Monopoly of ill-performing NOC hits consumers

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PRABHAKAR GHIMIRE

KATHMANDU, March 14: Long queues of vehicles scrambling to refill at fuel pumps is nothing unusual in Nepal, especially in the last few years. Petroleum products have become elusive for consumers who are fed up with frequent shortages that have been forcing them to wait for hours in the winter chill or the blistering heat.

Whether it is a short supply due to Indian Oil Corporation (IOC), Nepal’s sole supplier of petroleum, cutting supplies to press Nepal Oil Corporation (NOC) for timely payment of import bills or the bandas and strikes by different groups, the supply of petroleum products tends to be affected frequently. The target of criticism from all quarters is the state-owned petroleum monopoly -- NOC.

Years of mismanagement, continued losses and insufficient storage capacity are the major factors that have been weakening NOC’s ability to ensure smooth supplies during ‘abnormal period’.

The ailing NOC has been facing ever increasing losses every passing year, with cumulative losses crossing Rs 23 billion, which is almost one-fourth of the yearly petroleum import bill. Just for the month of March alone, NOC estimates a loss of Rs 732.8 million.

NOC has been taking a loss of Rs 5.43 per liter of diesel and Rs 513.14 per 14.2 kg-cylinder of LPG while taking a profit of Rs 2.27 per liter of petrol, Rs 9.16 per liter of kerosene and Rs 24.97 per liter of aviation fuel.

In the absence of an effective mechanism to automatically adjust prices for domestic market in line with the price phenomenon in global oil market, NOC´s capacity to manage cash flow to ensure timely payment to IOC is diminishing.

The loss-making NOC has over 27.5 billion in outstanding dues, to be paid to different financial institutions and the government.

The government is also providing an additional Rs 2 billion as borrowing to NOC and refunding Rs 800 million in VAT to NOC, which is passing through acute shortage of funds to shore up supplies, again.

Perennial crunch of funds to maintain sufficient stocks in its storages has been causing imbalance between supply and demand creating shortage of fossil fuels in the market.

NOC´s Thankot depot -- that supplies petrol to around a 150 depots in and around the capital, has a capacity to store only 1,870 kilo liters (KL) of petrol, which can fulfill less than a week’s demands.

“The key reason behind the frequent shortage of petroleum products in the market is our insufficient capacity to maintain sufficient stocks for smooth supplies in times bandas and strikes created from the crunch of funds to import petroleum in huge quantities,” Shiva Prasad Pudasaini, spokesperson of NOC says.

The Thankot depot can store up to 8400 KL of diesel, which is also insufficient keeping in view the rising demands for diesel with the increasing hours of load shedding, which means more use of diesel in generators, and the rise in the number of vehicles. NOC´s Amlekhgunj depot can store only 1960 KL of petrol, 16,100 KL of diesel and 5,580 KL of kerosene.

Amid the weak financial performance of NOC leading to persisting crunch of funds to pay import bills, the government has been under increasing pressure to arrange the funds to ensure smooth supplies.

Voices calling for the opening up petroleum imports to the private sector and ending the NOC’s monopoly are getting stronger.

“NOC´s monopoly should end to ensure smooth supplies of petroleum products paving the way for new players in the market,” said Purushottam Ojha, who chaired the NOC Board for a long time as the Secretary at the Ministry of Commerce and Supplies.

The Petroleum Bill drafted a few years back, which envisages opening up of petroleum product import for the private sector and introduce a competitive market in petroleum trade, is gathering dust in the parliament due to strong opposition from Maoist lawmakers.

“We might not have to face such frequent shortages of petroleum products had we been able to get the bill passed by the parliament,” said Ojha.

Though the government is making attempts to introduce the entry of the private sector in the dealing of petroleum products through petroleum guidelines, implementation is not going to be effective in the absence of necessary laws.

Given the monopoly of cash-strapped NOC in the dealing of petroleum products, consumers continue to face scarcity frequently as the NOC lacks the capacity to store sufficient stocks. The ongoing deficit in supplies of petroleum products is one of the case in point.

Recent strike of petroleum tanker operators followed by a couple of days of public holidays has entirely crippled supply as NOC, as usual, failed to keep up supplies with its limited stock.

A decline in the number of tankers along the Barauni-Amlekhgunj route following the murder of a tanker help and ongoing maintenance of the Raxaual depot are the main reasons behind the disruptions in supply of petroleum from Barauni and Raxual.

Lately, NOC has been compelled in transporting petroleum products to the capital from Bhairahawa that sources them from Betalpur of India. Gonda and Banthara of India are additional entry points for petroleum products.

“Given the capacity for storage in the Thankot depot, NOC can hardly supply petrol for three days and diesel for two weeks,” said Mukunda Dhungel, a former spokesperson of NOC. According to him, demands for petrol in the capital hovers around 300-350 KL per day.

Govt to release funds for NOC within a week

KATHMANDU: The government is releasing Rs 1 billion as borrowing and Rs 800 million as VAT refunds to cash-strapped Nepal Oil Corporation (NOC) within a week.
Newly appointed Home and Foreign Affairs Minister Madhav Prasad Ghimire made the assurance at a meeting with Commerce Secretary Lal Mani Joshi, Finance Secretary Shanta Raj Subedi and representatives of the private sector, in a bid to ease the supplies of petroleum products.
“NOC will be able to increase its stock of petroleum products to ensure smooth supplies once it gets Rs 2 billion as borrowing and a VAT refund of Rs 800 million,” said Commerce Secretary Joshi.