A PROJECT ONCOMPENSATION MANAGEMENT: AN ANALYSIS IN RESPECT OF SALARY WITH 9TH PAY REVISION IN IOCL, GUWAHATI REFINERY (Submitted in partial fulfillment of the requirement of Master of Business Administration, Distance Education, Guru Jambheshwar University of Science and Technology, Hisar)

RESEARCH SUPERVISOR Name: Prof. Tushar Kanti Goon Designation: Professor (H.R)

SUBMITTED BY Name Of The Student: Debalina Bose Enrollment No: 08061148171 Specialization:H.R.

Session:2008-10 Directorate of Distance Education Guru Jambheshwar University of Science & Technology Hisar (India)

1

CERTIFICATEThis is to certify that Ms. Debalina Bose Enrolment No.08061148171 has proceeded under by supervision on her Research Project Report on COMPENSATION MANAGEMENT: AN ANALYSIS IN RESPECT OF SALARY WITH 9TH PAY REVISION IN IOCL, GUWAHATI REFINERY in the Specialization area HR. The work embodied in this report is original and is of the Standard expected of an MBA Student and has not been submitted in part or full to this or any other university for the award of any degree or diploma. She has completed all requirements of guidelines for research Project Report and the work is fit for evaluation.

Signature of Supervisor/Guide (with SEAL)NAME DESIGNATION ORGANIZATION Delhi Study Centre (With Signature, Name & SEAL) Prof Tushar Kanti Goon Professor NSB SCHOOL OF BUSINESS, New Forwarded by Head/Director of

2

DIRECTORATE OF DISTANCE EDUCATION GURU JAMBESHWAR UNIVERSITY OF SC & TECH. HISAR FORMATE FOR RESUME OF SUPERVISOR/GUIDE1) NAME: Prof. Tushar Kanti Goon 2) DESIGNATION: Professor 3) QUALIFICATION: B.Sc(Hons), MA(Sociology), LLB (Professional) PGD IR & PM,

Qualified UGC Net4) AREA OF SPECIALIZATION: Human Capital Management, Organization

Behavior, Organization Development, Employee Relations, Cross Cultural & Global Management, Strategic HRD Assessment Center etc.5) EXPERIENCE: More than 34 years of Corporate experience with companies like

GAIL (India) limited, New Delhi as GM(HRD) and GM(Mktg); Garden Reach Shipbuilders & Engineers Limited, Calcutta; Hindustan Fertilizer Corporation Ltd, Calcutta/New Delhi6) OFFICIAL ADDRESS: NSB School of Business, B-II/1,MCIE,Delhi Mathura Road,

New Delhi-1100447) E-MAIL: tushar.goon@nsb.in

I am willing to Supervise

Ms DEBALINA BOSE ENROLLMENT NO: 08061148171

On the Topic: COMPENSATION MANAGEMENT: AN ANALYSIS IN RESPECT OF SALARY WITH 9TH PAY REVISION IN IOCL, GUWAHATI REFINERY

(SIGNATURE) With Seal Countersigned by the Employer with Seal3

Countersigned by the Director of Study Centre with Seal

DECLARATIONThis is to certify that the Project Report entitled Compensation Management: AN ANALYSIS IN RESPECT OF SALARY WITH 9TH PAY REVISION IN IOCL, GUWAHATI REFINERY is an original work and has not been submitted in part or full to this or any other university /institution the award of any degree or diploma.

Signature of the candidate NAME: DEBALINA BOSE ENROLLMENT NO: 08061148171 SPECIALIZATION: HR SESSION: 2008-10

4

ACKNOWLEDGEMENTI would like to express my vote of thanks to Prof Tushar Kanti Goon, HR Professor, NSB School of Business, New Delhi, for giving me this great opportunity of doing a wonderful project on Compensation Management: AN ANALYSIS IN RESPECT OF SALARY WITH 9TH PAY REVISION IN IOCL, GUWAHATI REFINERY His timely guidance and suggestion has helped me a lot during the course of my project. Due to his helping hands I was able to complete my project report. I would also like to express my vote of thanks to my colics and seniors who has also helped and guided me out to the full extent in regards to the data collection for my project report.

DEBALINA BOSE

TABLE OF CONTENTS5

PAGE NO1) COMPENSATION MANAGEMENT 2) EXECUTIVE SUMMARY 3) REVIEW LITRETURE AND PROBLEM STATEMENT 4) INTRODUCTION TO THE COMPANY 5) HISTORY OF THE COMPANY 6) OBJECTIVE OF THE PROPOSED STUDY 7) RESEARCH METHODOLGY 8) SCOPE/RELEVANCE OF PROPOSED STUDY 9) GLOBAL SCENERIO 10) INDIAN OIL CORPORATION LTD IN NORTH EAST REGION, GUWAHATI REFINERY 11) DATA INTERPRETATION AND ANALYSIS 12) FINDINGS OF THE SURVEY a) CONCLUSION b) RECOMMENDATION & SUGGESTION 13) REFERENCE 14) APPENDIX QUESTIONNAIRE 129 130-132 110-115 116-124 125-128 7-24 25 26 27-30 31-41 42 43 44 45-109

6

TITLE OF THE PROJECT COMPENSATION MANAGEMENT: AN ANALYSIS IN RESPECT OF SALARY WITH 9TH PAY REVISION IN IOCL, GUWAHATI REFINERY7

WHAT IS COMPENSATION MANAGEMENT?Compensation is payment in the form of hourly wages or annual salary combined with benefits such as insurance, vacation, stock options, etc. that can positively or negatively affect an employee's work performance. An ideal compensation management system will help you significantly boost the performance of your employees and create a more engaged workforce thats willing to go the extra mile for your organization. Such a system should be well-defined and uniform and should apply to all levels of the organization as a general system.. Plus youll enjoy clearer visibility into individual employee performance when it comes time to make critical compensation planning decisions. With effective compensation management youll also enjoy clearer visibility into individual employee performance when it comes time to make critical compensation planning decisions. These performance appraisals assist in determining compensation and benefits, but they are also instrumental in identifying ways to help individuals improve their current positions and prepare for future opportunities. Definition Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction.

PREFCAEWhat is COMPENSATION MANAGEMENT ??????Human Resource is the most vital resource for any organization. It is responsible for each and every decision taken, each and every work done and each and every 8

result. Employees should be managed properly and motivated by providing best remuneration and compensation as per the industry standards. The lucrative compensation will also serve the need for attracting and retaining the best employees. Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. Components of Compensation System Compensation systems are designed keeping in minds the strategic goals and business objectives. Compensation system is designed on the basis of certain factors after analyzing the job work and responsibilities. Components of a compensation system are as follows:

Types of CompensationCompensation provided to employees can direct in the form of monetary benefits and/or indirect in the form of non-monetary benefits known as perks, time off, etc. 9

Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services. If the compensation offered is effectively managed, it contributes to high organizational productivity. Direct Compensation Indirect Compensation Need of Compensation Management

A good compensation package is important to motivate the employees to increase the organizational productivity. Unless compensation is provided no one will come and work for the organization. Thus, compensation helps in running an organization effectively and accomplishing its goals. Salary is just a part of the compensation system, the employees have other psychological and self-actualization needs to fulfill. Thus, compensation serves the purpose. The most competitive compensation will help the organization to attract and sustain the best talent. The compensation package should be as per industry standards.

Strategic CompensationStrategic compensation is determining and providing the compensation packages to the employees that are aligned with the business goals and objectives. In todays competitive scenario organizations have to take special measures regarding compensation of the employees so that the organizations retain the valuable employees. The compensation systems have changed from traditional ones to strategic compensation systems.

What is COMPENSATION MANAGEMENT?????10

Compensation is payment in the form of hourly wages or annual salary combined with benefits such as insurance, vacation, stock options, etc. that can positively or negatively affect an employee's work performance. An ideal compensation management system will help you significantly boost the performance of your employees and create a more engaged workforce thats willing to go the extra mile for your organization. Such a system should be well-defined and uniform and should apply to all levels of the organization as a general system.. Plus youll enjoy clearer visibility into individual employee performance when it comes time to make critical compensation planning decisions. With effective compensation management youll also enjoy clearer visibility into individual employee performance when it comes time to make critical compensation planning decisions. These performance appraisals assist in determining compensation and benefits, but they are also instrumental in identifying ways to help individuals improve their current positions and prepare for future opportunities. Definition Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction.

Types of Compensation Management11

Direct Compensation:Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time. Basic Salary Salary is the amount received by the employee in lieu of the work done by him/her for a certain period say a day, a week, a month, etc. It is the money an employee receives from his/her employer by rendering his/her services.

House Rent Allowance Organizations either provide accommodations to its employees who are from different state or country or they provide house rent allowances to its employees. This is done to provide them social security and motivate them to work. Conveyance Organizations provide for cab facilities to their employees. Few organizations also provide vehicles and petrol allowances to their employees to motivate them.

12

Leave Travel Allowance These allowances are provided to retain the best talent in the organization. The employees are given allowances to visit any place they wish with their families. The allowances are scaled as per the position of employee in the organization. Medical Reimbursement Organizations also look after the health conditions of their employees. The employees are provided with medi-claims for them and their family members. These medi-claims include health-insurances and treatment bills reimbursements. Bonus Bonus is paid to the employees during festive seasons to motivate them and provide them the social security. The bonus amount usually amounts to one months salary of the employee. Special Allowance Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees to provide them social security and motivate them which improve the organizational productivity.

INDIRECT COMPENSATIONndirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes. Leave Policy It is the right of employee to get adequate number of leave while working with the organization. The organizations provide for paid leaves such as, casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay, etc. Overtime Policy Employees should be provided with the adequate allowances and facilities during their overtime,13

if they happened to do so, such as transport facilities, overtime pay, etc. Hospitalization The employees should be provided allowances to get their regular check-ups, say at an interval of one year. Even their dependents should be eligible for the medi-claims that provide them emotional and social security.

Insurance Organizations also provide for accidental insurance and life insurance for employees. This gives them the emotional security and they feel themselves valued in the organization. Leave Travel The employees are provided with leaves and travel allowances to go for holiday with their families. Some organizations arrange for a tour for the employees of the organization. This is usually done to make the employees stress free. Retirement Benefits Organizations provide for pension plans and other benefits for their employees which benefits14

them after they retire from the organization at the prescribed age. Holiday Homes Organizations provide for holiday homes and guest house for their employees at different locations. These holiday homes are usually located in hill station and other most wanted holiday spots. The organizations make sure that the employees do not face any kind of difficulties during their stay in the guest house. Flexible Timings Organizations provide for flexible timings to the employees who cannot come to work during normal shifts due to their personal problems and valid reasons.

IMPORTANCE OF COMPENSATIONCompensation and Reward system plays vital role in a business organization. Since, among four Ms, i.e. Men, Material, Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men. Every factor contributes to the process of production/business. It expects return from the business process such as rent is the return expected by the landlord, capitalist expects interest and organizer i.e. entrepreneur expects profits. Similarly the labour expects wages from the process. Labour plays vital role in bringing about the process of production/business in motion. The other factors being human, has expectations, emotions, ambitions and egos.

Labour therefore expects to have fair share in the business/production process. Therefore a15

fair compensation system is a must for every business organization. The fair compensation system will help in the following:o

An ideal compensation system will have positive impact on the efficiency and results produced by employees. It will encourage the employees to perform better and achieve the standards fixed.

o

It will enhance the process of job evaluation. It will also help in setting up an ideal job evaluation and the set standards would be more realistic and achievable.

o

Such a system should be well defined and uniform. It will be apply to all the levels of the organization as a general system.

o

The system should be simple and flexible so that every employee would be able to compute his own compensation receivable.

o

It should be easy to implement, should not result in exploitation of workers.

o

It will raise the morale, efficiency and cooperation among the workers. It, being just and fair would provide satisfaction to the workers.

o

Such system would help management in complying with the various labor acts.

o

Such system should also solve disputes between the employee union and management.

16

o

The system should follow the management principle of equal pay.

o

It should motivate and encouragement those who perform better and should provide opportunities for those who wish to excel.

o

Sound Compensation/Reward System brings peace in the relationship of employer and employees.

o

It aims at creating a healthy competition among them and encourages employees to work hard and efficiently.

o

The system provides growth and advancement opportunities to the deserving employees.

o

The perfect compensation system provides platform for happy and satisfied workforce. This minimizes the labour turnover. The organization enjoys the stability.

o

The organization is able to retain the best talent by providing them adequate compensation thereby stopping them from switching over to another job.

o

The business organization can think of expansion and growth if it has the support of17

skillful, talented and happy workforce.

o

The sound compensation system is hallmark of organizations success and prosperity. The success and stability of organization is measured with pay-package it provides to its employees.

COMPENSATION MANAGEMENT: SUCCESS FACTORSMany of today's senior executives name pay-for-performance as the most critical tool in achieving the greatest financial results at their companies. But, implementing real, pay-for-performance is easier said than done. SuccessFactors makes it easy for you to quickly and easily implement a powerful pay-forperformance strategy. By rewarding great execution, you will better retain your top talent and drive organizational performance that exceeds all expectations. Plus, you'll enjoy clearer visibility into individual employee performance when it comes time to make critical compensation planning decisions.18

True pay-for-performance culture improves retention. Employees who outperform their peers will be rewarded appropriately, feel valued and happyand more likely to stay with your company. Ongoing compliance. Design your compensation strategy with objective data and communicate it to managers to stay within allocated budgets and to employees to show the clear link between compensation and performance expectations. Budget optimization. Run "what-if" scenarios and instantly see how increasing merit pay to your best employees would impact your budget. Cost savings. Eliminate thousands of dollars from your expense column each year by making sure you're not overpaying low performers. Also, the easy-to-use automated system will save compensation managers time and money. Zero error system. Manage your compensation in a secure environment with streamlined workflows where your data is determined via calculation and eligibility engines eliminating privacy breaches and human calculation errors.

Human Resources Management - Benefits & CompensationIn a sluggish economy, compensation system gets a new focus by rewarding star performers more than the rest of the pack 3-P Compensation: Pay for Performance In this article we look at how an organization develops a motivating and rewarding incentive plan. An executive perspective on employee benefits Executives say employee benefits help companies compete but have an incomplete understanding of benefits and how they perform. Results of a McKinsey Survey. pdf-file. 2006. Article starts at page 12 An Overview of Recent Trends in Incentive Pay Programs This article examines recent trends and developments in an increasingly popular HR practice--incentive pay programs. Pdf-file Analyzing Compensation Data Guide describes three approaches that Federal contractors may use to analyze their compensation systems; analyses may be useful19

in determining if there are patterns of discrimination in the workforce; focus is on analyses of salaries or wages, procedures can be used to analyze other forms of compensation as well. TOP Are Higher Pay Increases Necessarily Better? This study investigated the relationship between pay increase percentages and pay satisfaction among 118 MBA students and found that pay satisfaction had the largest increase between three percent and seven percent and appeared to level off between seven percent and eleven percent, suggesting that there may be a point at which high pay increases may not necessarily lead to more satisfaction. In addition, it was found that pay increases between six and eight percent are the minimum amounts needed for pay increase satisfaction. Finally, we suggest that employees may not need as high of a pay increase to experience satisfaction with their pay increase when providing those employees with a signal, such as an average pay increase. pdf Building a Better 401(k) 401(k) plan sponsors are taking steps to make their plans more attractive to employees in 2003. January 2003 Compensation Planning: The Key to Profitability This book can help brokers create effective individual company compensation plans by giving them a better understanding of how changes to existing compensation schedules affect the company finances as a whole. Pdffile 3.6 MB Compensation Plans An overview, article provided by Salary Source Explaining Executive Compensation Managerial Power vs. the Perceived Cost of Stock Options. Working Paper. Pdf-file Glossary Of Employee Benefit Terms Is Your Long-Term Incentive Plan Really Performance-Based? Long-term incentive plans (LTIPs) typically provide the largest component of senior executives compensation, most often through one or more of three equity-based types: stock options, restricted stock, and what are often called performance shares.

This article focuses on performance shares, an increasingly common form of performance-based LTIPs, and their importance as a major component of executive pay. We believe that performance shares establish the strongest link in tying compensation to performance. The article also presents data on the increasing prevalence of these types of plans. pdf Labor Statistics Extensive compilation of statistics and data Misc. Issues Overview on some compensation- and benefits-related issues: pay equity, variable pay systems, stock plans, retirement plans, health and welfare plans, paid time off, government mandated benefits Offer a Choice of Compensation Plans to Gain a Competitive Advantage pdf-file 2003 Organizational Pay Mix The Implications of Various Theoretical Perspectives for the Conceptualization and Measurement of Individual Pay Components. Pdf-file Organization-wide Broad-based Incentives: Rational Theory and Evidence Despite the widespread use ofincentive pay, there is limited20

evidence about what factors influence its organization-wide, broad-based application. Pdf-file Paying for Performance: An Overlooked Opportunity Sales force deployment and compensation are among the most powerful means a company has to improve growth, market share, and profitability. Yet few companies take the time to align their payout systems with current strategy. The author explains how to design a successful compensation plan that is precise, fair, and simple. pdf-file Performance based Pay The Value of Performance-Based Pay in the War for Talent, pdf-download version Performance Standards in Incentive Contracts Research in incentives has focused on performance measures and pay-performance sensitivities but has largely ignored the performance standard, which generates important incentives whenever plan participants can influence the standard-setting process. Working paper. pdf-file Promise and Peril in Implementing Pay for Performance: A Report on Thirteen Natural Experiments Despite the popularity of pay for performance programs, very little research has examined the dynamics and dilemmas associated with implementing these programs. We studied the implementation of thirteen experiments in pay for performance that were initiated by local management in a high-commitment company (Hewlett Packard). We examined Hewlett Packard documents and interviewed managers to understand their experience with implementing these programs. Managers reported a relatively unfavorable cost-benefit assessment of programs and difficulty in designing and maintaining them, especially in a fast changing business environment. Managers at each site eventually concluded that they could attain greater performance benefits through alternative managerial tools like effective leadership, clear objectives, coaching or training, and therefore discontinued their pay for performance programs. Finally, we discuss implications for management and for future research.

COMPENSATION MANAGEMENT : SALARY NEGOTIATION Compensation management chapter contain wage and salary aspect. The word salary applies to compensation that is uniform from one period to the next and does not depend upon the number of hours worked. Compensation Management Objectives: Wage, Compensation and their administration Job Satisfaction Labour and Wage Theories

21

Classification of Wages Machinery for fixing wages Job Evaluation Objectives of job evaluation and methods of evaluation Promotions and transfers Wage and Salary Administration: The term compensation management is the alternative of wage and salary administration. Wage word is commonly used for those employees whose pay is calculated according to the number of hours worked. The concept of wage came from capitalist before it in the Jamindari system the concept of wage was in the slaves form. Salary applies to compensation that is uniform from one period to the next and does not depend upon the number of hours worked. When we got for job definition we found that job is defined as a collection or aggregation of tasks, duties, and responsibilities that, as a whole, is regarded as the reasonable assignment to an individual employee. Job is known as impersonal however position is known as personal. Job always contains a position which defines some set of works.

Job Satisfaction Job satisfaction depends on the situations and environment of work atmosphere. According to the MBA Book MB 0027, Job satisfaction is determined by a set of personal and job factors, personal factors relate to workers age, length of service, intelligence, skill, and other personality or temperamental factors.

About the Job Evaluation British Institute of Management has defined job evaluation as the process of analysis and assessment of jobs to ascertain reliably their relative worth, using the assessment as a basis for a balanced wage structure. Job analysis is the process of getting information about jobs; specifically, what the worker does; how he gets it done; why he does it; skill, education and training required; relationships to other22

jobs; physical demands and environmental conditions.

On the job evolution methods we can include some aspects: Ranking methods Grade Description Method Point Method Factor-Comparison Method Time-Span Method Guide-Chart Profile Method

Pigors & Meyers give a unique definition of promotion which is, the advancement of an employee to a better job better in terms of greater respect of pay and salary. Better houses of work or better location or better working conditions-also may characterize the better location or better working conditions-also may characterize the better job to which an employee seeks promotions, but if the job does not involve greater skill or responsibilities and higher pay, it should not be considered a promotions. On the Subject of Transfer Pigors and Mayers also writes, the movement of an employee from one job to another on the same occupational level and at about the same level of wages or salary. In the end of the chapter we can say that Compensation Management deals not only salary and wages but also job analysis and job satisfaction.

23

EXECUTIVE SUMMARY

In the scenario of competitive business environment, it has become important for a management student to equip himself/herself with the practical exposure of the corporate world. It was great privilege for me to understand the practical HR aspects learnt in our college classroom at Indian Oil Corporation, Guwahati. In regards to this project I was asked to analyse the compensation package in an Oil Industry in respect to 9th pay revision. It was analyzed that the employees were fully satisfied in respect to their increment in their salary package.24

An online interview and telephonic interview was being conducted and questionnaire was being distributed accordingly.

The feedback of the respondents was being up to mark and a positive response was being carried out.

Review of literature and Problem StatementIf anyone of you used compensation management in SAP HR version 4.7 extension one or earlier, you will know in the old version, the compensation statement is called Total Compensation Statement. In the new Enterprise Compensation Management, it is now called Compensation Review Statement. To configure the SAP Enterprise Compensation Review Statement, you would need to access it in the configuration IMG @ SPRO -> Personnel Management -> Enterprise Compensation Management -> Compensation Statement. You first have to define what to include in the Compensation Review Statement for calculation. You will do this at the Determine Structure for Total Compensation Statement. The next piece is to determine what wage types contain the values you tell it to include in the Select Wage Type for Pay Category. At the Create Form For Total Compensation Statement, you will be working with Smartform to design the layout of the form used when printing the statement. Enterprise Compensation25

Statement uses the form HR_ECM_CRS, no to be confused with HR_CMP_TCS used by the old Compensation Management. After you completed the first 3 steps outlined above, the 4th step is where the confusion begins. In the old Compensation Management, you could determine what form to used by the Total Compensation Statement report through an entry in T77S0. If you are access it via the IMG, it is called Determine Standard Form For Total Compensation Statement. The problem is, this exact structure is available in both the Enterprise Compensation Management and the old Compensation Management. It is pointing to the exact same entry. In the Compensation Review Statement (Program: RHECM_PRINT_CRS, Transaction: PECM_PRINT_CRS), used by Enterprise Compensation Management, SAP hardcode in what form to use, which is HR_ECM_CRS in their code. So you CAN NOT select what form to use if you happen to design your own form. Due to this, you are stuck between a rock and a hard place. If you are implementing SAP, you will hear numerous times not to change standard SAP code and always make a Z copy of what you want to change and use the Z version. In this case, you would have to modify one of the two standard codes. You have to either modify the include statement in the RHECM_PRINT_CRS code to remove NO-DISPLAY in the selection parameter to allow the selection screen to show what form it is defaulting and have the user select the right form. Another option is to change the default form from HR_ECM_CRS to whatever Z form you created. The second method is to not change the standard program code, but go ahead and modify the HR_ECM_CRS form. Make a copy of it to Z to be used as backup, but use the main HR_ECM_CRS as being the main form youve modified.

INTRODUCTION TO THE COMPANY : INDIAN OIL CORPORATION LIMITED================================================== ======= Incorporated in 1959, Indian Oil Corporation Limited is a wholly Government-owned company registered under the Companies Act, 1956. It came into existence on 1st September, 1964 as a result of amalgamation of the erstwhile Indian Refineries Ltd, and Indian Oil Company and has its registered office at Mumbai.

26

The Corporation is managed by Board of Directors appointed by the President of India. Besides the Chairman, the board has the following whole time Directors: 1. 2. 3. 4. 5. 6. 7. Director (Refineries) Director ( Pipelines) Director (Marketing) Director (Finance) Director (HR) Director (R & D) Director (P&BD)

The working of Corporation's five Divisions, namely (i)Refineries Division, (ii) Marketing Division (iii) Pipelines Division (iv) R&D Centre and (v) Assam Oil Division are co-coordinated by a full-time Chairman. These four Divisions are headed by Director (Refineries), Director (Marketing), Director (Pipelines) and Director (R&D) respectively. Director (Refineries) is also the Director In charge of Assam Oil Division. REFINERIES DIVISION 27

With the Head Office at New Delhi, the Refineries Division is the successor to the erstwhile Indian Refineries on 22.8.1958 as Private Limited which was and two incorporated Limited Company having

subsequently amalgamated with the Indian 1.9.1964 to form the Indian Oil Corporation

Oil Company Ltd. on Limited

Divisions, i.e. Refineries and Pipelines Division and Marketing Division.

The Refineries Division is mainly concerned with the setting up and operation of Refineries and Petrochemicals in India.

It owns and operates seven Refineries at : Guwahati (Assam), Barauni (Bihar), Vadodara (Gujarat), Haldia (West Bengal), Mathura (Uttar Pradesh), and Panipat (Haryana). The Assam Oil Division has one Refinery at Digboi and has a network of marketing set-up. There are two liaison Offices, one each at Kolkata and Mumbai.

Each Refinery unit is headed by ED/GM who reports directly to Director (Refineries) and the liaison office at Kolkata and Mumbai is headed by DGM, who reports to ED (HR).

PERSONNEL & ADMN. DEPARTMENT 28

The Personnel, Administration, Management Services, HRD & Training and Corporate Communication Department at Refineries HQ are headed by ED (HR) with the following functions under his charge: Personnel Administration, Welfare & Hindi Implementation Training and Development Management Services Corporate Communication

ED(HR)

is

assisted &

in

his

above

functions

by

GM(A&W), CMSM, and

DGM(Training

Development),

DGM(HR), DGM(HRD),

CM(CC) respectively.

The P&A Department at each refinery unit is headed by DGM(HR)/CHRM who reports to the respective ED/GM.

VISION, MISSION & VALUES Vision A major diversified, transnational, integrated energy company, with national leadership and a strong environment conscience, playing a national role in oil security& public distribution. Mission To achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through value of products and services, and cost reduction. To maximize creation of wealth, value and satisfaction for the stakeholders. To attain leadership in developing, adopting and assimilating state-of- theart technology for competitive advantage.29

To provide technology and services through sustained Research and Development. To foster a culture of participation and innovation for employee growth and contribution. To cultivate high standards of business ethics and Total Quality Management for a strong corporate identity and brand equity. To help enrich the quality of life of the community and preserve ecological balance and heritage through a strong environment conscience. Values Care Innovation Passion Trust IndianOilPeople... towards Excellence...

HISTORY OF THE COMPANY1958 Indian Refineries Ltd. was formed with Mr. Feroze Gandhi as Chairman. 1959 Indian Oil Company Ltd. was established on 30th June 1959 with Mr. S. Nijalingappa as the first Chairman. 1960 Agreement for supply of SKO and HSD was signed with the then USSR. M.V:30

"Uzhgorod" carrying the first parcel of 11,390 tonnes of HSD docked at Pir Pau Jetty in Mumbai on 17th August 1960. 1962 Guwahati Refinery was inaugurated by Pt. Jawaharlal Nehru. Construction of Barauni Refinery commenced. 1963 Foundation was laid for Gujarat Refinery Indian Oil Blending Ltd. (a 50:50 Joint Venture between Indian Oil and Mobil) was formed. 1964 Indian Oil Corporation Ltd. was born on 1st September, 1964 with the merger of Indian Refineries Ltd. with Indian Oil Company Ltd. Barauni Refinery was commissioned. The first petroleum product pipeline from Guwahati to Siliguri (GSPL) was commissioned. 1965 Gujarat Refinery was inaugurated by Dr. S.Radhakrishnan, the then President of India. Barauni-Kanpur Pipeline (BKPL) and Koyali- Ahmedabad product Pipeline (KAPL) commissioned. Indian Oil People maintained the vital supply of Petroleum products to Defense in 1965 War. 1966 The first long-term agreement was signed for harmonious employee relations. 1967 Haldia Baraurii Pipeline (HBPL) was commissioned. Bitumen and Marine Bunker business began. 1968 Techno-economic studies for Haldia-Calcutta, Bombay-Pune and BombayManmad Pipelines submitted to the Government.31

1969 Indian Oil undertook the marketing of Madras Refinery products. 1970 Indian Oil acquired 60% majority shares of IBP. The same was offloaded in favor of the President of India under a Directive in 1972. 1971 Dealership/reservation was extended to war widows, disabled Defense personnel, Freedom Fighters, etc. after 1971 War. 1972 R&D Centre was established at Faridabad. SERVO, the first indigenous lubricant was launched. 1973 Foundation-stone of Mathura Refinery was laid by Mrs. Indira Gandhi, the then Prime Minister of India.

1974 Indian Oil Blending Ltd. (IOBL) became the wholly owned subsidiary of Indian Oil. Marketing Division attained a new watershed with a market participation of 64.2%. 1975 Haldia Refinery was commissioned. Multipurpose Distribution Centers were introduced at 132 Retail Outlets pioneering rural convenience. 1976 Private petroleum companies nationalized. Burmah Shell became BPC. 1977 R&D Centre launched Nutan wick stove.32

1978 Phase-wise commissioning of Salaya-Mathura Crude Oil Pipeline (SMPL) began. 1979 Barauni Refinery and Bongaigaon Refinery and Petrochemicals Ltd. (BRPL) affected by Assam agitation. 1980 The second Oil Shock was witnessed as a result of Iranian Revolution. Crude Oil price flared to a new high of $32 per barrel. 1981 Digboi Refmery and Assam Oil Company's (AOC) marketing operations were vested in IndianOil. It became Assam Oil Division (AOD) of Indian Oil. 1982 Mathura Refinery was commissioned. Mathura-Jalandhar Pipeline (MJPL) was commissioned. 1983 Massive augmentation of LPG storage and distribution facilities was undertaken. Proposal for the 6 MMTPA Refinery at Karnal was submitted at an estimated cost of Rs l, 181 Crore.

1984 Taluka Kerosene Depots (TKOs) were commissioned for improved availability of kerosene in rural and hilly areas in addition to Multipurpose Distribution Centers. Foreshore terminal at Kandla Port was commissioned. Integrated Corporate Planning -ten year Perspective Plan and five year LRP initiated. 1985 The new office complex for the Registered Office of the Corporation and33

Head Office of Marketing Division with a total area of 23,110 square meters was completed. Additional Coking Unit at Barauni Refinery commissioned. 1986 A new Foreshore Terminal at Madras commissioned. 1987 Test marketing of 5 kg. LPG cylinders began in 1986-87 in Garo Hills and Kumaon. 1988 DFR of Karnal (Panipat) Refinery was submitted to the Government of India.

1989 Salaya-Mathura Pipeline (SMPL) was suitably modified for handling Bombay High Crude during winter. 1990 Kandla-Bhatinda Pipeline (KBPL) project was approved. The first LPG Bottling Plant of Assam Oil DiVision (AOD) at Silcher was commissioned. 1991 Digboi Refinery Modernization project was initiated. Bunkering facility at Para dip was completed.

1992 Revamp of Vacuum Distillation Unit at Mathura Refinery was completed. Two of the Indian Oil Table Tennis players represented the nation at Barcelona Olympic Games. 1993 New era of Micro-processor based Distributed Digital Control System (DDCS) replacing the pneumatic instrumentations began in Refineries, in phased34

manner. 1994 India's First Hydro cracker Unit was commissioned at Gujarat Refinery. Vision-2000, the Retail Visual Identity programme was launched to upgrade facilities at Retail Outlets. 1995 1,443 km. long Kandla-Bhatinda Pipeline (KBPL) was commissioned at Sanganer. The lndane Home Shoppe was launched. 1996 State-of-the-art LPG Import Terminal at Kandla with a capacity of 6, 00,000 tonnes per annum was commissioned. 1 million metric tonne per annum (MMTPA) new CDU at Haldia Refinery was executed with in-house supervision. The first batch of one year International MBA (iambi) programme was successfully conducted by Indian oil Institute of Petroleum Management (IIPM). 1997 Commercial production of SERVOIII Titex Grease commenced at the world's first Titex Plant at Vashi, Bombay. Business Development received new thrust. Indian Oil entered into LNG business through Petronet LNG -a JV company.

1998 Panipat Refinery was commissioned. Haldia, Barauni Crude Oil Pipeline (HBCPL) was completed.

35

The Administrative Pricing Mechanism (APM) was withdrawn from the Refining Sector effective 1" April 1998. Phase-wise dismantling of APM began. Indian Oil Board was reconstituted under the Navaratna concept, with the induction of five part-time non-official independent Directors. 1999 Indian Hydrocarbon Vision -2025" was announced at PETROTECH-99, organized by Indian Oil on behalf of the oil Industry. India attained self-sufficiency in Refining. Diesel Hydro-desulphurization Units commissioned at Gujarat, Panipat, Mathura and Haldia Refineries. Man than -- the IT re-engineering project was launched. 2000 Indian Oil crossed the turnover of the magical mark of Rs l, 00,000 Crore -the first Corporate in India to do so. The Indian Oil Foundation -- a non-profit trust -- the first of its kind in Corporate India, was unveiled to protect, preserve and promote the country's heritage. Y2K compatibility achieved. JNPT Terminal was commissioned. The Lube Blending Plant at Asotin and the Once through Hydro cracker Unit at Mathura refinery were commissioned. Indian Oil entered into Exploration & Production (E&P) with the award of two exploration blocks to Indian Oil and ONGC consortium under NELP-I.

2001 Digboi Refinery completed 100 years of continuous operation. Chennai Petroleum Corporation Ltd. (CPCL) and Bongaigaon Refinery and Petrochemicals Ltd. (BRPL) were acquired.36

Fluidized Catalytic Cracker Unit at Haldia Refinery was commissioned. Augmentation of Kandla-Bhatinda Pipeline (KBPL) to 8.8 MMTPA completed. Eight Exploration blocks awarded to the IndianOilled consortium under NELPII. Two Coal Bed Methane (CBM) blocks awarded to the consortium of Indian Oil and ONGC under CBM-I. The investment proposal for Integrated PX/PfA project at Panipat was approved. 2002 APM dismantled. Pricing of Petroleum products decontrolled. IBP Co. Ltd. was acquired with management control. Barauni Refinery expansion project completed. New generation auto fuels IOC Premium and Diesel Super introduced.

2003 Lanka IOC Pvt. Ltd. (LIOC) launched in Sri Lanka. Retail operations began in Sri Lanka. Indian Oil became the first Indian Petroleum Company to begin downstream marketing operations in overseas market. Lanka IOC became an independent oil company in Sri Lanka Gasohol, 5% ethanol blended petrol, was introduced in select states. INDMAX unit at Guwahati Refinery commissioned. Indian Oil Technologies Ltd. for marketing intellectual properties of R&D centre was launched. Foundation Stone of Panipat Refinery Expansion and PX/PTA projects laid. Maiden LPG supplies to Port Blair KVSPL (Product) Pipeline commissioned Concept of XTRA, covering Retail Outlets and customer service, launched37

SERVO became a Super Brand Indian Oil named as nodal agency by MoP&NG to undertake research in the areas of production, storage, distribution and utilization of hydrogen gas as an alternative fuel. The foundation stone of Indian Oils Panipat Refinery expansion (6 to 12 MMTPA) project and PX/PTA plant (553 TMTPA) project laid at Panipat.

2004 Indian Oil turned a Gas marketer by sale of degasified LNG Indian Oil Mauritius Ltd.s 18 TMT state-of-the-arts Oil Storage Terminal at Mer Rouge commissioned 2004 Lanka IOC Pvt. Ltd. (LIOC) launched in Sri Lanka. Retail operations began in Sri Lanka. Indian Oil became the first Indian Petroleum Company to begin downstream marketing operations in overseas market. Lanka IOC became an independent oil company in Sri Lanka. Gasohol, 5% ethanol blended petrol, was introduced in select states. INDMAX unit at Guwahati Refinery commissioned. Indian Oil Technologies Ltd. for marketing intellectual properties of R&D centre was launched.

Foundation Stone of Panipat Refinery Expansion and PX/PTA projects laid. Maiden LPG supplies to Port Blair. KVSPL (Product) Pipeline commissioned.38

Concept of XTRA, covering Retail Outlets and customer service, launched. SERVO became a Super Brand. Indian Oil Board approves merger of subsidiary IBP with parent company IndianOil in May.

Indian Oil Mauritius (IOML) terminal inaugurated. Indian Oil became the only oil PSU in the country to adopt instruments of risk management in international trading and commerce, derivatives trading to protect refining margins.

Indian Oil pays the highest-ever dividend of 20% (for fiscal 2003), amounting to Rs 2453 crore, to shareholders. Indian Oil signs MoU with IIM (Ahmedabad) to offer one-year Post Graduate Programmes in Management (Energy) to be conducted at IIPM, Gurgaon. Indian Oil signs MoU with Haryana government to set up the Rs 6300 crore Naphtha Cracker & Polymer Complex at Panipat. R & D Centre bags the prestigious National Technology Award for successful commercialization of INDMAX technology for conversion of low value heavy petroleum residues into high value LPG. Indian Oil moves up by two places to the 189th position in the Fortune 'Global 500' ranking based on fiscal 2003 performance.

Indian Oils Rs 1248 crore LAB (Linear Alkyl Benzene) plant, the world's largest single train kerosene-to-LAB unit, was commissioned at Gujarat, thus signaling Indian Oils entry into petrochemicals business. Indian Oil signs Memorandum of Collaboration (MoC) with Mahindra & Mahindra to roll out the country's first hydrogen vehicle in the next two39

years. Indian Oils 60 km-long Rs 76 crore Panipat Rewari Product Pipeline commissioned. Indian Oil signs MoU with Nepal Oil Corporation Limited to lay a product pipeline between Raxaul (India) and Amlekhganj (Nepal). The year marked Indian Oils entry into gas business. As co-promoter of Petronet LNG Limited, complete quantity of gas (2.52 MMSCMD) allotted to Indian Oil was sold out and commercial supplies commenced April 2004 onwards. Indian Oil was voted as the most trusted petrol pump brand in the country in a survey of India's most trusted brands conducted by the Economic Times Brand Equity. LIOC (Lanka IOC), Indian Oils subsidiary, created history on the Colombo stock exchange as the biggest ever equity issue. LIOC's IPO offering 25% stake was oversubscribed 11.6 times on the first day itself. 2005 The year marked Indian Oils big ticket entry into the high stakes business of E&P. The Indian Oil and Oil India consortium signed its Exploration and Production Sharing Agreement (EPSA) with the National Oil Corporation of Libya for Block No. 86, in the Sirte basin of Libya. Indian Oils Mathura Refinery was the first refinery in India to attain the capability of producing entire quantity of Euro-III compliant diesel by commissioning the Rs 1046 crore DHDT (Diesel hydro treating unit). Mathura Refineries also commissioned India's first MS quantity up gradation unit to produce Euro-III compliant petrol. Indian Oil becomes the top oil trading company amongst national oil companies in the Asia Pacific region for the second consecutive year.

Indian Oil signs a Supply Purchase Agreement (SPA) to procure 1.75 MMTPA LNG to be received by the last quarter of 2009 at Petronet LNG Limited Dahej40

terminal. Indian Oil breached the Rs 150, 000 crore mark in sales turnover by clocking Rs 150, 677 in turnover in fiscal 2004. Indian Oil signed a JV agreement with GAIL to enter the city gas distribution projects in Agra and Lucknow. Indian Oil allowed by Government of India to charter crude oil ships on its own instead of going through Tran chart, the chartering wing of the Ministry of Shipping.

41

Objectives of the proposed study

The main objective of the proposed study was to find out how far the employee has been satisfied and how far their performance has been improved after the commencement of 9th pay revision in Indian Oil Corporation Ltd, Guwahati Refinery. It was necessary to analyze this scenario in Guwahati Refinery as because prior to the commencement of 9th pay commission in the Indian Oil Sector the employees were not fully satisfied with their working condition along with the matching of their payroll. Hindrances and disputes were arising out between the employers and employees working in this organization.

So it was necessary for a rise in the compensation package in this sector so that the employees would be satisfied with their performance along with their compensation package in this organization. So the commencement of 9th pay commission was implemented in this organization to attain the satisfaction of the employees in this organization.

Research Methodology42

In order to know the satisfaction of the employees working in this organization after the commencement of 9th pay commission one set of Questionnaire was administered to the employees ( both officers and non officers) working in this organization on the online basis.

I.RESEARCH DESIGN: In order to understand the satisfaction of the Employees after the commencement of 9th pay commission a brief conversation was done with the employers through online and a survey was done through online basis.

II. Data Collection through Questionnaire:- Primary data have been collected personally from the respondents through questionnaire through online survey . The respondent includes both the officers as well as the non officers of every department working in this organization and analysis on the basis of their working period that is more than 20 years and less than 20 years. The respondents have been asked to fill up the questionnaire and more over data collection process also includes oral interview through online.

III. Sampling Design & Sampling Size: - The elements of research of population or universe of interest are the peoples both the officers and non officers of every department working in this organization. The sample size of the study consists of samples, which include a study of 70 respondents out of which 5% are officers and 15% are non officers from every department working in this organization. In this regards out of 70 samples 40 of the respondants were taken telephonic interview, 20 were given online questionnaire for the survey and for the rest were conducted an oral interview.

Scope/Relevance of Proposed Study43

RELEVANT AND WIDER SCOPE IMPORTANT FOR BOTH EMPLOYERS AND EMPLOYEES TO KNOW THEIR POSITION IN THE ORGANIZATION HELPS IN DISCRIMINATING THE GRADES OF THE

EMPLOYEES BUILDS UP A HOSPITALITY BETWEEN THE EMPLOYERS AND EMPLOYEES HELPS IN STOPPING THE DISPUTES ARISING IN THE ORGANIZATION HELPS IN GIVING JOB SATISFACTION TO THE EMPLOYEES HELPS THE EMPLOYEES IN MAKING UNDERSTAND THE IMPORTANCE OF THEIR JOB ROLE

GLOBAL SCENERIO44

==========================Introduction to Oil Companies According to the Global Scenario ContextThe effects of global climate change affect every country, but not all are responsible in the same way of its causes. The response, nonetheless, should be global, involving as many countries as possible, but taking into account their development degrees and their priorities and needs. Recognizing that no individual nation can effectively address a problem of this scope, governments within the UNFCCC have decided to address this challenge collectively, fostering collective initiatives to control the enhanced greenhouse effect, particularly emissions of CO2 from fossil fuel combustion.Indeed, the problem is very different for the less favored countries with enormous needs as compared to those who have reached high development levels. The latter have recently undergone important changes in economic structure, technology and energy efficiency that make them relatively cleaner countries. However, because of historic reasons they have contributed to the current environmental problems; so they bear specific responsibilities. It is not possible to adopt one common standard.

In countries like Mexico, for which international commitments havent been set, the need to take on international commitments, not yet included in the UNFCCC, is discussed. International political pressure for such commitments will surely occur considering Mexico's growing involvement in the productive and financial globalization. In the American continent the most rapid growth in carbon emissions between 1970 and 1997 was in Mexico (235%) followed by Brazil (220%) and Argentina (147%).

45

On what basis can cooperation against global warming be implemented? Which role can international or local actors play, taking into consideration their influence on the global environment? How can international institutions influence individual choices in order to make international cooperation less problematic? How to make an objective differentiation and different countries efforts compatible with the search for equity considering relative development degrees and historic responsibilities? Those are some of the questions frequently posed in the scientific literature and in international meetings.

True, global environment protection has been institutionalized step by step through the establishment of an international regime which began to take form since the awareness of the impact of global warming and climate change over natural systems and the humanity increased. The Rio de Janeiro conference in 1992 and the Kyoto protocol have been important steps towards that institutionalization, but the path ahead is still long and the enforcement difficulties abundant.Last years events show Equity, that barriers exist to fully integrate and climate change issues the into DES the

(Development,

Sustainability)

sustainable development agenda, but they show opportunities as well. Sorting out opportunities from challenges is indispensable for the advancement of dialogue, negotiations and international cooperation. One of the fields where there is no consensus is in the emphasis that environmental policies must have: command and control measures or more flexible instruments which give more options and responsibilities to economic agents. There is a recent shift, indeed, towards giving a more important place to market instruments and agent decisions in order to reach environmental objectives and implement climate change policies. This is the case of the Kyoto Protocol's international trading system, which has been proposed as a key element of flexibility, but raises many doubts and criticism, including its relation with equity issues. 46

The purpose of this paper is to put this shift to market oriented policies and the role of some important agents as the international oil companies in a broader perspective.

Oil Companies, Petroleum Companies Petroleum companies, also known as Oil companies or Oil & Gas companies, have formed a key part of the global economy for the last decade, since petroleum or crude oil has become our main fuel source. Not only have these petroleum companies become amongst the biggest companies in the world, but thanks to the fundamental importance of this limited resource, they have also become embroiled in a complex political world of government and national objectives, international relations - and all too often, outright war. Oil companies, among the largest employers in the world, cater to the global energy demand. Their areas of functioning can be grouped into the following:

Production: This involves the extraction of crude oil from reserves, followed by its refinement in processing plants. Distribution: The daily distribution quota is delivered to various sectors (e.g. automobiles, agriculture, residential). This is followed by the commercialization of oil products. Moreover, company. administrating their employees who have to work in extreme

temperatures in extended shifts is an important part of the operations of an oil

47

Major Oil Companies of the World The leading oil companies of the world are:

The Exxon Mobil Corporation: This American oil and gas corporation is the

progeny of John D. Rockefeller's Standard Oil Company, formed by the merger of Exxon and Mobil on November 30, 1999. The world's biggest publicly traded company has its headquarters in Irving, Texas. Its reserves at the end of 2007 were around 72 billion barrels of oil-equivalents (BBOE), which are expected to last for the next 14 years.

Royal Dutch Shell plc: It was formed in 1907 when Royal Dutch Petroleum

Company merged with Shell Transport and Trading Company Ltd, UK. The initial establishment included 60 % Dutch and 40% British shares.

BP plc: Having its headquarters in London, this company was discovered by

William Knox D'Arcy in May 1908 in the Middle East. It was called the AngloIranian Oil Company (AIOC) before it became the British Petroleum in 1954. In 1998, it became BP Amoco after merging with Amoco of Indiana. In 2000, it was renamed BP and adopted the tagline "Beyond Petroleum.

Chevron/Texaco Corporation: It was formed after the split of John D.

Rockefeller's Standard Oil Company in 1911 and named SoCal. It was one of the Seven Sisters that dominated the world oil industry in the early 20th century.

Conoco Phillips Corporation: Based in Houston, Texas, it was formed by the

merger of Conoco Inc and Phillips Petroleum Company on August 30, 2002. Its fuel stations are named Phillips 66, Conoco and 76. It is the second-largest refiner in the US and the fifth-largest in the world, with a processing capacity of 2,208,000 and 2,901,000 bbl/day.

48

The Seven Sisters (the major oil companies of the west that divided world oil among themselves after WW-II) now control a minor proportion of world reserves. State monopolies and emerging partially-privatized oil companies hold the major share. We have listed here the main world, international or global petroleum companies, by country. The country normally indicates the headquarters location of that company, although some have multiple headquarters (for example Royal Dutch Shell is headquartered in both the UK and the Netherlands).

List of Oil Companies Listed below are the various petroleum companies of the world:

Assam Oil Company Ltd. (ACL), India Abu Dhabi National Oil Company (ADNOC), United Arab Emirates Alon USA, United States Amerada Hess Corporation, United States Anadarko Petroleum Corporation, United States Apache Corporation, United States Arbusto Energy, United States Atlantic Petroleum, Faroe Islands BG Group, United Kingdom Bharat Petroleum Corporation Limited, India BHP Billiton, Australia Buzachi Petroleum Operating, Kazakhstan BP, United Kingdom Cairn Energy, India Canadian Natural Resources, Canada Chevron Corporation, United States Chief Oil and Gas, United States Citgo, Venezuela 49

CNOOC Ltd., China ConocoPhillips, United States Cosmo Oil Company, Japan Crown Central Petroleum, United States Cupet, Cuba Devon Energy, United States Ecopetrol, Colombia Enbridge, Canada

EnCana, Canada ENSCO International, United States Eni, Italy Essar oil ltd., India Entreprise Tunisienne d'Activites Petroliere (ETAP), Tunisia ExxonMobil, United States First Texas Energy Corporation, United States Galp Energia, Portugal GeoPardazesh - Petroleum Exploration Services Co. Ltd., Iran Petronet LNG Limited, India Gujarat Gas Co. Ltd., India Gujarat State Petroleum Corporation, India Gulf Oil, Luxembourg Grupa LOTOS, Poland Hargeisa Minerals & Resources Company Ltd, Somaliland Hellenic Petroleum, Greece Hess Corporation, United States Hindustan Petroleum Corporation Ltd, India Husky Energy, Canada IB Daiwa, Japan Imperial Oil, Canada 50

INA - Industrija Nafte, Croatia Indian Oil Corporation, India Inpex, Japan Irving Oil, Canada Japan Energy, Japan Kaz-Munay Gaz, Kazakhstan Karazhanbas Munay, Kazakhstan Kerr-McGee, United States

Koch Industries, United States Kuwait German Petroleum Company, Canada Kuwait Gulf Oil Company, Kuwait Kuwait National Petroleum Company Kuwait Kuwait Oil Company, Kuwait Kuwait Petroleum Corporation, Kuwait LUKoil, Russia Marathon Oil Corporation, United States Maurel & Prom, France Maxol Group, Republic of Ireland MedcoEnergi, Indonesia Mol Group, Hungary Naftna Industrija Srbije, Serbia Naftogas of Ukraine, Ukraine National Iranian Oil Company (NIOC), Iran National Oil Corporation, Libya Neste Oil, Finland Nexen, Canada Nippon Oil, Japan NNPC, Nigeria Oil Planet International Corp, United States 51

Northern Resources, Canada Oil and Gas Development Company Limited, Pakistan Occidental Petroleum, United States Oil India Limited, India Oman Oil Company (OOC), Oman OMV, Austria ONGC, India

PKN Orlen S.A., Poland PSO, Pakistan Petrleos de Venezuela, Venezuela Petroleos Mexicanos, Mexico Petroleum Development Oman, (PDO) Perenco, France, United Kingdom Petro-Canada, Canada Petrobras, Brazil PetroChina, China PetroKazakhstan, Kazakhstan Petrom, Romania Petron Corporation, Philippines PETRONAS, Malaysia PETROTRIN, Trinidad and Tobago PetroVietnam, Vietnam Pertamina, Indonesia Polish Oil and Gas Company, Poland Plains Exploration & Production Company (PXP), United States PTT Public Company Limited, Thailand Qatar Petroleum, Qatar Reliance Industries Limited, India Repsol YPF, Spain 52

Rompetrol Group N.V., Romania Royal Dutch Shell, Netherlands, United Kingdom Sagiz Petroleum, Kazakhstan San-Ai Oil, Japan Santos Limited, Australia Sasol, South Africa

Saudi Aramco, Saudi Arabia (the largest in the world) Shell Canada, Canada (subsidiary of Royal Dutch Shell) Shell Oil Company, United States (subsidiary of Royal Dutch Shell) Sinclair Oil, United States Sinopec, China Snpc, Congo-Brazzaville Sonangol, Angola Sonatrach, Algeria SPC, Singapore StatoilHydro, Norway State Oil Company of Azerbaijan, SOCAR Azerbaijan Somerset Refinery, United States State Oil Company of Suriname, Suriname Sunoco, United States Suncor Energy, Canada Surgutneftegaz, Russia Syncrude, Canada Talisman Energy, Canada Todd Energy, New Zealand Total, France Tullow Oil, United Kingdom United Refining Company, United States Vaalco Energy Inc., United States 53

Wintershall, Germany Woodside Petroleum, Australia XTO Energy, United States YPF, Argentina YPFB, Bolivia

A Double Oil Shock ScenarioAs far as oil prices are concerned, many scenarios are possible. A jump to $300 per barrel or more in the near future may be the result of a geopolitical crisis in Iran, Venezuela, Saudi Arabia or elsewhere. Low price scenarios seem unlikely today but cannot be completely excluded. Another one which we consider of interest is a dual-crisis or double-shock. It would present a number of similarities with the development observed between 1973 and the end of the eighties. It has often been said that the recent rise in prices is not comparable to that of 1973, the first oil crisis having been triggered by a reduction in supply whilst the present oil price increase could be attributed to runaway demand. Note, however, that during the 1960s, worldwide consumption of petroleum products increased by 7 to 8% annually, but production capacities did not increase at the same rate. The events associated with the Israeli-Arab conflict (i.e., the Yom Kippur war) accelerated the rise in prices, but that rise would most likely have occurred anyway, although spread out over time as it has been the case since 2000. In short, the rise in prices over the past few years, as in 1973, reveals the need for consuming countries to make decisions to promote energy savings and the development of alternative energy technologies. As in the seventies54

with the French nuclear program, several steps have already been taken, in favour of bio-fuels for instance. In spite of growing nationalism and a lack of opportunities for international oil companies, investment in exploration and production is increasing. Note, however, that the major part of this increase in investment is due to the inflation of costs, only a small part corresponds to an increase in activity.

In the absence of geopolitical events, it is possible that production capacities will be restored if all development projects are realized as planned. We might then see a stabilization or an erosion of prices for a few, or several, years. However, if demand continues to grow, these recent measures may prove to be not sufficient. Then, even if the oil peak, strictly speaking, only occurs around 2030, it is likely that the production of natural hydrocarbons will be unable to follow demand as early as the beginning of the next decade. Before prices return to a new long-term equilibrium which could be about $100 to $ 150 a barrel (in constant dollars), it is highly likely that an additional crisis will occur, similar to the 1979-80 crisis, with price levels of $200, $300 per barrel or more for several years. These high prices will probably be necessary to promote an inevitable energy transition, for investments to be made both on the supply side as well as on the demand side in order to develop renewable energy sources without major subsidies, to stimulate the production of synthetic fuels, to renew nuclear programs, etc.55

Last but not least, we should bear in mind the role played by expectations and how forecasts can be self-destructive in the oil industry. One especially relevant example relates to the 1985 price drop. Political and industrial decisions resulting in energy efficiency, substitution, exploration and production of difficult oil in non OPEC regions occurred not simply because the price of crude was high but because it was considered unlikely that prices would not continue to rise. Consequently, the most effective factor for avoiding the coming crisis of a dual shock scenario would be a consensus about its arrival. In this context, the fact that the 5-6 year forward price of oil is at present reaching a hundred dollars is probably to some extent rather good news.

RUSSIA OIL COMPANIES IN RUSSIAOil

ReservesAccording to the Oil and Gas Journals 2008 survey, Russia has proven oil reserves of 60 billion barrels, most of which are located in Western Siberia, between the Ural Mountains and the Central Siberian Plateau. Eastern Siberia is one area where little exploration has taken place. The Russian Ministry of Natural Resources estimated in 2005 that A+B+C1 reserves (roughly equivalent to Proven + Probable reserves) in E. Siberian provinces totaled 4.7 billion barrels. 56

Russia's Oil BalanceWith production of 9.8 million bbl/d of liquids (not including oil products), and consumption of roughly 2.8 million bbl/d, Russia exported (in net) around 7 million bbl/d. According to official Russian statistics, roughly 4.4 million bbl/d of this total is crude oil. Over 70 percent of Russian crude oil production is exported, while the remaining 30 percent is refined locally. Crude oil exports via pipeline fall under the exclusive jurisdiction of Russia's state-owned pipeline monopoly.

ProductionIn the 1980s, the Western Siberia region, also known as the Russian Core, made the Soviet Union a major world oil producer, allowing for peak production of 12.5 million barrels per day in total liquids in 1988. Following the collapse of the Soviet Union in 1991, Russias oil production fell precipitously, reaching a low of roughly 6 million bbl/d, or around one-half of the Soviet-era peak (see Fig. 1). According to observers, several other factors are thought to have caused the decline, including the depletion of the country's largest fields due to state-mandated production surges and the lack of investment in field maintenance.

A turnaround in Russian oil output began in 1999. Many analysts attribute the rebound in production to the privatization of the industry following the collapse of the Soviet Union. The privatization clarified incentives and increased less expensive 57

production. Higher world oil prices beginning in 2002, the use of technology that was standard practice in the West, and the rejuvenation of old oil fields also helped raise production levels. Other experts partially attribute the increase to after-effects of the 1998 financial crisis, the fall in oil prices, and the subsequent devaluation of the ruble.

In 2007 Russian total liquids production averaged over 9.8 million bbl/d, including 9.4 million bbl/d of crude oil, a 200,000 bbl/d increase over 2006. This growth rate was down from annual growth of roughly 700,000 bbl/d annually between 20022004.

Short-Term OutlookGrowth in output from the Sakhalin projects, (see EIAs Sakhalin Fact Sheet) will be a main contributor to overall Russian oil output growth. In the upcoming decade, a few major oil fields (listed in Table 1 below) will contribute to most of Russias supply growth and others will offset decreasing production from mature fields. In the short term, however, there are only a few large new fields that are planned. They include Gazproms 100,000 bbl/d Prirazlomnoye field (2010), Lukoil's 150,000 58

bbl/d South Khylchuyu field (mid-2008), and year-round production from the Sakhalin II field. Lukoil/ConocoPhillips's TimanPechora project, and Rosneft's Vankorskoye (300,000 bbl/d) and Komsomolskoye fields will also help stem production losses at older fields. Lukoil also expects around 30,000 bbl/d of production from its North Caspian fields after 2010.

In 2006, around 24 percent (or 2.3 million bbl/d) of Russias oil production came from fields that had already produced 60 percent of their total recoverable reserves. Achieving continued growth at post-peak fields will become more problematic as oil companies run out of easy and less costly opportunities to manage the rate of decline. Updated assessments of EIAs short-term outlook for Russian oil supply growth are available each month from Table 3b of the Short Term Energy Outlook.

59

Oil Sector TaxationGovernment taxation of production and export revenues along with the continued lack of clarity concerning the ownership of subsoil resources contributed to lower output for 2007 and could possibly contribute to stagnating or even negative output growth during 2008. Export duties on crude oil are directly linked to the global pricing environment. The tariff schedule for export duty for crude oil at $25/bbl and higher is 65 percent of the market price minus $21/ barrel. Using this formula, the government is receiving around $47 per barrel from export taxes at current prices. Therefore, absent changes to the tax structure itself, Russian oil companies are only very modestly affected by changes in global crude prices.

60

At current oil prices, the government is also receiving an additional $20 per barrel in extraction taxes. The government plans to introduce preferential treatment for those producers that extract resources at fields exceeding 80 percent depletion, which they hope will encourage oil companies (mostly in the Volga-Urals region) to bring some idle wells back into production.

Several proposals are currently being discussed to reduce the tax burden. One is a proposal to raise the non-taxable threshold level from $9 to $15 per barrel. Prime Minister Putin has also proposed a seven-year mineral extraction tax holiday for oil companies that develop fields in Timan-Pechora, Yamal, or on the continental shelf beginning in 2009. A second proposal would provide tax holidays for firms carrying out offshore exploration or granting them mineral extraction tax breaks. Another proposal by the Finance Ministry seeks to reduce annual oil company taxes by $4.2 billion from 2009. According to analysts, this is only a fraction of the $40 billion in extraction taxes and $45 billion in export duties that the government collected from oil companies in 2007.

Refinery SectorRussia has 41 oil refineries with a total crude oil processing capacity of 5.4 million bbl/d, but many of the refineries are inefficient, aging, and in need of modernization. According to Energy Intelligence, refinery throughput at Russian refineries increased by roughly 4 percent to around 4.6 million bbl/d in 2007. This total includes some crude oil exports from neighboring countries. Russian refineries produced around 1.2 million bbl/d of Mazut (heavy fuel oil), 1.3 million bbl/d of middle distillates, and 815,000 bbl/d of gasoline.

The draft proposals mentioned above for the oil sector are also geared to provide incentives for refiners to produce more high-quality and environmentally cleaner 61

fuels. Currently oil companies pay around $21/barrel ($154/tonne) for high-octane gasoline, $15/barrel for low-octane gasoline, and $6/barrel of diesel.

List of Subsea Oil and Gas Companies in Russia

Aquatic Company - specialists in the fields of design engineering, analysis, and a variety of research and development efforts Chernomorneftegaz - seismic surveys; processing and complex interpretation of seismic data Gazflot - russian exploration and ship owning company Gazprombank - services to enterprises and employees of other sectors (chemical, engineering, defence, nuclear etc.) Geobyte ltd - geological exploring of resources of potential regions of oil and gas resources and condensate JSC Gazprom Neft - is one of the largest oil and gas producing companies in Russia Lukoil - is Russia's leading oil company MNP Group incorporates - engaged in shipbuilding, offshore units design and 62

construction. Morneftegazproekt - provide integrated development of project documentation for offshore field development Murmansk Shipping Company - crude oil transshipment and icebreaking services in Russian frozen ports and along the Northern Sea Route in Arctic waters

Polar Marine Geosurvey Expedition - complex geological and geophysical research in Arctic, the world ocean and Antarctica, in inland reservoirs Rosneft - russian oil and gas exploration company Sakhalin Energy - commercially develop, operate and market the hydrocarbon resources Sea Soft Packages and Tehcnologies Ltd - developing software for realtime video integration with heterogeneous digital data Sevmorgeo - Marine geological, geophysical and geoecological research of Russian offshore and the world ocean Sevmorneftegaz, CJSC - Development of oil and gas fields on Russias Arctic continental shelf Sibneft - petroleum exploration, production, refining, and marketing

63

Has Russia's Oil production Peaked?Has Russia's oil production peaked? The answer might as well be yes in so far as their smallish medium-term growth possibilities are well-delineated and longer term growth will require levels of investment that are not likely to to be forthcoming in time to remedy the situation. What we need to know about Russia's future oil production is as easy as 1-23.1. The slowdown in Russia's output growth since 2003 is crystal clear (graph below left, Wall Street Journal). 2. The small set of large ( 50,000 b/d) new fields coming on-stream by 2012 is precisely known. Mature depleted Russian oil basins (Western Siberia, Tartarstan) and tough new fields (Eastern Siberia, Far East) require huge investments in infrastructure, new wells, enhanced oil recovery, etc. to maintain or add to production. 3. Government policy does not cap oil output but rather impedes exploration & production activity with burdensome tax rates on Russian oil companies. The FederationVladimir Putin and his sidekick Dmitry Medvedevalso hassles and seeks to eject foreign operators (and their capital) after they have exhausted their usefulness, e.g. Shell at Sakhalin-2.

64

There is no compelling reason to believe that Russia will break out of the current plateaupermanent decline?of oil production as it did after 1999. Even if Russia changes policies that currently stifle investment to promote future production, that money will work, increasingly in vain, to maintain, not grow, oil output. And even if a modest medium-term gain of 2-3% over current production levels should somehow be achieved by 2012, that will very likely be the end of the line for Russia production growth. The fact that the skittish oil markets have finally noticed that Russia's output growth is flagging doesn't add much to what anyone who has looked at the situation and can interpret a graph already knows. As for optimistic expectations, those are usually the product of standard bureaucratic dogma that "all will be well," ignorance following from an inability to subtract, or our typically human emotional investment in a happy futurenot the data and its reasonable interpretation.

65

Fuzzy Data and Expectations This update is prompted by the news that Russia's production fell 1-2% in the first quarter of 2008, depending on the type of data examined. The Wall Street Journal's Russian Oil Slump Stirs Supply Jitters cited the IEA's calculation that production of 10 million barrels per day (b/d, crude oil + condensate + gas liquids) was down 1% in the 1st quarter compared with 2007, noting that "industry watchers and Russian officials generally blame the country's production slowdown on a combination of weather and tight electricity supplies in some parts of the country." Electricity? That's another subject.

Reuters cited Russian Energy Ministry data indicating that "oil production [crude + condensate] edged down to 9.76 million barrels per day from 9.79 million b/d in February, and well below the post Soviet high of 9.93 million b/d reached in October last year." The preliminary EIA data is slightly higher than the Russian official data, but shows the same winter trend.

Despite the discouraging results in the 1st quarter, the IEA's March, 2008 Oil Market Report (graph left) was still forecasting that Russia crude output would grow this year by as much as 250,000 barrels per day. They have now revised that forecast down to an all liquids addition of only 0.8% while taking a "cautious approach" according to IEA analyst David Fife.66

The IEA's sudden wariness, which has never been apparent before, has caused them to withhold their future Russian forecast "pending [the] spring results, which could eliminate weather-related distortions typical of winter months" (AP, April 15, 2008). Their hesitancy is absurdly shortsighted Russia's fate does not depend on any winter's weather conditions or what happens in the Spring quarter of this year. The agency is now, like Napoleon during the harsh Russian winter of 1812/13, in retreat.

Optimism still abounds in some quarters. The Wall Street Journal cites some hopeful sources

Many Russian oil officials say the industry could still resume growth. Some Western analysts point to more optimistic data and forecasts. Citigroup said in a report late last month that it expects Russian oil volumes to increase by 1.5 million barrels a day between now and 2012, largely thanks to new projects in eastern Siberia. Still, it cautioned: "Russian oil production growth is no longer to be taken for granted." Russia's energy ministry expects a rise of 1.8%...

Pressure on Investment in the Russian Oil Sector The IEA's February Oil Market Report gives us the basic facts about Russian taxes on operators. "Russian oil companies pay three separate taxes on their activities," including67

1. A royalty on crude production; taxed at 22% after certain allowances 2. An export tax; based on the market price of Urals crude in the preceding two months. Light products attract a 30% discount on the tax charged and fuel exports benefit from a 60% discount. 3. A corporate profit tax of 24%, charged on net income, in common with other industries.

This added up to $65/barrel as of last February and the net profit for Russian oil companies was only about $10/barrel at that time. This staggering tax burden cuts significantly into the amount Russian operators have left over for exploration & production. It thus comes as no surprise that Rosneft is borrowing money, secured by crude oil export contracts, to finance its shortterm debt (from Moscow journalist Sergei Blagov in Jamestown Foundation's Eurasia Daily Monitor, February 28, 2008). Can Rosneft can carry out its investment plans in Eastern Siberia?

In December 2005, Rosneft paid some $260 million for a license to develop the East Sugdin oil and gas field, with reserves of some 200 million tons of oil and more than 40 billion cubic meters of gas...

In order to achieve significant production growth, Rosneft plans to invest 50 billion rubles ($2.04 billion) in Eastern Siberia this year, and up to 600 billion rubles ($24.5 billion) through 2020, [Rosneft CEO Sergei] Bogdanchikov said. Rosneft expansion plans for Eastern Siberia largely rely on the Vankor oil deposit, which has estimated reserves of 500 million tons, he said. However, Bogdanchikov complained that the company's investment resources were limited, as it faced a tax burden of some 60%, while oil companies outside Russia pay about half that amount...

68

... Rosneft may still acquire new licenses, but developing new oil and gas fields in Eastern Siberia would require billions of dollars in investments. Therefore, it remains to be seen whether Rosneft's expansion could prove economically viable in the longer term. Deutche Bank oil and gas analyst Leonid Mirzoyan states that "Rosneft is still unlikely ... capable of footing the expensive bill for developing the Vankor field on its own" (Moscow Times, April 3, 2007). Rosneft has been snapping up development licenses and shares, but they are overextended. How will Rosneft finance future development at Sakhalin-III, Vankor, North Vankor, Yurubcheno-Takhomskoye, East Sugdinsky, Verkhnechonsk and all the rest while continuing to drill more and more wells to get expanded production from older (former Yukos) properties like top Western Siberian subsidiary Yuganskneftegaz? And still pay their taxes? Rosneft's CEO Bogdanchikov doesn't know, and neither does anybody else.

Although plans have been announced to cut taxes by an estimated $4.2 billion in 2009, Leonid Fedun, vice president of OAO Lukoil, remains unimpressed. The Wall Street Journal quotes Fedun as saying that "Russia's oil industry needs $1 trillion of investment during the next 20 years just to maintain production of 10 million barrels a day." Lukoil will see a savings of about $1 billion after 2010, which will speed up development of the Filanovsky field in the Russian sector of the North Caspian. In line with69

Fedun's pessimistic view, Lukoil recently cut its 2008 growth forecast from 5% to 1.8-2.0%. Various optimistic estimatesincluding Citigroup's overly cheerful private report, one presumeshave used Russian oil company growth targets to justify their forecasts. Forward-looking statements from TNK-BP, Rosneft or Lukoil are becoming increasingly worthless as a guide to future activity in light of the lack of capital available for exploration & production. Russia also has a paucity of large new fields coming on-stream and must fight off declines stemming from depletion in their mature oil basins. Continuing Depletion and New Oil Fields Lukoil's Fedun believes Russia has peaked now (Yahoo! News, April 14, 2008). Here is what he told the Wall Street Journal about the short and longer term prospectsIn an interview, Leonid Fedun, vice president of OAO Lukoil, one of Russia's biggest oil companies, said a mild winter and higher temperatures mean Siberia's icy ground is less stable, making it harder to move drilling rigs between oil wells.

He acknowledged that the fall also reflects a longer-term trend -- the depletion of Siberia's older fields. "Western Siberia is repeating the fate of Prudhoe Bay, with a time lag of five to six years," he said. "When the well's productivity falls, you have to keep drilling more and more. You've seen it in Alaska and the Gulf of Mexico, and now you're seeing it in Siberia."

It will come as no surprise1 to veteran peak oil observers that Western Siberia is going the way of Alaska or the North Sea. Putting this in context, much of Russia's production growth in the last few years came from the70

offshore Sakhalin-I Chayvo field in the Far East, which peaked at 250,000 barrels per day in February, 2007. Rosneft now expects Sakhalin-I output to fall to about 160,000 barrels per day in 2008. Exxon Neftegas was drilling record-setting new wells at Chayvo back in April, 2007 but production will never return to peak levels at Sakhalin-1.

Declines at Sakhalin-1 must be offset by the implementation of year-round production of 70,000 b/d at Sakhalin-II, the Yuzhno-Khylchuyuskoye ("YK") field in Timan-Pechora, which will likely produce 150,000 b/d sometime in 2009, and an unknown contribution from Rosneft's Vankor in East Siberia starting this year. Rosneft has set its sights on 500,000 barrels per day from Vankor by 2015. (See These Are the Good Years for an update on factors affecting Vankor, ASPO-USA, February 20, 2008.) A few other large ( 50,000 b/d) projects are listed at 2008 Megaprojects page at Wikipedia, including the Salym field expansion which will likely add another 62,000 b/d in 2010. Scheduled new projects delimit Russia's ability to expand oil production in the medium term. If one makes the conservative assumption that Russian output outside of the projects mentioned here will decline in the 2-3% range each year from now on, it is easy to see that Russia's post-Soviet growth is coming to an end. New project delays would only make the situation worse. Managing decline rates in the existing production base (in the medium term) depends directly on how much investment is available for new wells, new drilling technology (e.g. laterals) and enhanced oil recovery. There are tax discounts on some of these activities.

71

An End to Growth is Still In SightEveryone will have to wait & see how Russia fares in the next few years, but the only surprises will be on the downsidethe limited upside possibilities are already mapped out. The Federation's growth is constrained by lack of investment, too few new large projects coming on-stream, and the geological facts of life. It appears that Putin's policy is to intentionally restrain

development through onerous tax burdens on Russia's oil companies. The Urals Blend is selling at $109.66 today. Perhaps Putin truly understands, like the Saudis apparently do, that keeping some of Russia's oil in the ground is a better longer term strategy than producing it in an unfettered way now and accruing future rate of interest returns on the unburdened revenues. All things considered, Russia is the largest crude + condensate producer in the world, and Vladimir Putin is no dummy.

72

Russias Oil Mine Industry Faces ProblemsWhen the price of oil reached another record, at more than $126 a barrel, analysts pointed to attacks on pipelines in Nigeria and turmoil in Venezuela and Iraq as the immediate causes. Even small disruptions to supplies from such places can cause the price to jump, because only Saudi Arabia has the capacity to replace the lost production and it is disinclined to do so. But to understand how supplies became so scarce in the first place, one must look at the state of the oil industry in Russia, the worlds second biggest producer. Over the past seven years, according to Citibank, Russia accounted for 80 percent of the growth in oil production outside the Organization of Petroleum Exporting Countries. The increase in the early part of the decade matched the growth in demand from China and India almost barrel for barrel. Yet in April, Russian production fell for the fourth month in a row. It now is more than 2 percent below the peak of 9.9 million barrels a day reached last October. Before that, growth in Russias output had steadily slowed, suggesting that the drop is not a blip. Leonid Fedun, a vice president of Lukoil, a local oil firm, said Russias production never will top 10 million barrels daily. The discovery that Russia no longer can be relied upon to cater to the worlds ever-increasing appetite for oil is naturally helping to propel prices to record levels.73

Oil and gas have