NOC to introduce automatic fuel pricing mechanism to check losses

Prices of petroleum products will soon start fluctuating in the domestic market every 15 days, as Nepal Oil Corporation is set to introduce automatic fuel pricing mechanism to check soaring losses.

Once the system is enforced, prices of petroleum products will go up or down within a certain range, depending on the price at which NOC purchased the fuel from Indian Oil Corporation, the sole supplier of petroleum products for NOC.

“This will help NOC reduce its losses, as it will pave the way for us to make price revisions based on price fluctuations in the international market,” NOC Managing Director Chandika Prasad Bhatta told The Himalayan Times, adding, “The system might be enforced right after Dashain and Tihar.”

NOC has long been trying to introduce auto fuel pricing mechanism, as ‘it can no longer afford to acquire loans just to subsidise petroleum prices’. But it has not been able to do so due to several reasons, including lack of political will. Because of this, NOC’s debt pile has now soared to around Rs 13 billion, while it is suffering monthly loss of Rs 33.60 million.

“We can no longer be a mere spectator to the sorry state of NOC. That’s why we want to introduce the mechanism at the earliest,” Bhatta said. “In this regard, we are trying to garner support of political parties, so that we do not have to roll back the decision after implementing it … I hope the Parliamentary Committee on Industry, Commerce and Consumer Welfare will help us on this front.”

After the political parties clear the way, NOC plans to forward the proposal to its board and seek final permission to enforce the mechanism.

Once the mechanism comes into force, petroleum prices will be reviewed every 15 days.

“IOC sends us revised fuel prices on the first and 15th day of the English calendar month. We will make price adjustments in two to three days of getting the new rates. So, petroleum prices may change by the fifth and 20th day of the English calendar month once the auto-pricing mechanism is implemented,” Bhatta said.

Such price revisions, however, will not be exorbitant, Nepal Oil Corporation clarified.

Sources told THT that NOC is mulling over letting prices go up or down within a band of 2.5 per cent. This implies that petroleum prices may rise or fall by 2.5 per cent every 15 days once the new system is enforced.

But Bhatta said the price band has not been finalised yet. “We will fix it based on discussions with political parties,” he added.

However, possibilities of international fuel prices rising above NOC’s price band cannot be ruled out. In such a scenario, NOC will tap the Price Stabilisation Fund.

The government, through budget, has pledged to create a 500-million-rupee fund to adjust petroleum prices.

The Ministry of Commerce and Supplies has already forwarded a proposal on establishment of the fund to the Ministry of Finance.

“We hope the finance ministry will take a final decision in this regard soon,” MoCS Spokesperson Dipak Subedi said.

The money parked in the fund will be used if international fuel prices rise above the NOC band. But if international fuel prices fall, Nepal Oil Corporation will have to deposit the extra earning in this fund.

“This way, consumers will not have to bear financial burden even if prices of petroleum products soar in the international market,” Bhatta said.

Source: THT