Feature articles
NIS’ performance step change
02/07/2008
Petroleum Review
In response to increasing competition, Naftna Industrija Srbije (NIS) has formulated a robust plan to help the optimisation and modernisation of its operations, writes Charles Gent, Programme Manager at Shell Global Solutions.
State-owned NIS is a leading company in Serbia and one of the largest petroleum companies in south-eastern Europe. It is a fully integrated oil and gas company with exploration and production operations, two refineries and about 500 retail stations for public use.
The Serbian government’s planned privatisation of NIS was the cue for an intensive appraisal of the organisation’s operations. To strengthen its position when negotiating with potential partners, NIS needed a clear plan for growth and improvement.
Moreover, with many firms in Eastern Europe making strong progress towards operational excellence, it was strategically vital that NIS also made significant improvements. Management recognised that the introduction of new tools and methods was necessary to help raise competitiveness, yet could not afford to divert resources from day-to-day business.
NIS’ upstream operations are profitable, but its refinery business is lagging behind in terms of profitability, efficiency and health, safety and environmental (HSE) performance. Also, NIS lacked the opportunity to export products because its refineries were not equipped to meet the stringent European Union (EU) fuel specifications.
In 2006, NIS appointed Shell Global Solutions to develop a business improvement plan (BIP). Shell Global Solutions’ consultants worked closely with key NIS staff to identify opportunities for improvement, develop a realistic investment programme for the short and medium terms, and form a robust plan to close performance gaps with EU competitors.
Operational diagnostics
The first step in Shell Global Solutions’ BIP was a three-month review covering a series of key areas, including HSE management; business performance management; organisational effectiveness; margin improvement; energy and loss; asset management and supply and distribution.
The HSE review found several operational symptoms that needed addressing, for example, incidents such as fires and leaks. NIS’ focus tended to be on reaction to incidents rather than on proactive prevention.
Working together, NIS and Shell Global Solutions formulated improvements to a corporate HSE policy and an incident-management process that featured a corrective action tracking system. Other improvements in this area will include the introduction of a risk-management framework and the definition of key performance indicators (KPI) to measure and help manage performance.
Drawing on best practices from across the Shell Group, Shell Global Solutions has recommended an improved permit-to-work process and will train NIS staff and contractors during its implementation.
Elsewhere, investigation of business performance management indicated that NIS’ cost-control procedures could be more effective. To help improve efficiencies throughout the organisation, Shell Global Solutions will advise NIS on the introduction of global best practices such as cascading of budgets and KPI tracking.
Meanwhile, the organisational effectiveness review revealed that there was overmanning at the NIS refineries compared with refineries in Western Europe of a similar size and complexity. Productivity levels were also lower, and there was no robust contracting strategy, which was resulting in less effective and less efficient use of available resources.
The reviews also concluded that the organisational structure was overly complex. For instance, there were adviser roles for which there were no clear accountabilities. It was also noted that the introduction of competency profiles would help in the recruitment and development of personnel.
Shell Global Solutions recommended to NIS a redesign of the organisation in order to achieve an improved organisational effectiveness. This will incorporate optimising the organisational structure and implementing new business processes – tailored to the type and volume of the activities that have to be performed. Roles and responsibilities will also be redefined, new communication processes will be developed and a set of company values will be formalised and rolled out.
Margin optimisation
Energy and loss benchmarking was performed to obtain a clear, detailed picture of the refineries’ losses. This demonstrated where NIS could realise savings through the application of energy-management best practices.
Shell Global Solutions also identified potential opportunities for margin improvement by reviewing the organisation’s hydrocarbon management. For instance, with its current operation NIS is not able to make sufficient European-specification (Euro) diesel for the Serbian market and the government is allowing imports of the product. Shell Global Solutions’ hydrocarbon management team is working with NIS to define improved operating modes and integration optimisation between the two refineries. This will help NIS to increase its production of Euro diesel and recover its market share.
In addition, various opportunities for better integration between the NIS refineries and nearby petrochemical facilities were identified, unlocking further value for NIS and its partners.
Restructuring maintenance management
In the plants, there will be major restructuring of maintenance and reliability procedures and processes to provide the facilities with a clear strategy in this vital business area. Risk-based rather than time-based tools will help to improve the maintenance process, and predictive maintenance tasks will be given a higher priority.
It was noted that NIS would benefit from structured recording and investigation processes to address repetitive failures. Ensuring that operations staff are involved in maintenance will help to improve basic equipment care, as will the appointment of a maintenance and reliability champion.
Shell Global Solutions’ recommendations included establishing a reliability focal point and introducing the whole organisation to the reliability effort through a culture of multidisciplinary, multilayered teams. State-of-the-art preventive-maintenance planning methodologies will be introduced to help NIS achieve the desired plant availability for optimal effort.
Shell Global Solutions’ defect elimination process will be implemented by NIS to help address the issue of repetitive failures. This is a structured approach, in which root-cause analysis techniques are central, designed to avoid failures and with emphasis on individual expensive incidents.
In addition, the concept of risk management and a drive to improve shutdown performance through detailed planning and efficient execution will be introduced.
Elsewhere, state-of-the-art stock-management methodologies are to be established, and sophisticated refinery scheduling tools will be introduced.
An attractive proposition
Full implementation of all the recommendations is likely to take up to four years; however, the plan has been designed to deliver significant benefits to NIS early on to demonstrate impact and success and keep NIS staff motivated. Shell Global Solutions will be on hand to advise NIS during implementation. Specialist Shell Global Solutions staff will be available to provide continuous support at the NIS refineries to smooth the change process, transfer knowledge to the NIS staff and embed best practices into NIS’ operations.
Moreover, Shell Global Solutions’ improvement recommendations are expected to involve only minor capital investment as in the short term the focus has been on optimising the return on existing assets. Global best practices are being leveraged, and new tools and techniques are being introduced to help increase efficiency. Investment is required to meet Euro diesel and gasoline specifications, and Shell Global Solutions will advise NIS on project procedures and contract processes.
With a clear plan for improvement now developed, NIS is well placed to achieve a performance step change. Crucially, this will make the company a more attractive partner during discussions with foreign investors and enable the Serbian government and NIS to negotiate from a position of strength and preparedness.