The use of non-recourse project financing has grown steadily in emerging markets, especially in basic infrastructure, natural resources and the energy sector. Because of its cost and complexity, project finance is aimed at large-scale investments. The key is in the precise estimation of cash flows and risk analysis and allocation, which enables high leverage, and in ensuring that the project can be easily separated from the sponsors involved.
Indian Oil Corporation Ltd is India's largest commercial enterprise with leading market shares in downstream segment of Oil business. A number of projects are undertaken by IOCL to improve its infrastructure and increase its profitability. These projects are to be properly evaluated and their feasibility needs to be checked. And thus the need for Project financing arises.
This project has been undertaken in the Finance department (Pipelines Division) of IOCL, which is responsible for the financing and evaluation of the project in pipeline division. In this project, a modest attempt has been made to study and understand Project finance and project evaluation with respect to Dadri-Panipat R-LNG pipeline.
Indian Oil Corporation Ltd. is currently India's largest company in terms of sales with a turnover of Rs. 247,479 crore (US $59.22 billion), and profits of Rs. 6963 crore (US $ 1.67 billion) for the fiscal year 2007. Indian Oil Corporation Ltd. is also the highest ranking Indian company in the prestigious Fortune Global 500' list. It came in at the 135th position in 2007. It is also the 20th largest petroleum company in the world. Indian Oil and its subsidiaries today accounts for 49% petroleum products market share in India.
[...] Stations will be self-protected and be made nearly fail safe by means of Instrumentation system Telecommunication System Telecommunication system helps in the smooth operation of the pipeline project by ensuring hassle free communication at all times Telesupervisory System (SCADA system) Telesupervisory system is necessary to have a better control over the pipeline system and thus ensure the safety and security of the pipeline network. COMMON BASIS OF ESTIMATION The costs estimated by the engineering department are developed on the basis of some common assumptions, criteria & techniques. [...]
[...] If IRR exceeds the required rate hurdle rate, the project would be accepted and if IRR is lower than required hurdle rate, the project would be rejected. In Dadri-Panipat R-LNG, the IRR was kept fixed at which was also the hurdle rate of the project. The revenues for the project were estimated on the basis of the required IRR i.e SENSITIVITY ANALYSIS Sensitivity analysis is a procedure to determine the sensitivity of the outcomes of an alternative, to changes in its parameters. [...]
[...] The board analyses the project not only from the financial point of view but also considers the strategic and other implications. If the project is not approved by the board, it may be rejected or improvements may be made in the project. Funding at Corporate Level Once the project is approved funds are allocated to different departments for the expenses. Purchase Requisition Technical departments prepare their individual purchase requisitions which detail out their requirements of various materials and parts for the purpose of the project. [...]
[...] The Indian Oil group has sold 59.29 mn tonnes of Petroleum including 1.74 mn tonnes of Natural gas in the domestic market and exported 3.33 mn tonnes in the yr 2007-08. IOCL GROUP IOCL Group consists of Indian Oil Corporation Ltd. and the following subsidiaries: Lanka IOC Ltd Indian Oil (Mauritius) Ltd. IOCL Middle East FZE Indian Oil Technologies Ltd. Chennai Petroleum Corporation Ltd. (CPCL) Bongaigaon Refinery & Petrochemicals Ltd (BRPL) VISION OF IOCL A major diversified, transnational, integrated energy company, with national leadership and a strong environment conscience, playing a national role in oil security & public distribution. [...]
[...] Project financing involves identifying the project, determining the feasibility of the project, identifying sources of finance for the project, mitigating the risk and monitoring implementation of the project. It is most commonly used in the mining, transportation, telecommunication and public utility industries. NEED OF PROJECT FINANCE Project finance is a finance structure which ensures that the projects are environmentally, socially, economically and politically viable. Traditional methods are not suitable for projects which have a long life and require huge capital investment. [...]
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