NOC-IOC NEGOTIatiONs : Marketing margin, mode of payment to top Nepal agenda

KATHMANDU, MAR 23 -

Removing the marketing margin and payment in US dollars will be on top of its agenda when the Nepal Oil Corporation (NOC) starts its negotiation with the Indian Oil Corporation (IOC)—the sole supplier of petreoleum products to Nepal—for new petroleum supply agreement on Friday.

An IOC team is scheduled to arrive in Nepal on Friday for the negotiation. The NOC and IOC review the agreement every five years and the existing one expired on March 31.

Nepal wants the Indian company to bring down the refining cost of the petroleum products. The marketing margin, pricing component that IOC charges on its oil supply to Nepal will be some of the contentious issues during the negotiation. The IOC has sought to raise it to five percent while agreeing to scrap Price Adjustment Factor (PAF) recently. Currently, the IOC has been charging PAF and marketing margin 2.5 percent each.

The PAF includes the refinery and transportation charges, among other technical losses under its current price formula. With the high-level Petroleum Sector Reform Committee (PSRC) report suggesting the NOC to negotiate to reduce the charge in a new agreement, the government has made it a top priority.

A committee formed recently under Vice-chairman of National Planning Commission Dipendra Bahadur Kshetry also suggested the NOC for the removal of such charge from its agenda.

“If not removing it entirely, we can at least negotiate to fix certain fee instead of keeping it at percentage given the rising imports of petroleum products,” said Kshetry. Nepal’s import bill of petroleum products, which stood at Rs 76 billion last year, is expected to touch Rs 100 billion this year.

The NOC is also expected to table another issue regarding mode of payment during the negotiation. “As Nepal imports raw materials from petroleum exporting countries and gives them to IOC for refining, it can be helpful to slash Nepal’s cost while making payment to IOC in US dollar,” said Kshetry. Currently, NOC pays IOC for petroleum products in Indian currency.

The IOC has already agreed to receive payments fortnightly from the current practice of collecting four installments in a month. The negotiation this time will not be limited to oil accord alone. The government has formed an agreement review committee headed by Secretary of Ministry of Commerce and Supplies to negotiate with IOC. The committee also comprises the representatives from the NOC.

As per the PSRC recommendation, the government formed a separate committee on July 15, 2011 with an objective to influence the decision at the negotiating table.

Source: Kantipur