The Kathmandu District Court has ordered Nepal Oil Corporation (NOC) to pay Rs113.2 million to Nepal Electricity Authority (NEA) in compensation for the damage caused by the adulterated oil supplied to its multi-fuel plant in Duhabi, Sunsari.

The NEA had claimed compensation after its plant became inoperable due to the use of adulterated fuel supplied by NOC. The plant has a capacity of producing 36 MW of electricity.  

The award also includes Rs1.12 million in court expenses made by the NEA. The NEA had filed the case against NOC on July 7, 2014. Justice Bhojraj Sharma handed down the verdict on June 21. The water volume in the oil used to fire the multi-fuel plant should be less than 0.3 percent. A test at a laboratory in Baireni, India had showed that the oil supplied to NOC by Indian Oil Corporation had a water level of just 0.2 percent. 

However, a test carried out by the Nepal Bureau of Standards and Metrology on the oil supplied by NOC on March 3, 2014 found a water level of 20-30 percent. As per NOC’s standards, the water volume in the petroleum product should be less than 1 percent. 

The court termed it a breach of agreement between the NEA and NOC over quality and ordered the state-owned oil monopoly to pay damages. 

The NEA had been purchasing furnace oil from NOC to operate its multi-fuel plant since December 19, 2012. It had bought 1,970.8 kilolitres and 1,145.51 kiloliters of furnace oil respectively during two successive fiscal years.

The NEA claimed that it suffered financial losses valued at Rs181.10 million by using the bad furnace oil, including a Rs55.03 million damage to its multi-fuel plant. It also claimed a Rs28.85 million refund for 321 kiloliters of unused fuel.  

NOC Spokesperson Sitaram Pokharel expressed ignorance over the issue. “As per the deal made between NOC and the NEA, the fuel imported from Indian Oil Corporation’s refuelling plant would be shipped directly to the NEA’s multi-fuel plant,” he said. He admitted that it was NOC’s responsibility to check the quality of the product.