NOC’s eye for profits through fuel prices contributes to rising inflation

NOC asserts that the financial crisis it faces is the primary obstacle in adjusting prices, yet it appears that the corporation does not acknowledge its own role in creating this crisis.

Petrol - fuel prices - nepal oil corporation
People queue to fill petrol in Kathmandu.

The government, on March 9, raised the price of milk by Rs 14, taking the price from 86 to 100 per litre. Three months before the price hike, the National Dairy Development Board under the Ministry of Agriculture and Livestock Development conducted a study in which it concluded that the cost of milk production had almost doubled due to the increase in fuel prices. As per the suggestion of the report, the price of milk was raised by 50 per cent.

The increase in fuel prices over the course of the past year has affected the prices of public transportation, airfare, and everyday consumables. As prices of crude oil increased internationally due to the ongoing Russia-Ukraine war, the price of petrol, diesel, kerosene, cooking gas and aviation fuel went up drastically in the past year.

Recently, the price of crude oil has decreased significantly abroad but despite that, Nepal’s government and the Nepal Oil Corporation (NOC) have not shown interest in decreasing it.

Despite NOC purchasing petroleum products at significantly reduced prices compared to a year ago, it appears that it has opted to maximise its profits. This decision has led to an ongoing increase in inflation on daily commodities within the country.

On February 23, 2022, after Russia started attacking Ukraine, the price of fuel in the international market skyrocketed. On June 6, 2022, the price of Brent crude oil reached its highest price of USD 119.47 per barrel. Following that, in December 2022, NOC increased the price of diesel and kerosene to Rs 192, a Rs 101 hike.

Even though the war continues, the price of crude oil in the international market has returned to its previous level as the supply chains have taken alternative routes.

Meanwhile, in Nepal, NOC has continued to charge consumers the same price and made a profit of Rs 24 billion in fiscal year 2022/23 despite the import of petroleum products decreasing by 4 per cent. Last year, however, NOC incurred a loss of Rs 38 billion.

In December 2021, the price of petrol was Rs 108, diesel and kerosene were Rs 91 and cooking gas was Rs 1,375 per cylinder. Similarly, while the domestic price of aviation fuel was USD 65, the foreign price was USD 868. 

The prices peaked in June 2022, where petrol was priced at Rs 199 per litre, diesel and kerosene at Rs 192 per litre and cooking gas was Rs 1,800 per cylinder. Similarly, the domestic price of aviation fuel reached USD 185 while for international it was priced at USD 1,645.

Increasing petroleum prices NOC-oil-prices-price-updates-increase-prices
Increasing petroleum prices

On international platforms, prices have returned to normal. But NOC has not decreased the prices at the same rate. Now, the price of diesel is Rs 150 and the price of petrol is Rs 167.5, whereas aviation fuel decreased to USD 49 for domestic airlines and USD 610 for international.

NOC making profit

Despite the NOC adjusting prices on June 24, they continue to generate significant profits from all fuel types. In the current fiscal year, the corporation rebounded from a loss of Rs 38 billion and achieved a profit of Rs 24 billion.

Presently, the NOC’s profit margins are as follows: Rs 8 on petrol, Rs 9 on diesel, Rs 23 on kerosene, and USD 25 and USD 42 on domestic and international aviation fuel respectively. Additionally, the NOC earns Rs 8 profit per cylinder of cooking gas.

According to the spokesperson of the corporation, Manoj Thakur, even after the adjustment of June 19, the corporation made a profit of Rs 1.011 billion in 15 days. In June alone, the total profit is projected to be more than Rs 2.22 billion.

Furthermore, it has been projected that the total profit by mid-July will exceed Rs 2.22 billion. While many feel as a government entity, NOC should look after consumers rather than reeking in profits, Thakur says it is incorrect to assume that government institutions should consistently operate at a loss. 

“When international market prices rose, NOC made a small price adjustment to minimise losses. Despite that, NOC incurred significant losses. Nevertheless, now we are focused on providing relief to consumers while also settling outstanding debts,” says Thakur.

Decreasing petroleum prices NOC-oil-prices-price-updates
Decreasing petroleum prices

Thakur confirms that all dues owed to the Indian Oil Corporation have been paid, leaving NOC with only a government debt of Rs 6.45 billion.

Killing the new system

NOC asserts that the financial crisis it faces is the primary obstacle in adjusting prices, yet it appears that the corporation does not acknowledge its own role in creating this crisis.

The then Minister for Commerce and Supplies Sunil Bahadur Thapa introduced the auto price mechanism in 2014 to safeguard the corporation from the impact of international market prices. However, it subsequently abandoned this system, claiming it was ineffective in practice.

The price of fuel was adjusted for the first time in 2014, by implementing the automatic price system Mechanism. 

When implemented, the system was expected to make it easier to supply petroleum products to consumers, make pricing more transparent, strengthen the NOC financial balance, and allow for dispute-free trading of petroleum products. However, the corporation continued adjusting the prices according to the wishes of the political party and government leadership, rendering the system ineffective and practically non-existing.

Current NOC executive director Umesh Kumar Thani also lacks clarity on this matter. Even during the severe financial crisis caused by the Russia-Ukraine war, Thani failed to implement the said system. The corporation found itself in a financial crisis due to the political party’s reluctance to raise consumer prices, as it would have conflicted with the government’s responsibility of conducting elections.

And because of this, NOC faced significant criticism regarding its handling of fuel prices, with allegations of price manipulation for its own benefit and withholding information from the public.

Nepal Oil Corporation (NOC) on Sunday announced it will start implementing the system again. According to the system, the price of petroleum products will be determined based on the price from India. This means if the price from India increases, the price in Nepal will also increase and vice versa with the common people reaping the benefits and also bearing the burnt accordingly.

NOC maintains that it will retain a certain percentage of profit to cover administrative expenses and infrastructure costs, excluding LP gas cylinders.

Why is NOC nonchalant?

Nepal Oil Corporation (NOC) fuel prices
File: Nepal Oil Corporation (NOC) office in Teku, Kathmandu

One major concern revolves around the NOC’s inconsistent profit and loss. According to an internal source, the consumer price was raised last year, citing a loss of Rs 55 billion. However, an expert reveals that it has been concealing information about the purchase and sale prices of petroleum products, as well as its profit and loss figures after December 2022, despite its regularly making the information public every 15 days.

Transparency issues have also plagued the NOC. Previously, the Prime Minister, Minister of Finance, and Minister of Commerce and Supply all had oversight of the NOC. However, after the election, NOC operated without proper scrutiny as parliamentarians were absent during the government’s formation.

This lack of oversight has granted the NOC unchecked power, enabling price manipulation and withholding vital information from the public. Consequently, consumer prices have experienced sharp fluctuations, making it challenging for individuals to plan their budgets effectively.

Officials from the Ministry of Commerce and Supplies have revealed that the newly appointed Minister Ramesh Rijal, lacks specialised knowledge regarding the oil economy. Furthermore, they note that even the Prime Minister does not engage in discussions regarding providing relief to the general public in relation to petroleum product prices, price controls, and increased capital expenditure.

On the other hand, ministry officials have expressed concerns about the absence of direct coordination between the NOC’s leadership and the Prime Minister’s office.

The Committee on Industry and Commerce and Labor and Consumer Interest under the House of Representatives, responsible for closely monitoring the petroleum product price adjustments, has raised concerns regarding the NOC’s price adjustments and the transparency of its internal expenses. 

Parliamentarian and committee member Ranendra Barali said that they plan to address this issue by engaging in discussions with the Minister of Commerce and the NOC leadership, aiming to gather all relevant facts.

This story was translated from the original Nepali version and edited for clarity and length.

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Nabin Dhungana is a business correspondent at Onlinekhabar.

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