NOC making huge profit by overcharging consumers

KATHMANDU, May 23: The article of association of Nepal Oil Corporation (NOC) says that the sole objective of the corporation is to distribute petroleum products by adding administrative costs on import price and ensure smooth supply in the market.

This means profit-making is not the objective of NOC. But the sole distributor of petroleum products in the country has been making huge profit, by keeping high margin on petroleum products.

NOC has profited Rs 10 billion in past 11 months. It has not only cleared outstanding loans and interests but also set aside Rs 2 billion to distribute bonus to it's over 700 employees.

NOC has also cleared accumulated debt and interest of Rs 36 billion to the government.

“As NOC has not been established with profit motive, it should immediately enforce automatic fuel pricing mechanism and stop overcharging customers,” said Jyoti Baniya, a consumer rights activist, said.

NOC stopped automatic pricing mechanism from mid-December last year. Price of crude oil was US$ 59 per barrel in mid-January. Now, crude oil price has fallen by 8 percent to $54 per barrel. But NOC has not made any adjustment to price of petroleum products since December last year. Its profit is set to increase by three times from Rs 70 million to mid-May to May-end, compared to mid-April to April-end.

The public utility is making profit on top of 20 percent administrative costs that it levies on petroleum products. NOC is making profit of Rs 16.75 per liter profit in kerosene, Rs 16.70 per liter in aviation turbine fuel (ATF) for international airlines and Rs 9.08 per liter in ATF for domestic airlines. Similarly, it is earning profit of Rs 7.53 per liter in petrol, Rs 2.47 per liter in diesel, and Rs 93.62 in LPG per cylinder.

Energy expert and a professor at Center for Energy Studies, Amrit Man Nakarmi, said that that major chunk of profit of Rs 10 billion mainly comes from the additional infrastructure charge that NOC started levying from the beginning of the last fiscal year. “It should immediately stop, as NOC is building its infrastructure by collecting money from the public,” added Nakarmi. “NOC will be the owner of the infrastructure, not the consumers.”

NOC is collecting Rs 5 on each liter of petrol, diesel and kerosene, and Rs 10 on ATF and Rs 50 per LPG cylinder as infrastructure charge.

Nakarmi also said that NOC's profit should not be more than the bank's interest rates that it has to pay while mobilizing fund for purchasing petroleum products and managing supply. “Why can't the NOC why contribute the profit into price stabilization fund for stabilizing fuel prices in the future in case the prices go unnaturally high in the international market?” wondered Nakarmi.

The state-owned petroleum monopolist had introduced the automatic pricing mechanism in September, 2015. As per the mechanism, the corporation has to adjust the price of petroleum products according to the price rate sent by the Indian Oil Corporation (IOC) every 15 days.

Sitaram Pokharel, the spokesperson for NOC, admitted that profit-making is not the objective of NOC. But he tried to come clean saying that their plan of adjusting price was affected by the code of conduct for the local level election. “We will revive the mechanism from June,” added Pokharel.