Suresh Kumar Agrawal is the Acting Managing Director of the Nepal Oil Corporation (NOC). The state oil monopoly’s sole objective is to supply petroleum products in the country. The petroleum business of the NOC surpasses Rs. 80 billion annually. Despite such a huge business, the corporation faces severe cash crunch to import the petroleum products in line with the growing demand and often falls under public criticism.
Agrawal, an engineer by profession has served almost three decades at the NOC. He says that the NOC should be a service-cum-business oriented organization. But the corporation has become service-oriented rather than a business-oriented organization, he says. The main weakness on the part of the NOC is its failure to sell the petroleum products at the cost price.
Against this backdrop, Yogesh Pokharel and Laxman Kafle spoke to Agrawal for The Rising Nepal on various issues of the Nepalese petroleum sector, the NOC and its plans. Excerpts:
The NOC has not been able to deliver its services successfully. What do you say about this?
The corporation has been supplying the petroleum products across the country where there is road access. We have been trying our best to make the service delivery effective. However, we often face troubles in our service delivery. I would like to clarify that it has nothing to do with the NOC management and its staff. It is mainly due to the cash crunch faced by the corporation. We are forced to sell the petroleum products at a lower price than we buy from the Indian Oil Corporation (IOC). Despite all these hurdles, the NOC is sill effortful in supplying fuels in a smooth and efficient way.
What are the major challenges for the NOC to make its service delivery mechanism more effective and efficient?
I have already mentioned that the main hindrance of the NOC in it service delivery is the difference between cost price and selling one. We have been facing a loss of around Rs. 1.15 billion a month due to the price difference. We have once again faced the cash crunch. We need at least Rs. 4 billion for a smooth supply of petroleum products until May 27. Despite our repeated request, the government has agreed to provide Rs. 3 billion only. However, we have yet to be able to receive the money. We had proposed the government to either provide money to pay for the IOC or go for auto-pricing mechanism. We have also asked the government to waive taxes on petroleum products. I mean we have been paying around Rs. 1.85 billion to the government under various taxes each month. However, our loss is merely Rs. 1.15 billion. Therefore, we have asked the government either to allow us to adjust the price in line with the cost price or waive taxes on fuels. We have not been able to pay the first installment after the recent agreement with the IOC.
What are the major reforms that the NOC should undergo?
We have asked the government to allow us to sell the petroleum products at the cost price, which would help us to enhance the cash flows. Then, we would be successful in easing the supply of fuels forever. We have not increased facilities for the NOC’s staff for the last few years, but the general people always raise the voice that we have taken more facilities and bonus.
The reform programmes are the continuing process of the organization. We have started the process of recruiting new staff after removing those on contract who were working for the last few years. Probably, the NOC is the first and foremost institute to remove around 400 contract staff without any dispute.
Recently, the NOC has signed a deal with the IOC. How is it different from the earlier one?
We have succeeded in addressing the previous difficulties and hurdles in regards to the purchase of fuels from IOC by signing the new deal. The corporation has expected an annul surplus of Rs. 2 billion from this agreement. This is a historic deal, which is in favour of the NOC.
As per the new pact, the IOC has agreed to slash 2.5 per cent as Price Adjustment Factor (PAF). Previously, the IOC had been charging 2.5 per cent as PAF and marketing margin. PAF includes refinery and transportation charges, among other technical losses under the IOC’s current price formula. Earlier, we were successful in making a surplus of around Rs.5 billion, but now our cumulated loss has reached Rs. 22 billion and loans Rs.23 billion due to the government’s interference.
Preparation for the next fiscal year’s budget is underway. What are the major policies and programmes the NOC has proposed for the next fiscal budget?
We have proposed the government to arrange funds for fulfilling the stock of fuel of around 72,000 KL, which will address the demand for about 25 days. Now out stock is less than 20 per cent due to lack of sufficient funds. We need around Rs. 5 billion for this propose. Similarly, the corporation has proposed for around Rs. 40 billion for various programmes to deal with the petroleum crisis.
We have planned a price stability fund of around Rs. 10 billion, Rs. 18 billion for covering annual losses, Rs. 5 billion for filling in the depots, and Rs. 3 billion for carrying out the works related to the oil pipeline installation from Raxaul to Amlekhgunj. The project has remained pending for the last few years. We have proposed around Rs.10 billion for establishing the price stability fund to ease the supply whenever fuel prices increase in the international market. If we are able to manage the funds, we will be able to supply of fuels easily even when the fuel prices go up in the international market. We also have asked the government to manage the auto-pricing mechanism form the next fiscal year for enhancing the corporation’s capacity.
For this year, we have asked the government to provide us with Rs. 3 billion to ease the supply of fuels until May 27. If government adopts the auto-pricing system, the government should provide us with additional funds to ease the supply until it comes into force.
If something goes wrong in the country, we often have to face petroleum crisis. The NOC says that it was due to lack of storage facility. What is being done to improve the existing storage capacity?
Our depots have become older and they have not been maintained and modernized for the last few yeas. We have asked the government to make available Rs 2 billion to us for their maintenance. We have proposed around Rs.5 billion for purchasing the land to construct depots in order to make sure that the stock of fuels can meet the demand at least for 45 days.
The much-talked about project of installing pipeline from Raxaul to Amlekhgunj has not taken any shape until now. When do you think it will be implemented?
Personally, I think it is one of the most essential works that we should implement for easing the petroleum supply in the country. I would rather say that it could be a lifeline for the country. It has several benefits. Firstly, if something goes wrong between the two countries politically and other reasons, it could help us to continue with the smooth supply of fuels. Besides, it saves the transportation cost, ensures fuel quality and quantity. There will be very slim chances of leakages. In addition, there could be the third access. If someone from the private sector shows its interest in the petroleum supply, it will have an easy access when the pipeline is installed.
The IOC is going to install a pipeline from Barauni to Raxaul. There is pipeline from Haldiya to Barauni. If the pipeline from Raxaul to Amlekhgunj is installed, we will have a direct link from seaport. If everything goes smoothly, we are planning to lay the foundation stone as soon as possible. According to cost estimation, the total pipeline project is around IRs. 830 million. Even if the cost goes up a bit and reaches IRs 1 billion, this will be lower than the NOC’s monthly loss. The payback period of the project is just five years.
It is heard that efforts were underway to import crude oils directly from the Arabian countries after getting them refined in India. What is being done in this regard?
Yes, we have included the issue in the recent agreement signed with the IOC. As per the privilege of the landlocked countries, we have demanded the rights with the Government of India. We will buy crude oils directly from the Arabian countries and give them to the IOC and import the refined products as per our need through various border points. We have also started to lobby for this in the Arabian countries through the diplomatic channel.
Voices are being raised that the private sector should be allowed to get involved in the petroleum business. What is your take on this?
The NOC is not against the involvement of the private sector in the supply of the petroleum products. It is up to the government whether to involve the private sector in it or not. Though the government has issued license to the private sector to import the fuels, it seems that the government had cut their legs and asked them to run. Unless the government makes a provision for selling all the petroleum products at the cost price adopting, there is no possibility of the private sector’s involvement in the petroleum business. Businessmen invest only in the areas where there is a profit.