Surviving On Borrowed Time

The state-owned NOC is thoroughly battered by the steadily rising price of oil in international market

By A CORRESPONDENT

As the price of petroleum products has kept on increasing in the international market, the Nepal Oil Corporation (NOC) is bleeding financially. Last week, there were reports that NOC could default its import bills of Rs 2.4 billion (of September) to its supplier Indian Oil Corporation (IOC) triggering the latter to suspend supplies, which could have ruined the festival season for Nepalese.

In true reflection of state of financial affairs of the NOC, the commercial banks and other financial institutions have refrained from providing loan. Even as the NOC knocked the doors of every bank as well as Rastriya Beema Sansthan, it was unable to obtain loan.

In the eleventh hour, on September 30, the Ministry of Finance came to its rescue by providing a loan of Rs 1 billion in minimum interest. “We had no option other than to give loan to NOC,” said an official at the Ministry.

The NOC needs to make the payment to IOC every 15 days. And it is already worrying how it would raise enough money to pay to IOC after next two weeks. Experts have said that the failure to adjust the domestic price of petroleum products with its international price was causing the NOC to bleed. The price of per barrel of crude oil has rocketed to US$ 68 and is still feared to rise further given the destructive Hurricane Katrina and Hurricane Rita, which recently hit the US Gulf coast and affected its refineries there.

In the last one year, NOC has been living on borrowed time – surviving by taking loans from left and right. Its accumulated loans have exceeded Rs 4 billion. It needs to cough up Rs 900,000 every day just to service the interests. Every month it is taking Rs 1.5 billion loan to pay backlogs. It has fixed assets of Rs 500 million and the value of its oil stocks is Rs 1.5 billion.

“The government is in a tight-spot and will be compelled to take an important decision sooner than later. It just cannot wait and watch because the issue of oil is very critical,” said an economist. Perhaps the government is fearing to take an unpopular decision especially during a fluid political situation. But it has no other option. Some experts advise the government to just forego the revenue it generates from import taxes on oil – which amounts to over Rs 6 billion annually. But that could be detrimental to government’s revenue mobilization target particularly when it is fast losing foreign aid and support. “The government would not easily decide to forego such a huge amount of resources,” the economist added.

Meanwhile, the government recently invited the international auditing company – PriceWaterHouseCoopers – to conduct its financial study. It is studying the financial, technical and organizational structure of the NOC. The study is being conducted to find out about the frequent public grievances regarding the lack of transparency in the operation of NOC.

The company would submit its report within three months to the government along with recommendations. The company would undertake detailed study on eight different subjects related to NOC. It would study the operational status of all branches of NOC; expenditure and structure; and identify ways for expenditure control.

Likewise, the study would also identify reasons for functional weaknesses and advise areas that need reform. The study would further assess the current financial situation of the NOC. Furthermore, the study would analyze the processes of purchase (of oil), distribution cost and price-fixing mechanism.

As the NOC continues to bleed, the whole economy is facing uncertainty as the changes in the oil market could affect almost all aspects of economy.