Nepal is going to face a 50% cut in petroleum products as the financially bankrupt Nepal Oil Corporation's stock is depleting because of short supply from the Indian Oil Corporation. The IOC is unwilling to supply more fuel because of huge outstanding dues NOC owes to it. Moreover, subsidies in petroleum products is increasing deficit in NOC's balance sheet. Removing price distortion in the market while not putting too much burden on poor people's meager income (also, preventing potential riots) will be a daunting task for the next Maoist-led government. Interesting time coming! Read the full news story here.
NOC supplies manager Mukunda Dhungel said the Corporation headquarters had directed its Thankot depot to distribute only 410 kl of petroleum products a day to the dealers from Sunday, while the demand stands at around 800 kl. “We had to take the harsh decision as we don’t have the money to finance regular import with the price of fuel surging in the international market,” Dhungel said.
An NOC source said the Corporation plans to import only 75,000 kl of oil this month as compared to 83,000 kl it imported last month.
The Corporation could release only INRs 640 million to the Indian Oil Corporation, the sole exporter, on May 2. Going by the prevailing prices in the international market, Nepal needs to pay around INRs 3.57 billion each month if it is to ensure smooth supply.
“Now the import depends on our capacity to finance it,” Dhungel said.On the other hand, NOC complains, as per the revised price of oil forwarded by the IOC on May 2, it would now incur a whopping loss of Rs 1.67 billion per month.
I have never seen such a scale of politicization and marriage between economics and politics (in a bad way!) in a state-owned corporation. NOC is in a dilemma, both ways it is in a worse-off situation. If subsidies are reduced, there will be riots and loss of NOC-owned property. Meanwhile, if prices are not upped, NOC will see further decline in the already rock-bottom credibility. More on this here.
