NOC given Rs 1b loan to preempt fuel price hike

SANGAM PRASAIN
KATHMANDU, MAR 03 -

The government has once again bailed out cash-strapped Nepal Oil Corporation (NOC) with a loan of Rs 1.13 billion for one month. The credit has forestalled a planned fuel price hike by the state-owned oil monopoly.

Sources said the Ministry of Finance had agreed to provide the loan as asked by NOC. The bail-out is a non-budgetary expenditure of the government. “The decision to provide the loan was made at the political level,” said a senior ministry official. The loan file will be sent to the cabinet by the Ministry of Commerce and Supplies.

With the international oil price spiralling to a new high due to political turmoil in the Middle East and NOC’s losses mounting, it was under extreme pressure to increase fuel prices. It had presented two options to the government — bailing it out with a loan or allowing it to hike prices. The government has accepted the latter fearing a public backlash if prices were raised.

On Feb. 24, NOC sought a loan of Rs 1.30 billion from the government to maintain smooth supply of petroleum products if it was not to be allowed to revise fuel prices.

This is the second time this year that the government has approved a loan for NOC. Earlier, the ministry had provided credit worth Rs 1.30 billion (Rs 800 million from the Employee Provident Fund and Rs 500 million from the Citizen Investment Trust) to the corporation by putting up land belonging to Birgunj Sugar Mill and Sajha Yatayat as collateral. After Indian Oil Corporation (IOC) sent a new price list on March 1, NOC said it was incurring a loss of Rs 7.76 per litre on petrol, Rs 14.27 per litre on diesel, Rs 4.90 per litre on kerosene and Rs. 254.77 per cylinder on LPG. Earlier, its per litre losses on petrol and diesel were Rs 5.60 and Rs 11.31.

Though NOC is making a profit on aviation turbine fuel, its profit margin has declined from Rs 11 to Rs 6 per litre with IOC’s new tariff.

According to NOC, it will be bearing a loss on kerosene from this month with IOC’s new pricing. Earlier, it used to make a profit of Rs 0.80 per litre on kerosene.

NOC said its losses would reach Rs 1.33 billion per month. It had suffered a loss of Rs 740 million and Rs 1.13 billion in January and February respectively. The corporation had last hiked fuel prices on Dec. 6, 2010.

With the international oil price remaining volatile, the government’s latest rescue package may not be enough for NOC. Whether the government will continue the present policy of providing cash to NOC or allow prices to be raised remains a question.

“Allowing NOC to hike prices has now become a political decision in Nepal,” said a senior Finance Ministry official. “We can provide loans to NOC at the cost of the development budget, but that is not the right solution.”