Barred from hiking prices, NOC slips into red

- Post Report, Kathmandu

Dec 4, 2017-

Nepal Oil Corporation (NOC) has been in the red for the last two months after being barred from fully implementing the auto pricing system. The mechanism, which fixes fuel prices as per global trends, had allowed the perennially loss-making government company to roll in profits from the last three years.

According to NOC, its projected losses for December have crossed Rs1 billion because the government has not permitted it to hike prices despite a sharp rise in the international market.

The state-owned oil monopoly said its sole supplier Indian Oil Corporation (IOC) had raised fuel prices recently. “Considering the revised price list sent by IOC on December 1, NOC will be losing Rs1.08 billion per month,” said NOC Spokesperson Birendra Kumar Goit. “Prices of almost all fuels sent by IOC have gone up significantly,” he said. 

IOC sends a revised tariff every fortnight while the price of cooking gas is revised every month based on the international market price. IOC has cited soaring global fuel prices for raising its prices, Goit said.

Crude oil hit $63.49 per barrel on the world market on Sunday. It cost $55 per barrel during the same time last year.

According to Reuters, oil prices soared following the announcement by the Organisation of Petroleum Exporting Countries (Opec) to cut petroleum production until the end of 2018. Opec supplies roughly a third of the world’s crude oil. 

In September 2014, NOC introduced the auto pricing mechanism under which fuel prices in the domestic market are revised in line with the price list sent by IOC, but it has not been able to implement it consistently for various reasons. 

Since then, debt-ridden NOC had cleared its debts totalling more than Rs36 billion with the profits and a loan from the development fund.

NOC was making profits till last January because of a slump in international fuel prices. In February, its losses amounted to Rs570 million. 

The company has been repeatedly prevented from implementing the auto pricing system by the government. Last month, it was forced to roll back prices by order of Prime Minister Sher Bahadur Deuba who wanted to avoid any unpopular move during election season.

NOC is supposed to make up for losses using the Price Stabilisation Fund in which it has around Rs3.31 billion. It set up the fund in order to cushion shocks of sharp price hikes in the international market. 

“However, using the Price Stabilisation Fund every time to compensate for price hikes is not a permanent solution. This is likely to put NOC in a poor financial condition as in the past,” said NOC officials. 

Published: 04-12-2017 08:33

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