profitability.
It gives a chance of inter-firm-comparison to measure efficiency and helps
management to resort to some remedial measures.
Dynamic or trend analysis is helpful towards planning and forecasting the
virtuous use of ratios.
It provides a good help in decision making for investors and to the financial
institutions.
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CLASSIFICATION OF RATIOS
Ratios can conveniently be classified as follows:
1-INCOME STATEMENT RATIOS:
Income statement ratios are also called operational ratios. These ratios deal
with the relationship of two items and both are in the profit and loss account or
income statement. It is necessary for income statement ratios that both items
must belong to the same profit and loss account. The following are the
important types of income statement ratios:
A. GRASS PROFIT RATIO
This ratio is of great importance in the analysis of the trading results of the
business. Gross profit Ratio is the ratio of gross profit to net sales expressed in
percentage. Thus it expresses the relationship between gross profit and sales.
It tells the management the ability of sales to generate earnings before any cost
of business except cost of goods sold.
FORMULA: -
Gross Profit Net Sales
Year 1994-95 1995-96 1996-97 1997-98 1998-99
% 47.95 51.43 72.38 79.67 87.17
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The figure of gross profit ratio is continuously increasing. Its mean that
PARCO is regularly developing.
B. OPERATING PROFIT RATIO
The operating profit ratio measures the percentage of profit earned on each
sales dollar before interest and taxes. A high operating profit margin is
preferred. It takes into consideration the trading results and operating
expenses. It is more important ratio than the simple gross profit ratio. It can be
obtained by dividing operating profit on sales.
FORMULA: -
Operating ProfitSales
Year 1994-95 1995-96 1996-97 1997-98 1998-99
% 47.03 51.26 73.92 59.33 69.90
Operating profit ration margin is gradually increasing except there is a lightly
declining in the year 1997-98, and is increasing trend for next year.
C. NET PROFIT RATIO
The net profit ratio measures the percentage of each sales dollar remaining after
all expenses, including taxes, have been deducted. The higher the net profit
margin, the better will be the company position. It is expressed in percentages.
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PARCO Internship Report
It is also useful for the proprietors of the business. This is a good yardstick in
the hands of management to measure the overall profitability.
FORMULA: -
Net Profit (after taxes)Sales
Year 1994-95 1995-96 1996-97 1997-98 1998-99
% 34.73 41.67 60.90 55.04 63.41
The profitability position of PARCO is satisfactory.
D. OPERATING RATIO
This is the ratio of cost of goods sold plus operating expenses to net sales. It is
generally expressed in percentage. It measures the cost of operations per rupee
of sales. This ratio shows the operational efficiency of the business. Lower
operating ratio shows higher operating profit and vice versa. An operating ratio
between 75% and 80% is generally considered as standard.
FORMULA: -
Cost of Goods Sold + Operating ExpensesNet Sales
Year 1994-95 1995-96 1996-97 1997-98 1998-99
% 62.30 62.54 40.67 36.19 28.98
This trend shows that operational efficiency of the business increasing each year.
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E. STOCK TURNOVER RATIO
Every firm has to maintain a certain level of inventory of finished goods so as
to be able to meet the requirements of the business. This level of inventory
should neither too be high, nor too low. A too high inventory means higher
carrying cost sand higher risk of stocks becoming obsolete whereas too low
inventory may mean the loss of business opportunities. Thus it is essential to
keep sufficient stocks in business.
Stock turnover ratio is also known as inventory turnover. It is the relationship
between the cost of goods sold during a particular period of time and the cost of
average inventory during that period. It is expressed in number of times.
FORMULA: -
Cost of Goods Sold Average Inventory
OR
Net SalesInventory
Year 1994-95 1995-96 1996-97 1997-98 1998-99
% 44.99 45.00 45.00 45.00 44.99
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Inventory turnover ratio measures the velocity of conversion of stock into
sales. Parco inventory turnover ratio is revealing that it is near about the
same. This is a good point of the company.
2- BALANCE SHEET RATIOS:
Balance sheet ratios deal with the relationship between two balance sheet
items, e.g. the ratio of current assets to current liabilities or the ratio of
proprietor’s funds to fixes assets. Both the items must pertain to the
balance sheet items:
A. CURRENT RATIO
Current ratio may be defined as the relationship between current assets and
current liabilities. This ratio is also known as working capital ratio. The current
ratio is the test of solvency or it is a test of short term, financial strength. It the
current ratio is higher it means the current assets are more free from debt claims
by creditors, and the creditors would feel themselves more satisfied.
It is a good measure of general liquid and is most widely used to make the
analysis for a short-term financial position or liquidity of a firm. The standard
for this ratio is 2: 1. It is calculated by dividing the total of the current assets
by total of the current liabilities.
FORMULA: -
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Current Assets : Current Liabilities
Year 1994-95 1995-96 1996-97 1997-98 1998-99
% 1.94:1 1.489:1 1.66:1 3.45:1 1.21:1
This financial position is satisfactory.
B. QUICK RATIO
This ratio is also termed as “acid test ratio” or “liquid ratio”, It is the ratio of
liquid assets to current liabilities. The true liquidity refers to the ability of a
firm to pay its short-term obligations as and when they become due. The
standard for this ratio is 1: 1.
FORMULA: -
Liquid Assets : Current Liabilities
Year 1997-98 1998-99 % 55.64 181.10
This is highly positive aspect toward the liquidity position of the firm.
3- COMBINED OR MIXED RATIOS:
These ratios exhibit the relation between a profit and loss accountant and
balance item. The important ratios are as under:
A- RETURN ON INVESTMENT
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It measures the return of total investment with the borrowed money or invested
by owners in the business. It is obtained by dividing the net profit on total
assets.
FORMULA: -
Net Profit (after tax) Total Assets
Year 1997-98 1998-99
% 28.15 5.39
B-RETURN ON EQUITY
This is a measure of the return on ordinary capital of the company. It indicates,
for every Rs.10/= of capital invested in the firm how many rupees were
produced or lost this year. If it is increasing than the previous year then it is
good one. It may be obtained by dividing. Net profit on the sum total of
ordinary capital, reserve and profit.
FORMULA: -
Net Profit (after tax) – Preference DividendEquity share Capital
Year 1994-95 1995-96 1996-97 1997-98 1998-99
% 27.25 29.51 32.03 24.71 26.51
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Trend shows that the return on ordinary capital of the company is increasing
and up to 1996-97 and decline in the year 1997-98, and increased again for
next year. Over all trends of these years are satisfactory.
C- EARNING PER SHARE
Earning per share is a good measure of profitability, when compared with
earning per share of other companies. Earning per share is a small variation of
return of equity capital and is calculated by dividing the net profit after taxes
minus preference dividend by the total number of equity shares.
FORMULA: -
Net Profit (after tax) –Preference Dividend Number Equity Shares
Year 1994-95 1995-96 1996-97 1997-98 1998-99
% 6.12 8.19 11.52 10.69 14.31
The figures of earning per share are increasing continuously. Trend is very
positive for the shareholders of the company. Because the earning on the share
increasing continuous during these years.
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SuggestionsThis year PARCO has been granted the Marketing License to sell POL
products. PARCO plans to market fuel products and LPG of kits refinery and
the lubricants of ADNOC & OMV.
Being the internee of the largest oil refinery and pipeline network PARCO is
better placed to gradually become a major market player of the industry. With
its joint venture partner of Emirate of Abu Dhabi and their Austrian associates
OMV, PARCO has a multinational character. OMV owns the largest fuel and
lube refineries and retail outlets in other European countries around Austria. It
is also engaged in oil and Gas exploration Pakistan. This association will
provide additional expertise/advise on refinery and marketing operations.
In view PARCO’S unique position of having sufficient experience and
expertise in laying and efficiently operating 1,228 Km. Long oil pipeline the
Government of Pakistan has assigned to PARCO the ‘White Oil Pipeline
Project’ (WOPP) for laying a pipeline from Karachi to Mahmood Kot for
transporting petroleum products to up-country. After commissioning of the
Refinery, PARCO’s existing pipeline up to Mahmood Kot will be in a position
to execute this project at the lowest cost and operate it with least overheads as
compared to a new operator. It will also provide additional standby facility for
transporting crude in emergencies.
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The management is making continuous efforts to modernize the systems and
procedures and to improve the working atmosphere leading to higher
productivity. Housing facilities for the staff have been developed at Pumping
and Terminal stations. A full fledged housing complex including mosque,
school, a hospital and a club with recreational facilities is nearing completion at
Mahmood Kot, to accommodate the Mid-Country Refinery staff.
I am pleased to say that the company has established a reputation of a well
managed and profit oriented Joint Venture between Pakistan and Abu Dhabi. It
will continue to set high standards of performance and profitability and
implement new projects for the benefit of shareholders and for the good of the
country.
It is a pleasure to state that keeping in line with its progress, your company is
playing its de role in the field of social and community welfare activities by
supporting educational institutions, and community welfare activities in the
vicinity all along the route of our pipeline, including deploying of mobile
dispensaries to cater to needs of the people living in rural areas.
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CONCLUSION
Every thing PARCO achieves is the product of team effort. All PARCO
employees share the achievements of the company and have every reason to
feel proud of what has been achieve so far. However with the diversification in
business activity, especially in the finance department, PARCO meet the new
challenges, since success lies in better service and consumer satisfaction.
PARCO’S future aim is therefore to consolidate a significant account presence,
as a major contender in the petroleum sector of Pakistan, with a future that
heralds bright prospects.
There is need for proof any concept of refresher courses for the employees. If
directors would make arrangement to provide training to the employees then
they would work efficiently. By this productivity will also increase.
I would like to recommend that the management should develop some policies
for the promotion of efficient workers. If no policy for the promotion of
workers so it will create unrest among the workers. The management should
make sound policies for the promotion of efficient workers. This will not only
increase the productivity of workers but the management will also retain
efficient workers with them.
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