NOC, IOC to sign new oil supply pact
KATHMANDU, APR 27 -
Nepal Oil Corporation (NOC) is scheduled to sign an accord with Indian Oil Corporation (IOC) on Friday appointing it the sole exporter of refined petroleum products to Nepal for the next five years.
NOC’s acting managing director Suresh Kumar Agrawal and IOC’s marketing division director Makarand Nene will sign the pact on behalf of their respective organizations. The oil supply agreement between Nepal and India expired on April 1. The two countries review the contract every five years.
The two sides have agreed to modify a number of clauses in the contract to remove the differences, disputes and discontent in it considering that Nepal’s oil imports have jumped almost four-fold in the past decade. The new agreement will include two much desired deals—waiving the price adjustment factor (PAF) and slashing the marketing margin to 2.5 percent.
IOC has been charging 5 percent as PAF on LPG, diesel and petrol and 2.5 percent on other petroleum products. During the negotiations, IOC had agreed to remove PAF and instead raise the marketing margin to 5 percent from 2.5 percent. The Nepali side had argued for removing the PAF and fixing a certain flat fee instead of a percentage and the Indian side had agreed to slash the marketing profit to 2.5 percent.
“As the 2.5 percent marketing margin was still high for us, we asked IOC if they could reduce it but they said no,” said Lal Mani Joshi, secretary at the Ministry of Commerce and Supplies (MoCS), who also chairs the NOC board.
“However, we have estimated that scrapping PAF and reducing the marketing margin will allow NOC to save Rs 2 billion annually.”
PAF includes refinery and transportation charges among other technical losses under IOC’s current price formula. PAF and the marketing margin includes costs associated with refineries and duties.
IOC has also agreed to refine crude oil if Nepal chooses to import it from other countries. According to Joshi, the Nepal government has written to the Kuwait government asking it if it can supply crude oil.
Importing crude oil and having IOC refine it instead of buying the finished product could bring savings to Nepal. “The Kuwaiti government is positive about Nepal’s request,” he said. The ministry said that Nepal was also considering importing crude oil from other oil exporters like Dubai and Qatar.
Likewise, the mode and time of payment for oil purchased from IOC has also been revised in the new accord. NOC can make fortnightly payments instead of weekly as at present. The pact allows NOC to pay IOC in either US dollars or Indian rupees. It also permits Nepal to access LPG from Mumbai too. “As the Indian government is constructing a gas pipeline from Mumbai to Muzaffarpur in Bihar, NOC has asked for an additional route to import LPG,” Joshi said. Construction of an Amlekhgunj-Raxaul pipeline has also been planned.
During the negotiations, IOC refused to change the existing import parity price (IPP) basis of importing oil. Under the High-Level Petroleum Sector Reform committee recommendation, NOC had tabled a proposal to import fuel on an export parity price (EPP) basis so that fuel prices could be relatively lower. The IPP is a pricing policy adopted by suppliers of products for sale to domestic customers, and IOC has put Nepal in the same category.
Nepal’s annual fuel consumption has jumped to Rs 80 billion in 2011 from Rs 20 billion a decade ago. An NOC official has projected that consumption will reach Rs 100 billion this year due to extended load-shedding hours and growth in development projects.
Source: Kantipur
