A Seminar Paper on
Supply Chain Management of Nepal Oil Corporation
Submitted by: Rabi Ranjan Patel Birgunj Public College PU Regd No!!!!!!
Submitted to: Office of the "ean# $aculty of Management Purbanchal Uni%er&ity# Biratnagar
Birgunj#Nepal "ecember# '()*
"+C,ARA-.ON
I Rabi Ranjan Patel declare that this thesis entitled “Supply Chain Management of Nepal Oil Corporation” submitted in partial fulfillment of the M! "egree# the $aculty of Management# Purbanchal %ni&ersity is my original 'or( carried out under the guidance of "r) %ttam %ttam Regmi# and has not been submitted any'here any'here for the a'ard of any other degree or commercial purpose) In (eeping 'ith the ethical practice in reporting scientific information# due ac(no'ledgements ha&e been made 'here&er the findings of others ha&e been cited)
Rabi Ranjan Patel) P% Reg)No*
AC/NO0,+"1+M+N-S
I am hea&ily hea&ily indebt indebted ed to my super& super&is isor or respect respected ed "r) "r) %ttamR %ttamRegm egmii 'ithout 'ithout 'hose guidanc guidance# e# encour encouragem agement ent and creati creati&e &e sugges suggestio tions# ns# this this semina seminarr paper paper 'ould 'ould ha&e been incomplete) "espite the scarce time a&ailable to him# he 'as al'ays there to guide me) !t this opportunity# I cannot forget to pay honor to Mr) inay Shrestha and "r) "eepa( Sha(ya and all my teachers and staffs of irgunj Public College 'hose 'orthy cooperation and inspirations made me +ualified +ualified for holding Master,s "egree and dare underta(e this dissertation) dissertation) I apologi-e for any errors in this seminar paper i-e for any errors in this seminar paper)
.han( you) Rabi Ranjan Patel irgunj# Nepal
ABBR+2.A-.ONS
C+O
Chief /0ecuti&e Officer
C.-
Citi-en,s In&estment .rust
"$R
"etailed $easibility Report
+P$
/mployees Pro&ident $und
1O.
1o&ernment of India
1ON
1o&ernment of Nepal
.OC
Indian Oil Corporation
/,
2iloliters
,P1
3i+uefied Petroleum 1as
MOU
Memorandum of %nderstanding
NB,
Nepal an( 3td
NOC
Nepal Oil Corporation
N-,
National .rading .rading 3td
P"O
Product "eli&ery Order
RBB
Rastriya anijya an(
RBS
Rastriya eema Sansthan
SCM
Supply4 chain management
+3+CU-.2+ SUMMAR4
Nepal# a land loc(ed country# does not produce any oil and depends totally on imports in the refined form) Nepal Oil Corporation is the sole organi-ation responsible for the import and distribution of petroleum products) .his study is all about supply chain management of Nepal Oil Corporation)
.he study mechanism adopted in this study in order to find the supply chain management of Nepal Oil Corporation includes the surfing from internet internet and obtaining re+uired information about Nepal Oil Corporation 5NOC6 3td) in terms of its upstream suppliers and do'n stream distributors)
Nepal depends on India for the supply and distribution of &arious petroleum products as the eastern# southern and 'estern part of the country is attached 'ith India) NOC7s trading acti&ities is related 'ith a special and long4term supply arrangement 'ith Indian Oil Corporation 3td)
It can be concluded from the obser&ation and analysis 'hich sho's the supply chain management of Nepal Oil Corporation Corporation that it is &ery necessary for the appropriate policy to be adopted in order to ascertain smooth flo' and distribution of petroleum petroleum products in different different parts of the country)
It is recommended to Nepal Oil Corporation that to maintain the re+uired le&el of storage facilities it has to constantly increase its storage storage facilities and it is necessary to understand understand and analy-e the distribution channel of Nepal Oil Corporation so that it could fulfill demand of
petroleum products in coming years)
Chapter .
.N-RO"UC-.ON
.his chapter deals 'ith bac(ground information of Nepa l Oil Corporation 3imited 5NOC6 as 'ell as includes objecti&es of the study# re&ie' of literatures# study methodology# limitations of the study and organi-ation of the seminar paper)
)): Bac5groundof the Study
! least de&eloped country landloc(ed bet'een China and India# Nepal finds it difficult to access international mar(ets for the e0port and import of goods and ser&ices) Since the country does not ha&e crude oil sources to meet a rapidly gro'ing national demand for petroleum products# it depends on India for the supply of petroleum products) In 89:;# Nepal signed a
.he present study# Supply Chain Management of Nepal Oil Corporation 5NOC6 3td)# is related to upstream suppliers and do'nstream distributors of Nepal Oil Corporation 5NOC6 3td) NOC deals 'ith major petroleum products li(e MS# =S"# S2O# !.$ and 3P1) Nepal Oil Corporation 5NOC6 'as established in >anuary 89:? by the 1o&ernment of Nepal as a state4o'ned trading company to deal 'ith the import# transportation# storage
and
distribution of &arious petroleum products in the country) NC head+uarter is in
2athmandu# has fi&e regional offices and also branch offices# fuel depots and a&iation fuel depots 'ith total storage capacity of :8#@AA (iloliters 5236 and
around @??
employees)
))) Supply6 chain management Supply4 chain management 5SCM6 can be defined as the configuration# coordination and continuous impro&ement of a se+uentially organi-ed set of ope rations) .he goal of supply4 chain management is to pro&ide ma0imum customer ser&ice atthe lo'est cost possible) ! customer is anyone 'ho uses the output of a process) .herefore#the customer,s satisfaction is important to any organi-ation that is focused on customer ser&ice).he supply chain may include internal di&isions of the company as 'ell as e0ternal suppliers that pro&ide input to a focal company )! supplier for this company has its o'n set of suppliers that pro&ide input5also called second tier suppliers6) Supply chains are essentially a series of lin(ed suppliers and customers until products reach the ultimate customer)
In a supply4chain# a company 'ill lin( to its suppliers upstream and to itsdistributors do'nstream in order to ser&e its customers) %sually# materials# information# capital# labor# technology# financial assets and other resources flo' through the supply4chain)
Since the goal of the firm is to ma0imi-e profits# the firm must ma0imi-e benefits and minimi-e costs along the supply4chain) .he firm must 'eigh the benefits &ersus the costs of each decision it ma(es along its supply4chain)
Supply Chain Strategy
Information Management
Supply chain planning
Supply Chain Management
Logistic Management
Procurement
Assets Management
$ig)) Supply6 chain management
))' Component& of Supply6 chain management
Supply chain management5SCM6 is a process used by companies to ensure that their supply chain is efficient and cost4effecti&e) ! supply chain is the collection of steps that a company ta(es to transform ra' components into the final product) .he follo'ing are fi&e basic components of SCM) )) Plan ') "e&elop 5Source6 7) Ma(e
8 "eli&er 9) Return
8) Plan
.he first stage in supply chain management is (no'n as plan) ! plan or strategy must be de&eloped to address ho' a gi&en good or ser&ice 'ill meet the needs of the customers) ! significant portion of the strategy should focus on planning a profitable supply chain management) .his is the strategic portion of SCM) Companies need a strategy for managing all the resources that go to'ard meeting customer demand for their product or ser&ice) ! big piece of SCM planning is de&eloping a set of metrics to monitor the supply chain so that it is efficient# costs less and deli&ers high +uality and &alue to customers)
' "e%elop Source;
"e&elop is the ne0t stage in supply chain management) It in&ol&es building a strong relationship 'ith suppliers of the ra' materials needed in ma(ing the product the company deli&ers) .his phase in&ol&es not only identifying reliable suppliers but also planning methods for shipping# deli&ery# and payment)Companies must choose suppliers to deli&er the goods and ser&ices they need to create their product) .herefore# supply chain managers must de&elop a set of pricing# deli&ery and payment processes 'ith suppliers and create metrics for monitoring and impro&ing the relationships) !nd then# SCM managers can put together processes for managing their goods and ser&ices in&entory# including recei&ing and &erifying shipments# transferring them to the manufacturing facilities and authori-ing supplier payments)
7 Ma5e
!t the third stage# ma(e# the product is manufactured# tested# pac(aged# and scheduled for deli&ery) .his is the manufacturing step) Supply chain man agers schedule the acti&ities necessary
for production# testing# pac(aging and preparation for deli&ery) .his is the most metric4intensi&e portion of the supply chain 4 one 'here companies are able to measure +uality le&els# production output and 'or(er producti&ity) ;) "eli%er .hen# at the logistics phase# customer orders are recei&ed and deli&ery of the goods is planned) .his fourth stage of supply chain management stage is aptly named deli&er).his is the part that many SCM insiders refer to as logistics# 'here companies coordinate the receipt of orders from customers# de&elop a net'or( of 'arehouses# pic( carriers to get products to customers and set up an in&oicing system to recei&e payments)
B) Return .he final stage of supply chain management is called return) !s the name suggests# during this stage# customers may return defecti&e products) .he company 'ill also address customer +uestions in this stage).his can be a problematic p art of the supply chain for many companies) Supply chain planners ha&e to create a responsi&e and fle0ible net'or( for recei&ing defecti&e and e0cess products bac( from their customers and supporting customers 'ho ha&e problems 'ith deli&ered products)
.hus# to ensure that the supply chain is operating as efficient as possible and generating the highest le&el of customer satisfaction at the lo'est cost# companies ha&e adopted Supply Chain management processes and associated technology)
))7 /ey feature& of Supply6 chain management
! supply chain is a set of three or more entities directly in&ol&ed in the upstream and do'nstream flo's of products# ser&ices# finances andor information from a source to a customer) ) .n%entory management
Dith a supply chain pac(age# companies can significantly impro&e the 'ay they trac( and manage their supplies of ra' materials and components needed for production# finished goods to satisfy open sales orders# and spare parts re+uired for field ser&ice and support) .his eliminates e0cess and 'aste# frees up &aluable real estate for other important purposes# and minimi-es related storage costs)
' Order management
Supply chain can dramatically accelerate the e0ecution of the entire order6to6deli%ery cycle by helping companies to more producti&ely generate and trac( sales orders) Supply chain also enables the dynamic scheduling of supplier deli&eries to more effecti&ely meet demand# and more rapid creation of pricing and product configurations)
7 Procurement
!ll acti&ities and tas(s associated 'ith sourcing# purchasing# and payables can be fully automated and streamlined across a company,s entire supplier net'or( 'ith a supply chain soft'are pac(age) !s a result# businesses can build stronger relationships 'ith &endors# better assess and manage their performance# and impro&e negotiations to le&erage &olume or bul( discounts and other cost4cutting measures)
8 ,ogi&tic&
!s companies e0pand globally# their supply chains become more and more comple0) .his ma(es the coordination of the numerous 'arehouses and transportation channels in&ol&ed +uite a challenging endea&or 'ithout supply chain soft'are in place) Dith supply chain# businesses can impro&e on4time deli&ery performance and boost customer satisfaction by achie&ing complete &isibility into ho' finished goods are stored and distributed# regardless of the number of facilities or partners that participate)
9 $oreca&ting and Planning
Dith supply chain# organi-ations can more accurately anticipate customer demand# and plan their procurement and production processes accordingly) !s a result# they can a&oid unnecessary purchases of ra'4materials# eliminate manufacturing o&er4runs# and pre&ent the need to store e0cess finished goods# or slash prices to mo&e produc ts off of 'arehouse shel&es) .herefore supply chain management is an e0tension of the focus on customer ser&ice)
))8
Nepal# bordered by India in three sides and the northern part by .ibetChina#does not produce any oil and depends totally on imports in the refined form) NOC is the sole organi-ation responsible for the import and distribution of petroleum products) Nepal Oil Corporation 5 NOC6 3td) 'as established in A@thPoush A?A: )S) under the Companies !ct# A?A8# 'ith the main objecti&e of assuring smooth and uninterrupted distribution of petroleum products) !fter fe' years of establishment# Nepal Oil Corporation 'as granted monopoly to import and distribute petroleum products) efore establishment of NOC# & arious
foreign enterprises li(e /sso# Eermasale# and Indian Oil International 'ere fulfilling the needs of petroleum products) .he go&ernment o'ns majority of its share i)e) 9F )G@H and four enterprises Nepal an( 3td)5?)AGH6# RastriyaeemaSansthan5?);:H6 # Rastriyaanijyaan(5?)8@H6# National .rading 3td5?):FH6# ha&e also in&ested in NOC) NOC 'as established 'ith authori-ed and issued capital of Rs)8 crore and paid4up capital of Rs 8? la(hs) !t present authori-ed and issued capital is Rs)B? crores and paid4up capital is Rs) 9#@:#8B#???) NOC deals 'ith the trading business of &arious types of fuel li(e MS# =S"# S2O# !.$# $O# 3P1# etc) It brings fuel from a third country) !ll these different types of fuel are sold and distributed all o&er the country) It has fi&e Regional Offices# branch offices# fuel depots and a&iation fuel depots for distribution of the fuel from the /astern region to the Destern region in Nepal) It has total storage capacity of :A#?FF 23 and around :BG employees) !s NOC has no storage facility of 3"O# $O and 3P1# it sells these petroleum products as per the import) $or 3P1# NOC has pri&ate dealer firms that import and sell it 'ith the prior permission from NOC)
))9 .ntroduction to Nepal Oil Corporation
Nepal Oil Corporation 3imited 5NOC66is a state o'ned trading enterprise of Nepal that imports#
stores and distributes &arious petroleum products in the
established on 89:? by the 1o&ernment of Nepal
country)
It 'as
under the JCompany !ct# A?A8
589@;6J) .he go&ernment o'ns 9F)G@H of its share and rest is contributed by four other state o'ned enterprises* RastriyaeemaSansthan# National .rading 3td)# Nepal an( 3imited and Rastriyaanijya an()
In the &ery beginning# the trading acti&ities of NOC 'ere started by storing t'o products
in t'o drums under the leadership of the late Mr) Subarnai(ram.hapa appointed by 1o&ernment of Nepal) =is persistent endea&or to de&e lop NOC resulted in more than G?#??? (iloliters 5236 of storage
facilities for
petroleum
products in
different
de&elopment regions of Nepal) Nepal# being one of the land loc(ed countries of south !sia# has to depend on India for the supply and
distribution of &arious
petroleum
products as the eastern# southern and 'estern part of the country is attached 'ith India) .he prospect of crude oil e0ploration in Nepal has not yet been pro&en a feasible one# so the entire national demand is met by import alone) $rom the &ery beginning of NOC7s trading acti&ities# a special and long4term supply arrangement has e0isted 'ith Indian Oil Corporation 3td) 5IOC6# a leading national oil compan y of India# ha&ing more than BBH of the mar(et share)
NOC# head+uartered in 2athmandu# has o&er the years e0panded and no' has
fi&e
regional offices# branch offices# fuel depots# and a&iation fuel depots# 'ith total e0isting storage capacity of :8#@AA (iloliters 5236 and employing B?F
permanent
and other
contract 'or( force) .he highest policy ma(ing and controlling body of NOC is its oard of "irectors) .he oard is represented by all the shareholders)
Nepal is becoming more dependent on
petroleum
products for meeting its energy
re+uirement) .he demand of products li(e MS# =S"# S2O# !.$ and 3P1 is about 8)A million ton 5M. per annum 'ith annual increase by around 8?H) Petroleum
products
constitute about 8BH of total energy consumed in Nepal) .he nearest sea port from Nepal is=aldia
52ol(ata6 'hich is about 9?? (m from nearest Indo4Nepal border) .he long
transportation distance from nearest sea port to Nepal is the man constraint for import of PO3 from third country) !ll the petroleum products consumed in Nepal are procured and
imported from 1o&ernment of India 51OI6 underta(ing national oil compan y# i)e) Indian Oil Corporation5IOC6 under a B years contract agreement signed on
A:th !pril A?8A) NOC uplifts
petroleum products as per its re+uirements from IOC,s different refineries# terminals and depots situated in northern and eastern part of India) .he supply of 3P1 is arranged under a P"O 5Product "eli&ery Order6 system and IOC is pro&iding bul( 3P1 to Nepalese 3P1 industries from=aldia# arauni# Mathura KPanipat refineries) Meeting the e&er increasing demand of 3P1 in Nepal has al'ays been a concern to NOC) .he transportation from IOC locations to NOC depots and to retail outlets is done by tan( truc(s) .o meet the increasing demand# a MO% bet'een IOC and NOC for construction of cross border petroleum product pipeline from IOC,S depot 5Ra0aul6 to NOC,S depot 5!mle(hgunj6 has been signed) .he detailed feasibility report 5"$R6 of the proposed pipeline has also been prepared and the constructionin&estment modalities are under discussion bet'een the companies) Similarly# the scope of laying 3P1 pipeline across Indo4Nepal border has also come in the discussion bet'een the companies)
Currently the Chief /0ecuti&e Officer 5C/O6 of NOC is the Managing "irector 'ho has the o&erall responsibility for day4to4day operations besides the Member4 Secretary of NOC oard) asically# the categories of
operations of NOC are
Mar(eting and $inance
Managing "irector)
coordinated
administration#
under t'o broad
each headed
by
"eputy
N e p a l
O i l
C o r p o r a t i o n
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नपलआयलनगमलमटड
Nepal Oil Corporation logo
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))* Objecti%e& of NOC *
.he main objecti&es of NOC are as follo's*4 8) .o import different types of petroleum and its products li(e petrol# diesel# Mobil# lubricants oil# (erosene# grease# a&iation oil from different countriesL A) .o pro&ide the technological ser&ice for the determination of re+uired place and the construction of tan(s to fulfill the objecti&es as stated in 586L
G) .o establish refining industry for refining and processing of imported crude oil from different countries on its o'n or in collaboration 'ith foreign companiesL
;) .o establish a firm to in&estigate the possibility of mining# refining and processing of oil and gas mines in NepalL
B) .o manage the storage of imported petroleum and crude products in NepalL
@) .o manage o'n tan(s or pri&ate tan(s for distribution and sales of petroleum products in NepalL and#
:) .o do other au0iliary 'or(s for fulfillment of NOC7s objecti&es)
!s mentioned abo&e# NOC 'as established 'ith the main objecti&e of assuring smooth and uninterrupted distribution of petroleum products)
)'
Objecti%e& of the Study
.he specified objecti&es of the study are stated belo'* ) ' 7 8
.o analy-e the supply chain management of Nepal Oil Corporation 3imited) .o e0plain the distribution net'or( of NOC) .o find out the supply points of Nepal Oil Corporation 3imited) .o determine the storage capacity of Nepal Oil Corporation 3imited)
9 .o pro&ide suitable and useful suggestions based on the findings of the study) )7
Re%ie= of ,iterature&
.his section of the seminar paper re&ie's past and current literature on the supply chain management of Nepal Oil Corporation 3imited) It starts by discussing the industry trends# dynamics# and characteristics in general) It proceeds to describe the structure of the upstream and do'nstream supply chain of Nepal Oil Corporation 3imited) Oil has been used since early human history to (eep fire abla-e but its usage has e&ol&ed o&er the years through inno&ati&e 'ays of using it as a source of energy .3ee =)3 et a8 5899G6 has the &ie' that the concept of a supply4chain is about managing coordinated information and material flo's# plant operations# and logistics through a common set of principles# strategies# policies# and performance metrics throughout its de&elopmental life cycle) .his pro&ides fle0ibility and agility in responding to consumer demand shifts at minimum cost) .he fundamental premise of this philosophy is synchroni-ation among multiple autonomous entities represented in it) .hat is# impro&ed coordination 'ithin and bet'een &arious supply4 chain members) .he Council of Supply Chain Management Professionals 5CSCMP# A?886 defines supply chain management in the follo'ing 'ay* “Supply chain management encompasses the planning and management of all acti&ities in&ol&ed in sourcing and procurement# con&ersion# and all logistics management acti&ities) Importantly# it also includes coordination and collaboration 'ith channel partners# 'hich can be suppliers# intermediaries# third party ser&ice pro&iders# and customers) In essence# supply chain management integrates supply and demand management 'ithin and across companies”) !ccording to Dhite D) > 5A??;6# firms engaged in supply4chain relationships# as customers# suppliers# or pro&iders of ser&ices# need to share a great deal of information in the course of their interactions) .he definitions of supply chain management ha&e been considered from literature in operations management# mar(eting# product design# finance# and information technology) .he definitions ha&e gi&en (no'ledge on ho' these processes are integrated 'ithin and outside the company to
pro&ide a cohesi&e and costs4effecti&e ad&antage against the competition 5Ment-er# "eDitt# 2eebler#MinK# A??86) CSCMP 5A?886 implies that supply chain management is successful 'hen the goal of getting the right product to the right customer at the lo'est costs is achie&ed) .his is a situation that 'ill gi&e the highest le&el of ser&ice to the customer and higher competiti&e ad&antage to the company) .herefore# supply chain management touches on the mi0ture of different supply chain acti&ities to help ma0imi-e a company,s profit and total &alue) !(ashShrestha is the coordinator of research department at Samriddhi) .he Prosperity $oundation 'here his focus areas are petroleum trade andpublic enterprises has 'ritten se&eral articlesbased on the findings of the studies conducted by the $oundation) =e states that NOC imports petroleum products from IOC# practically on credit) It is supposed to ma(e the payments in t'o installments 'ithin the ne0t G? days) Since NOC controls prices of its products and cannot charge mar(et prices# it has to cross subsidi-e its products) .he combined profits from all other products still fall short of loss made on 3P1 by hundreds of rupees per cylinder) !s a result# NOC fails to reco&er its in&estment made in the import of products from IOC) .hus# in the conte0t of Nepal Oil Corporation# it is found that distribution and sale of petroleum products is done by Nepal Oil Corporation# petrol pumps# pac(ed dealers and (erosene dealers and it re+uires &ery stringent +uality control measures) .he products are transported from IOC refineries# terminal and depots to the corresponding NOC depots and retail dealers by tan( truc(s) .hus# to maintain the re+uired le&el of storage facilities Nepal Oil Corporation has to constantly increase its storage facilities)
)8
Study Methodology:
Methodology refers to &arious se+uential steps that are adopted in the study) Study methodology refers to the series of steps to be adopted in studying problems 'ith certain objecti&e &ie') Study methodology includes the follo'ing* 8) A) G) ;)
Study "esign Sources of information Presentation and analysis .echni+ue
) Study "e&ign
Study design is a plan of in&estigation for the collection and analysis of data) It helps to mo&e in the right direction in order to achie&e the goal)
Conceptual frame work
Preposition (Theory Literature
Data Analysis & interpretation
$mpirical
!esearch"uestion
%ser'ation
Data collection Metho# $ig ') Study "e&ign
.hus# the study design sho'n in the abo&e figure is less descripti&e but more prescripti&e because the secondary data ha&e been mainly used for analysis) ' Source& of information:
.he methods of collecting data and information are primary and secondary) .hey are*
8) Primary "ata* Personal Obser&ation • Informal tal( • Inter&ie' 'ith employee • A) Secondary "ata !nnual reports of NOC • Ne'spapers# maga-ines and journals • Debsites of NOC • 7 Pre&entation and analy&i& It is related 'ith the analysis and interpretation of the data and information collected
from &arious sources and research methodology) In the course of analysis# the data gathered from &arious sources ha&e been inserted in the diagrams and tabular form) 8 -echniue& .here are se&eral tools and techni+ues 'hich are used for conducting this study 'hich can be e0plained 'ith the help of the follo'ing figure)
$ig 7) Re&earch -ool&
.hus# the figure sho's the research tools 'hich includes the methods and techni+ues used for analy-ing the data and information con&eniently) )9
,imitation& of the Study
!s &ery research has its o'n limitations# this study is not biased) .herefore# this study has some limitations# 'hich are listed belo'* •
.his study is related to only supply chain management of Nepal Oil Corporation 3imited and it does not co&er all the aspects of NOC)
•
In the study# the distribution aspect has been follo'ed 'ith the NOC7s &ie'point) .he opinions# attitudes and recommendations of all the dealers and the consumers could not be ascertained) =ence# a selected fe' 'as ta(en into consideration# 'hich is another limitation of the study)
•
3ac( of proper literature re&ie' and studies about the distribution aspect of NOC 'as a major limitation for the study)
)*
Organiation of the project report:
.he study is di&ided into threechapters# including references and appendices) ) .ntroduction
Chapter one deals 'ith the bac(ground of the study# this chapter starts 'ith bac(ground of the study shedding lights on supply chain management ofNepal Oil Corporation 3imited) $ollo'ed by meaning ofsupply chain management# introduction to the NOC and its objecti&e# objecti&es of the study# re&ie' of literatures# study methodology and limitations of the study) ' Ob&er%ation and Analy&i&
Obser&ation and !nalysis is the second chapter of the study 'here data collected are presented and analy-ed in a logical manner) It contains description of supply chain management of NOC# and analysis of storage capacity of NOC# import and sales of NOC# 3P1 sales and 3P1 upliftment ) 7 $inding&# Conclu&ion& and Recommendation&
Major findings# conclusions and recommendation is the last chapter) It is based on analysis of data and study done in pre&ious chapters)
Chapter ..
OBS+R2A-.ON AN" ANA,4S.S
.his chapter deals 'ith the obser&ation# collection of information and analysis of the collected information from &arious sources) In the course of analysis# the data gathered from the &arious sources ha&e been inserted in diagrams and in the tabular form)
') "i&tribution Net=or5
#. tO eC r me if ni an le r i a e n & d Pp e u t m r p o &l a n d depot& dealer& of ot& N e p a l $ig8) "i&tribution Net=or5 of NOC
"istribution and sale of !.$ is solely done by the corporation as it re+uires &ery stringent
+uality control measures) Sale of other products are done by Petrol Pumps# Pac(ed dealers and
2erosene dealers numbering appro0imately AB?? throughout the nation) !ppro0imately @?H of
all petroleum products are consumed in the central region alone)
.he products are transported from IOC refineries# terminal and depots to the corresponding NOC
depots and retail dealers by tan( truc(s) .he number of transporters throughout the Nepal is ;9;
and the number of tan( truc(s so engaged is 88F?)
.o ensure the +uality of the products reaching the customers# in case of MS and =S" only# t'o
samples of each products are dra'n# ne sample is (ept safely at the dispatching location and the
other one is in the custody of retail dealer and regular monitoring of the +uality of the products
are performed by means of surprise chec(s) Such surprise chec(s are conducted by committee
comprising of the follo'ing representati&e *
•
Representati&es from 1o&ernment authorities)
•
Representati&es from Consumer $orum)
•
Representati&es from "ealer,s !ssociation)
•
NOC Representati&es
Up&tream and "o=n&tream.he upstream sector includes searching for potential underground or under'ater Crude oil and natural gas and fields# drilling e0ploratory 'ells# and
subse+uently drilling and operating the 'ells that reco&er an d bring the crude oil andor ra' naturalgas to the surface)
.he do'nstream sector commonly refers to the refining of petroleum crude oil and the processing and purifying of ra' natural gas# as 'ell as the mar(eting and distribution of products deri&ed from crude oil and natural gas) .he do'nstream sector touches consumers through products such as gasoline or petrol# (erosene# jet fuel# diesel oil# heating oil# fuel# oils# lubricants# 'a0es# asphalt# natural gas# and li+uefied petroleum gas 53P16 as 'ell as hundreds of petrochemicals)
In the conte0t of NOC# there is no specific national policy in Nepal to go&ern petroleum do'nstream business# i)e)# transactions and mar(eting of petroleum products) .he go&ernment enacted Petroleum !ct 89FG# but it merely deals 'ith upstream business such as e0ploration# mining and distribution of crude oil from oil 'ells) !s far as petroleum transaction is concerned# it is carried out as per the regulations and internal decisions of NOC) NOC regulation has established the corporation as the import monopolist# stoc(ist and supplier of fuel in the domestic mar(et) It has authori-ed NOC to function as the regulatory body of the petroleum sectorL empo'ered it 'ith the authority to appoint dealers for retail salesL hire transporters for the transportation of fuelL set operating conditions and standards for dealers and transportersL formulate +uality regulationL control +ualityL and monitor and inter&ene in the mar(et as and 'hen necessary) Retailing of petroleum products is e0ecuted through the appointment of pri&ate sector dealers) NOC appoints the dealers) It sets the terms and conditions for such appointments as per the NOC regulation and does not allo' dealers to de&iate from its set operating guidelines. .here are different NOC4authori-ed dealers that operate petrol and diesel refilling stations across the country) In addition# there are se&eral (erosene dealers) NOC mobili-es this net'or( of dealers to supply petroleum products in the coun try) =o'e&er# since 8: $ebruary A??@# the dealers ha&e had to collect the supplies themsel&es# ma(e all the necessary logistical arrangements for bringing the products to their premises and run the retail4le&el business on their o'n) !ll petroleum dealers function under a syndicate of the Nepal
Petroleum "ealers, !ssociation 5NP"!6) .here is also an association of (erosene dealers (no'n as the Nepal 2erosene "ealers, !ssociation 5N2"!6)
'' Supply Point&
!ny retail dealers found to be selling out substandard products are penali-ed as per the e0isting rules and the region 'ise demand of NOC is met through the purchase of petroleum products from the IOC depots# .erminal and Refinery located near the border 'ith Nepal)
$ o r
+ a & t e r n
R e g i o n
B
a
r
a
$ o r
C e n t r a l
R e g i o n
R
$ o r
0 e & t e r n
R e g i o n
Be t a l p u r " ep o t # Mu g a l & a r i -erm in a l
$ or Mi d6 0e& t er n R eg i on
A l l a h a b a d -e rm i n a l # 1 o n d a " e p o t
$or $ar 0e&tern Region
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-able)) Supply Point&
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e
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'7 Storage $acilitie&
$ig9) Storage $acilitie&
.he increase in storage capacity o&er the years in line 'ith the gro'th in the demand of
petroleum products is +uite impressi&e) .o maintain the re+uired le&el of storage facilities NOC
has to constantly increase its storage facilities) .herefore the NOC management is gi&ing
ade+uate attention to the e0pansion of storage facilities) Currently# it is 'or(ing to'ards
de&eloping storage facilities for petroleum products to meet the demand in Nepalese mar(et)
.he current storage capacities in different regions of the country are as follo's*
'8 Storage Capacity of Nepal Oil Corporation ,td l o
P e t r o l
" i e & e l
/ero&ene
> e t
A l
- o t a l
/ a t h m a n d u
) # D @ (
D #
(
8 #
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(
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' ' # ? 8 (
A m l e 5 h g u n j
) # ? 7 (
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9
(
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8
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( 9
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-able '' Storage Capacity of Nepal Oil Corporation ,td
D
(
9 (
'9 .mport and Sale& .mport of Petroleum Product& in /, ecept ,P1; SN
$i &c al
4ear
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,ight "ie&el Oil
$urnace Oil
,P1 .N M-
Mineral -urp
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$ i & c a l 4ea r '(@'E@7 '()96)* ; '(@)E@' '()86)9 ; '(@(E@) '()76)8 ; '(*?/2070 (2012/2013
Pet r o l
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/ero&ene A%iatio n -urbine $uel ,ig ht "ie &el oil $urnace oil ,P1 in M- Mineral ) D # * ' D )7?#8(8 6 6 '9D#'?? 6 ) ? # ( * 8 )'7#9'@ 6 6 '7'#**( 6 ' 8 @ ' ) ))9 @ D * ' 9 D ' 8 9 ( '(@(7D ( 8 ) D ( D )(?D(D ( 8 7 9 )D)8)) (
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8?8 ?9 99@DD @(#(D? )99')* )?@D9( ''**7@ '7?7'D 7)(D'* 78D*'( 7D*9?' 7)*7D) 77))' ( '?8?D' 'D'('* '87D)(
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'* .nformation about ,P1 Sale& Middle Regional Office# Birgunj SN
.&&ue Fuantity
)
P " O N o M-<((8('9(
Sale& Fuantity
2ehicle No
) D ( ( )8()
" e a l e r Baba 1a& Udhyog P%t ,td Par&a# Chit=an
)@ * '
'
<,"(('@9?(
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Baba 1a& Udhyog P%t ,td Par&a# Chit=an
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>ana5i1a&Udhyog P%t ,td1aida5ot6@# Na=alpara&i
)@ 87
7 8
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,eo 1a& Udhyog P%t ,td Bahuari# Bara
) @ * ?
9
BRN((8)@9?
)D ((
)8('
Nepal 1a& Udhyog P%t ,td /athmandu
) @ * ?
Bill No
Chalan "ate ))** ) ? 6 A u g 6 ) 9 '8*8 ) ) 6 S e p 6 ) 9 Chalan No
'8)? ) ( 6 S e p 6 ) 9 '87@ ) ) 6 S e p 6 ) 9 '88D
) ' 6 S e p 6 ) 9
( ( ( ( ( ( ( 7 8 ) ) ) ) ) )
*
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Nepal 1a& Udhyog P%t ,td /athmandu
) @ 8 '
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)8(@
Sha5ti 1a& Udhyog P%t ,td Po5hara
) @ D (
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( 6 S e p 6 9 @ 6 S e p 6 9 ) 6 S e p 6 9
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-otal
Noof Cylinder
Up
')'777 )'8(7* D)7*(' 7@')(' D(8?D( 7(*978 )@@(88 8(@7'@ 7()877 )(*(8( '???D9 8*('?7 )9?)(* 88)7(' (((( )?'?8? )8)9')8 )?89*9 7?(((? 8@D9(? 9'?'*( 8')?'' 77@?D@ 77*?'9
)8?9'8? D@ 78 * ' 9@'?7D9 '*'(78' 9**D**? ')9D*)' )'8*@88 'D*D7?@ ')''*?) @8 *@ 7 8 '))'8?8 7'8)7D7 ))'(8'8 7)(@*8? ( ( ( )79D@8@ ??*9?7@ )7@()'@ '@8*887 77*?**( 7@'@(8? '?@))@9 '7D()(8 '7@'*'*
@ 8 * * ? D * 9 7 7 8 9 9 @ ( 9 D * @ @ @ * * @
)8)()
-able'8 .nformation about ,P1 Sale&
'@ ,P1 Upliftment Augu&t '()9 1a& .ndu&trie&
-otal Fuota for Augu&t
BARAUN.
MA-
AMBAR 1a&Udhyog Arati 1a& Udhyog P%t ,td BABA 1a& .ndu&trie& P%t,td Bagdamba 1a& .ndu&trie& P%t ,td >ana5i 1a& .ndu&trie& P%t ,td
'@((( '@((( )'*((( 9@* (( D'D(( 78' (( '@((( @(' (( @@8(( 'DD(( @(' (( D8*(( '@((( *7( (( )?D(( 7'8(( )*9*(( 'DD(( 9(8 (( *)' (( @7D(( *7( (( 9(8(( 8*D ((
DD7'( 97(@( 7@) 8@( )?8 'D(
) 9 7 )
)@@*( )@8*( )7? DD (
/ab&on& 1a& Uddyog /an5ai 1a& Udhyog P%t ,td /OS<. 1AS .ndu&trie& P%t ,td ,eo 1a& .ndu&trie& P%t ,td ,UMB.N. 1a& .ndu&trie& P%t,td MANO> 1a& .ndu&trie& P%t,td MANO/AMNA 1a& P%t,td MARU-. 1a& .ndu&trie& P%t,td M+C<. 1a& .ndu&trie& P%t,td
M+-RO /athmandu 1a& .ndu&trie& ,td
( * ' 9 7 9 ( ( ' ' 9 @@ D '
7 * ' '
)7( @D( @(7D( ''? 8@( @(9)( 9'@)( )9@ ?9( DD7(( DD')( ')) 77(
7 D ) ) 9 ) 7 9 )
9 ? 8' ? 9 7 8' 7 * 7 8'
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8 8 @ 7 ( 9 7 * '
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D * D ) '
D 7 ) 9 9 7 D D 8 * 8' * ) 7( @ '
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'7( 7 9' ' 8 ? 9 7 @ )*( 7 79
@*? @9 ( )8( (? ( )@*7( 79'D( 79(?(
7 9 '7 (
797'( )@*9( D@@7(
'8* *8 ( )@*8( @(7(( @(@8( 9)) *9 (
) @ *) (
N, 1a& .ndu&trie& P%t ,td Nama&te 1a& Udyog NARA4AN. 1AS .ndu&trie& ,td N+PA, 1AS .ndu&trie& P%t ,td NOB+, 1a& .ndu&trie& P%t,td OM 1AS 1a& .ndu&trie& P%t,td PanchaMaha,aCmi 1a& .ndu&trie& P%t ,td
)D((( '@((( 9@* (( )@8*(( 8*D(( 9?8 (( 78'((
797?( )@@(( )@* '*( @(* 8*( )(9 *@( )?8 @*( )'7 ?7(
7 ) @ 9 ) @
PARA>U,. H BRO-<+RS 1AS .ndu&trie& ,td
7@D((
DD8D(
) @ D ) ? 8
PAS"
@ ' ( ( 9@* (( 8*D (( 7'8(( 7@D (( 89((( @@8 (( ? (( ( ( 87' (( D'D (( 78' (( 9 8( ( ( 99D (( 7@D(( D )( ( ( 'DD(( 78'(( 7(*(( 7?*(( 9?8 (( 'DD(( 7*((( )(D(( '?()*((
)@*D( )?8 9)( )9? )*(
')' 8 ?* )'' ) ?*
)'8 (?(
)(7 9 ?D
RijalcoBhan&a 1a& Udyog P%t ,td RO4A, Multiloo5 Concern P%t ,td SA1ARMA-
Sogbani; SU1AM 1AS .ndu&trie& ,td Super 1a& P%t ,td SUR4A 1AS .ndu&trie& ,td
-R.S
9 @ ) 8) ' @ ) ( D ( ' ? 7 @@ 9 8 ) ( ?
( ( ( @ 9 @
788(( ''@ 8* ( 9'D7( @((?( 7898(
78D'( )?' 7? ( 7)@ 77 (
7)@ ?)( '88 )@( )8) (@( '*9 (7( )8) @)( )@9 @'( )8) 8@( 97)@( ''? 77( ''? 8(( DD'?( 797?( '7( )(( 7979( )'7 99( 797D( @@98?7(
7 ' ) ) ) ) ) D ' D
(( D D 7 ) 9 7 '8 7 ? 9? ? 7 '8 9 ? * ( ' @ (* ? 8 ? ( ? ) 7 7 * ? ( @
* @ ( 9 D 8 9 ( 8 *
) @ ) ) 9
' 8 ( *( ( * 7
) @ * 8 (
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797?( 978)( 79)?7(
7 9 7@ (
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)@*'( DD'*(
7D@@))(
-able '9 ,P1 Upliftment Augu&t '()9
'D -he 2iciou& Circle of Petroleum import& in Nepal
DD')(
)*88@'( '))87@ 88'7?9 ''?9*@
'8 ?' ) * 7@ *) ) 7 '8@D'?) ))9D'))D )8DD?7? 7))978* )*)**))
) ) * ? 8 @ *
'***@8
)D@@?)D
@
)@*D( 8(@((* 7)*)@* )?'7?( ''@*DD 79'@(( *)D@?* *77'(@ '*98*( 8@@D99 7)?('D 88(?@8 7)@(@9 )8''*( 9D'@(8 D?(@* ''?8(( ')''?) )'7@*@ 8@D@(* )8'('8 )@@()( 797D(
)' 89 ( 7 'D**)7* '''*9)) )798D)( )*(77@? '8D7@)7 879@9*) 889?(88 )D*?7*? 77*9(99 ''8*9?9 7)(977? ''7'D8' )(()@?9 8)(78(' *' @' @ 7 )*)9879 )8?8?97 D@ )9 * @ 77@)(8D )((()77 )'8*9(8 '8 ?) 8 * )7*(78@@'
' @ * 9 * @ @ @ * 9 ? D 9 7 @ 7 * * 7 D 8 8 7
)?7)@*77
$ig *) 2iciou& circle of petroleum &upply in Nepal
NOC imports petroleum products from IOC# practically on credit) It is supposed to ma(e the
payments in t'o installments) Sine# NOC controls prices of its products and cannot charge mar(et prices# it has to cross subsidi-e its products) .he combined profits from all other products still fall short of loss made on 3P1 by hundreds of rupees per cylinder)!s a result# NOC fails to reco&er its in&estment made in the import of products from IOC) utIOC 'ill not sell anything to NOC# unless its dues are cleared) So# NOC approaches the go&ernments for loans) Dith go&ernment guarantee# it some'hat gets loans to clear IOC dues from institutions li(e /mployees Pro&ident $und 5/P$6 and Citi-en,s In&estment .rust5 CI.6#apart from go&ernment of Nepal and some commercial ban(s in the country) .hese are ta0payer,s money 5mostly in form of sa&ing# some as ta0es paid to go&ernment6) IOC dues are then cleared 'ith this money)
ut the same business cycle continues# year in and year out) NOC continues to ma(e losses and continues to ac+uire ta0payer,s money as loans) !midst all of this# the loans ac+uired &ia CI.
and /P$ ha&e ne&er been paid) Interest are ho'e&er paid duly by adding the interest payment component in the selling price of petroleum products)
$ig@) Petrol .mport
5Source* Nepal Oil Corporation6 .he figure sho's the +uantity of petrol imported in (iloliter by Nepal from the year A?B??B8 to A?:??:8) It can be clearly obser&ed that the +uantity of petrol imported has increased in the different subse+uent years)
$igD)"ie&el .mport
5Source* Nepal Oil Corporation6 .he abo&e figure sho's the +uantity of diesel imported in (iloliter by Nepal from the year A?B??B8 to A?:??:8) !s the demand of diesel is rapidly increasing in the Nepalese mar(et +uantity of diesel imported in (iloliter by Nepal has also increased simultaneously)
$ig?) ,P1 .mport
5Source* Nepal Oil Corporation6 .he abo&e figure sho's the +uantity of 3P1 imported in metric ton by Nepal from the year A?B??B8 to A?:??:8) Nepal Oil Corporation hea&ily relies on the import of 3P1 and its import has increased in the different years)
C
$.N".N1S# CONC,US.ONS AN" R+COMM+N"A-.ONS 7) Summary of finding&
.he major findings that can be &ie'ed from this study are as follo's*
) Nepal depends on India for the supply and distribution of &arious petroleum
products as the eastern# southern and 'estern part of the country is attached 'ith India)
' .he prospect of crude oil e0ploration in Nepal has not yet been pro&en a feasible
one# so the entire national demand is met by import alone)
7 NOC7s trading acti&ities is related 'ith a special and long4term supply
arrangement'ith Indian Oil Corporation 3td) 5IOC6)
8 NOC hasfi&eregional offices# branch offices# fuel depots# and a&iation fuel
depots in different parts of the country)
9 NOC deals 'ith the trading business of &arious types of fuel li(e MS# =S"# S2O#
!.$# $O# 3P1# etc) * .he supply of 3P1 is arranged under a P"O 5Product "eli&ery Order6 system and
IOC is pro&iding bul( 3P1 to Nepalese 3P1 industries from =aldia# arauni# Mathura KPanipat refineries)
@ .he products are transported from IOC refineries# terminal and depots to the
corresponding NOC depots and retail dealers by tan( truc(s)
D .o meet the increasing demand# a MO% bet'een IOC and NOC for construction
of cross border petroleum product pipeline from IOC,S depot 5Ra0aul6 to NOC,S depot5!mle(hgunj6 has been signed) ? !ny retail dealers found to be selling out substandard products are penali-ed as
per the e0isting rules and the region 'ise demand of NOC is met through the
purchase of petroleum products from the IOC depots# .erminal and Refinery
located near the border 'ith Nepal)
)( NOC is 'or(ing to'ards de&eloping storage facilities for petroleum products to
meet the demand in Nepalese mar(et)
7' Conclu&ion&
It can be concluded from the obser&ation and analysis 'hich sho's the supply chain
management of Nepal Oil Corporation) Similarly# it also sho's the re+uirements that are needed
for effecti&e supply chain management) In fact# it is &er y necessary for the appropriate policy to
be adopted in order to ascertain smooth flo' and distribution of petroleum products in different
parts of the country)
In the conte0t of Nepal Oil Corporation# it is found that distribution and sale of petroleum
products is done by Nepal Oil Corporation#petrol pumps# pac(ed dealers and (erosene dealers
and it re+uires &ery stringent +uality control measures) .he products are transported from IOC
refineries# terminal and depots to the corresponding NOC depots and retail dealers by tan(
truc(s)
!t present NOC is 'or(ing to'ards de&eloping storage facilities for petroleum products to meet
the demand in Nepalese mar(et) .herefore# demand of NOC is met through the purchase of
petroleum products from the IOC depots# .erminal and Refinery located near the border 'ith
Nepal)
77 Recommendation&
Some suggestions and policy recommendations are being put for'ard for the impro&ement of Nepal Oil Corporation)
8) .o maintain the re+uired le&el of storage facilities Nepal Oil Corporation has to
constantly increase its storage facilities) A) !s NOC is facing problems due to political instability# financial loss# poor infrastructure# threat of competition from pri&ate sector etc) it is 'ise to ha&e a SDO. analysis so that NOC can run smoothly in coming years) G) It is necessary to understand and analy-e the distribution channel of Nepal Oil Corporation so that it could fulfill demand of petroleum products in coming years)
;) "istribution and sale of petroleum products is done by Nepal Oil Corporation#petrol
pumps# pac(ed dealers and (erosene dealers so# it re+uires &ery stringent +uality
control measures)
B) It is needed to e0plore options to outsource operations and management of the Nepal
Oil Corporation to global energy companies 'ho ha&e the clout to handle go&ernment
and supply disruptions)
@) Nepal should call a global tender 'hich can e0cite global companies including those
from India and China 'ith e0perience in managing supply chains in landloc(ed
countries)
:) !de+uate number of tan(ers should be made a&ailable to carry petroleum products
and its effecti&e distribution throughout the country)
F) NOC should be o&erhauled by bringing proficient staffs and the super&ision and
'or(ing modality of NOC should be re&ised)
9) Proper transportation facilities# strong net'or(ing and chain of command and se&eral
monitoring mechanisms should be introduced in order to a&oid unfair trade
practices 'hich can lead to effecti&e supply chain management)
8?) In order to impro&e supply chain management# concerned bodies ha&e to create a
strong data ban(# conduct a study as per the re+uirement of the mar(et and implement
the polices in close consultations 'ith related parties)
Reference&
!greement bet'een Nepal Oil Corporation and Indian Oil Corporation# A??A
P# A??;# P Statistical Re&ie' of Dorld /nergy) 3ondon* P plc)
yla's on uality Control of Petroleum Products# 899A o f Nepal Oil Corporation)
Code of conduct and directi&es issued to 3P1 industries and dealers at different periods by "epartment of Commerce1o&ernment of Nepal
"ifferent reports on ensuring smooth supply of petroleum products of Ministry of Industry# Commerce and Supplies)
$isher# M)3)# 899:# JDhat is the Right Supply Chain for our ProductJ =ar&ard
usiness Re&ie'# March4!pril# pp) 8?B48 8@)
1o&ernment of Nepal) A??;) "raft !ct on /ntry of Pri&ate Sector in P etroleum Import usiness)
1o&ernment of Nepal)Nepal Petroleum !ct# 89FG)
3e'in# 1)# A??G# J! customer4led strategy for managing the do'nstream oil supply chainJ# Dorld /nergy# >une
M) !) Cohen and S) Malli() 1lobal Supply Chains* Research and !pplications) Production and Operations Management 6:193-210, 1997.
Minute of Petroleum Supplies !greement signed bet'een 1o&ernment of Nepal and 1o&ernment of India# 89:;. Monthly pricing tables and other statistics of Nepal Oil Corporation)
M) P) aganha and M) !) Cohen) .he Stabili-ing /ffect of In&entory in Supply Chains) .o appear in Operations Research, 199. R) !nupindi and R) !(ella) "i&ersification under supply chain uncertainty) Management !cience, "o#ume 39, pp. 9$$-963, 1993.
.) "a&is) /ffecti&e Supply Chain Management) !#oan Management Re%ie& 3$:3'-$6, 1993.
0eb&ite& ===nepaloilcomnp
===googlecom ====i5ipediacom
Appendice& Photograph&
