Fluctuating fuel prices further deepen NOC's financial crisis

By Laxman Kafle Kathmandu, July 19: With the skyrocketing fuel prices in the international market, the state-owned a single petroleum supplier, Nepal Oil Corporation (NOC), is facing a severe financial crunch and has reached the stage of bankruptcy. The ongoing Russia-Ukraine has triggered the fuel price. 

The Corporation suffered huge losses of around Rs. 55 billion in the last fiscal year 2021/22 after it sold the petroleum products at a cheaper rate than the cost price, said NOC official.

"Owing to the soaring price of petroleum products in the international market and the Corporation’s inability to adjust price in line with the increasing purchase price, the NOC suffered a huge loss in the last fiscal year," said NOC spokesperson Binitmani Upadhyay.

According to him, it is estimated that the NOC faced a loss of around Rs. 55 billion in the last fiscal year.

"The NOC has never ever faced such a huge financial crisis in a single fiscal year. The Corporation has faced a huge loss in about six months due to price hikes in the international market since February after the war broke between Russia and Ukraine," he told The Rising Nepal.

Even though the NOC adjusted fuel prices more than 14 times since January this year following the introduction of auto-pricing system, the NOC faced a huge loss because it could not adjust prices in line with the new price structure received from the Indian Oil Corporation every fortnight.

The petrol price that was at Rs. 139 per litre on January 19 this year reached Rs. 199 on June 20. Likewise, the price of diesel and kerosene reached Rs. 192 on June 20 from Rs. 122 on January 19.

With the fluctuation, petrol is currently being traded at Rs. 181 per litre and diesel and kerosene at Rs. 172 per litre. According to Upadhyay, the NOC had faced a loss in petrol up to Rs. 31.68 per litre and in diesel up to Rs. 46.35 per litre.

About Rs. 14 billion arranged for dues payment After the increase in the price of fuel in the international market, the Corporation has not been able to pay for the fuel purchased from IOC.

After going into losses, NOC is unable to pay for the fuel bought from IOC. "The problem started in May. Initially, we used Rs. 19 billion earned by the Corporation and Rs. 14 billion of the price stabilisation fund for the payment of fuel purchase," said Upadhyay. "As we are unable to pay for the purchased fuel, we are thinking of alternatives and asking the government to arrange for the payment." According to Upadhyay, around Rs. 31.20 billion is yet to be paid to the IOC for the fuel import.

Earlier, after the ongoing tension between Russia and Ukraine and the increase in the value of the dollar, the Corporation requested to reduce the tax on fuel. According to him, about Rs. 11 billion has been managed with loans from the government and VAT refund. The process to take loans of Rs. 3 billion from the commercial banks is under way, he said.

The government has decided to give a loan of Rs. 7 billion and Rs. 590 million infrastructure tax to the Corporation to repay the dues to the IOC. Similarly, the NOC has managed a fund of Rs. 3.5 billion from the Inland Revenue Department as VAT refund.

Due to the lack of funds, the Corporation has started a process to take a loan of Rs. 3 billion from Rastriya Banijya Bank keeping its head office land located in Teku as collateral. “Still we will be short of Rs. 17 billion to pay the IOC even after taking the loan from the RBB,” he said. 

The Ministry of Finance has allowed NOC to take loans from RBB.

According to him, the government decision to provide loans makes it easier for the NOC to make payments and import fuel.

IOC slashes petroleum prices for Nepal

Similarly, the price of fuel has, of late, declined in the international market which helps to reduce the loss of NOC in the days to come, NOC spokesperson Upadhyay said.

The IOC has reduced the price of petroleum products sold to Nepal, he said. After the price of crude oil started falling in the international market, the IOC has reduced the price for Nepal as well.

According to the Corporation, IOC has reduced petrol price by Rs. 15.76 per litre and diesel by Rs. 16.56 per litre.

Even though the price has come down from India, the NOC has decided not to adjust the price citing that there is still a huge loss in the sale of fuel.

"Our previous loss remains the same. So, we are not in a position to adjust the price at par with the reduced price,” he said.

As per the new price list received from IOC on Saturday, NOC is still facing a loss of Rs. 14.19 per litre in petrol and Rs. 21.92 per litre in diesel.

The monthly loss of the NOC from the sale of petroleum products is still estimated at Rs. 4.32 billion in the month of July. The monthly loss of the Corporation reached Rs. 10 billion.