Nepal Oil Corporation (NOC) said it was under extreme financial pressure due to rising oil prices in the global market, hinting that it may jack up prices after the Tihar festival which begins next week.
The government has not permitted the state-owned oil monopoly to hike prices fearing a public backlash, but it is highly likely that prices will be raised after the Tihar festival, sources said. NOC said its monthly projected loss stands at Rs2.08 billion.
NOC incurs losses of Rs8.50 on every litre of petrol sold, Rs9.32 on every litre of diesel sold, and Rs404.73 on every cylinder of cooking gas sold, as per the revised price list sent by its sole supplier Indian Oil Corporation on October 16.
NOC cross-subsidises these products with the profits earned from the sale of aviation fuel, but the earnings are too small to offset its losses.
Sources said that NOC had readied to increase prices as per the auto pricing mechanism, but it held back after Prime Minister KP Sharma Oli ordered the authorities concerned to wait until the end of the festivals.
Nava Raj Dhakal, spokesperson for the Ministry of Industry, Commerce and Supplies, said the NOC board had put the plan on hold for now. “As there could be a big impact on market prices, the government has decided not to hike fuel prices for the time being,” Dhakal said.
Since September 29, 2014, NOC has been implementing the auto pricing system for petroleum products, which allows it to revise fuel prices in line with international market prices.
Following the adoption of the auto pricing system, NOC was able to strengthen its financial position by posting significant profits. According to the Annual Performance Review Report of Public Enterprises released by the Finance Ministry, NOC’s profits in 2016-17 stood at Rs10.3 billion.
NOC has been using the stabilisation fund to manage its losses when unable to increase prices in line with import costs. Nagendra Sah, acting deputy managing director of NOC, said mounting losses had put pressure on the financial health of the corporation. He added that NOC had Rs3.6 billion in its stabilisation fund which could sustain the corporation for at least one and a half months.
NOC also cited increased smuggling of fuel across the border into India for its swelling losses. The price of gasoline is much higher in India, and large quantities are being smuggled across the border due to the high profits involved. According to NOC, petrol costs Rs21.87 more per litre and diesel costs Rs24.28 more per litre in India.
Three weeks ago, NOC had written to its line ministry, the Ministry of Industry, Commerce and Supplies, urging it to take action to control fuel smuggling, but nothing has been done.