"Our POL Prices Should Be Above IOC Prices"

At a time when Nepal has been facing the crisis in supply of petroleum products, young leader of Rastriya Prajatantra Party and minister for Commerce and Supplies SUNIL BAHADUR THAPA spoke to NEW SPOTLIGHT on various issues related to the supply situ

Feb. 13, 2015, 5:45 p.m. Published in Magazine Issue: Vol: 08 No. -16 February. 13- 2015 (Falgun 1, 2071)

Despite the drastic reduction in the prices of petroleum products in the international market, why is Nepal still paying more?

First of all, the price of crude oil at international market has declined and not that of the refined oil. We need to differentiate between the price of crude oil and refined oil. Although the prices of crude oil have gone down, other components including processing, insurance and logistic remain intact. There is compound factor that prevents the fall of the price at the level of crude oil. If the prices of refined oil fall, it will definitely bring the price down. The second factor is that Nepal Oil Corporation signed the agreement with Indian Oil for the supply of petroleum precuts. This agreement is renewed every five years. We buy the petroleum products in their variable prices. Indian Oil gives us the price in every 15 days depending upon the market. As we buy petroleum products from IOC, our market price is fixed on their rate. There is also an unseen strategic factor. In the present context, our price should be above the Indian prices. We import 150 billion rupees petroleum products from India. If our prices are even lower than 50 paise, there is a lot possibility to go the oil in Indian market -- it will cost a lot to Nepal. As we have open border, we need to think about the price strategically. We need to be on the higher side so as to prevent the leakage.

How much lending has the NOC now?

Nepal Oil has loans with three components which include the government loan, the loan provided by government undertaking Citizen Investment Fund and Employment Provident Fund and the loan taken from commercial banks. The rate of interest is also different. NOC is paying 3 percent interest rate to government, 10 percent for Citizen Investment Fund and Employment Provident Fund. However the interest rate is lower with private sector’s commercial banks with around 6 percent. There were also huge backlog due to Indian Oil. We have just recently cleared the loan. So we are now debt free with IOC by paying over 5 billion rupees.

How much money does NOC add to pay interest rate?

We have added Rs.4 per liter to pay the loan and interest. Petroleum Fund is a new concept. This fund will work when there is crisis. Now the price of petroleum products has gone down drastically. Thus, there is more easiness. However, when it rises again, there will be more difficulty. The petroleum fund will have the money which we collect as a profit. The money will be used to maintain the price of PLO. At the end of the day, the fund will benefit the consumers.

How much money does a consumer have to pay as tax?

NOC is paying Rs.40 per liter as a tax, Rs.2.21 paisa per liter to transport petrol from Raxual to Kathmandu. The insurance is 0.4 paisa per liter. The administrative cost is 0.50 paisa per liter. The working loss and dealers' cost also need to be included. If we add all these amounts, it will show that the cost of variable is more than the normal cost of petroleum product.

What is the state of the Pipeline Project?

Pipeline is essential for Nepal as it will reduce the transport costs and technical losses. Now we have been paying money. Although the distance between Raxaul India and Amlekhgunj is just 41 kilometers, we have been paying transport cost of petroleum products for 82 kilometers. The present depot of Raxaual is moving to Motihari, another 50 Kilometers from border, it means Nepalese consumers have to pay price for 182 kilometers. This pipeline will reduce the cost and we don’t need to pay transport cost and quality of petroleum products will also increase. It will ease the traffic jam in customs office and it will be environmentally friendly. Most importantly, it will reduce the leakage. The leakage will be different in winter and summer.

Nepal’s trade deficit is rising, what efforts is your ministry making to contain it?

There is a need to have a very strong inter-ministerial coordination committee. Our ministry just guides. For instance, Ministry of Agriculture Development can play an important role to reduce the import of agriculture products from India promoting local production. Recently, we have been importing huge amount of agriculture products from India, including rice. We are also importing such products from other parts of the world.  Nepal needs to have new trade policy and the ministry is in the process of drafting a new trade policy. It will look at the way to reduce the trade deficit.

Why has it gone up?

Trade deficit has gone up due to import of non-agro products as well as agro-products. The remittances sent by Nepali workers in Gulf and other countries are spent in non-productive sectors to import luxurious items. As the industries are shut down due to political uncertainty and agriculture productivity is declining, here we need a coordinative approach. People are purchasing mobile, TV, motorbike and so on. Due to shutdown of industries, imports substituted our own products. There is a practice to reward those customs offices which generate the highest revenue. This way we also encourage the imports. The ministry has recently conducted a study on why the trade deficit is growing and how Nepal is losing its comparative advantages. The ministry has already sent the paper of our studies to ministers, secretaries and Members of Parliament. I have also requested National Planning Commission to discuss the matter of trade deficit. After consultations with various ministries, Nepal needs to have new national policy.

As the government has already announced LDC graduation, how much is your ministry prepared to face the situation after graduation in trade?

Although we are in the process of graduation, it will take much time given the current pace of economic development. However, Nepal is unable to use the facilities given to Nepal as LDC and LLDC. After Bali meeting, the developed countries should have given us duty free and quota free access in the market. However, it has not been so. The outcome is zero after the Bali. At a time when we are unable to extract the benefits from LDC and LLDC, it is unlikely that Nepal will make any advancement in LDC graduation. We have not made any preparation for LDC graduation; we need to make our economy strong to cross certain parameters. We need to do more serious homework to understand our strengths and weaknesses. You cannot jump in the dark in the name of graduation. If we jump, we will lose the present status and benefit as well as being unlikely to get any other benefits. We have to see the reality.

How do you look at the recent comments that India is providing Visakapatnam port to Nepal?

Progress has already been made in this regard. We have already handed over some of the letters for exchange. We want to review. Some want Visakhapatnam and others are saying new deep port of Paradhipur near Haldia. Many Nepalese businessmen suggested to me to go for this port. Along with this, there is a debate going on to use dry ports of India. There is a big dry port under construction near Delhi International Airport with direct connection to major port in Mumbai. I am considering using dry port. We also look for alternatives.  Mumbai is not the last destination now. We also can use New Delhi. You always need to look at alternatives rather than banking on one window.

How do you see the possibility to give Nepal’s land, particularly the east-west high way to transit goods to Indian northeast states?

We are considering this. Despite possibility of using Nepal’s east-west highway to link India’s northeastern state, Nepal is yet to move any such proposal to India. We should put this proposal because this is also linked to connectivity. This route will be important to increase connectivity between Nepal, India’s western states and Northeastern state. Nepal’s East-West corridor can reduce the distance between western India and eastern India. Following the visit of Indian Prime Minister Narendra Modi, there is ease in certain restrictions for Nepalese and Indian vehicles moving to each other's countries.  However, there is the need of separate provisions for the transit purposes. During my visit to China’s Kunming, I requested the Chinese minister to include Nepal in its silk road, which is also known as economic belt. If Nepal is involved in the Silk Road and became a destination, it will link Nepal into all other Asian countries like Tazakhstan. If that happens, Nepal cannot only be a transit point but a trading hub. We should make more money by making Nepal a trading hub. Our economy will benefit a lot as it will create jobs and improve our infrastructures. We should not consider ourselves as a landlocked country, we are a land linked country, but our linkage is weak.  It will be a very interesting belt. It will go well with South Eastern Asia.   

How do you see the quarantine issue which is creating problems?

You are right, we don’t have quarantine facilities and testing labs and we have to send our products in India for testing, even Kolkata. India is yet to recognize Nepal’s quarantine and testing labs. I have proposed two options, either the testing labs should be closer to Nepal border or it should provide our testing labs with ISI marking. We have requested them to issue standardization of our labs. The issue will be discussed in an intergovernmental meeting.

How is Nepal’s political instability creating problems?

If Nepal does not have political stability, it will have implications to India also. At a time when India is pushing its economy at a galloping size, it needs stability not only in the country but close to home with its neighbor. Nepal has water resources and other minerals can play important role in India’s high growth. Thus, Nepal needs to have stability. We have recently signed 2000 MW. Our development and political stability is tied up with India. Thus, Nepal’s stability is important for us as well as our neighbors.

How do you see the possibility of a new constitution?

Whether one likes it or not, the political players are some people, who failed to bring the new constitution. These players and actors remain the same. Like in the past, all the constitutional issues are discussed outside the CA. Lack of commitments by leaders is a major handicap. The other problem is involving the same players in the same issue. Where is the outlet? The third is undermining the importance of elected CA. Instead of discussing the issue in CA, the discussion is now going on in the party offices and houses of political leaders. A few took the advantage and the majority remain in the CA without being part of it.

When will you solve the LPG problems?

LPG is the product for which we have to rely on India. Nepal has a quota of 2300 Metric tons of gas a month. The repairing period and the winter started in the same time as the demands of Gas is higher during the winter. This is the result the supply is impossible. Kathmandu’s population increment is almost 10-12 percent and rural areas are urbanized and people have started using gas. Fir factories and press are run by gas.  Due to winter, every household need gas.  Average household has 3 gases and people started to accumulate the gas due to growing political instability. People are hording gas and petroleum products.  Things are beyond control.

How do you see the role of private sector?

If we want to solve the petroleum products, there is the need to privatize the petroleum sector. Privatization is very important and we have already prepared bill and it is in the process of review. Other important part is storage. As we have very limited storage, Nepal needs to expand the storage capacity and logistics. Other important part is pipeline.  

How do you see the state of NOC?

NOC is doing business of 150 billion annually and it is the largest trading house. NOC is facing a lot of difficulties now. If more mega projects come, it does not have the capacity. Privatization would invite multi-stake holders. NOC needs to reform. It is interesting to note that an organization with dealing over 100 billion business capital is just 90 million. Thanks to the state institution, IOC is dealing with this. In the past, NOC used to supply petroleum products for less than half a million and now it is supplying the PLO for almost 2 million vehicles including large sum to produce electricity.

What is the current capacity of NOC?

NOC has poor storage capacity with 1800 KLF of petrol, 8000 KLF of diesel. There is a daily demand of 350 KLF of petrol and around 500 KLF diesel in Kathmandu valley alone. It is huge. Kathmandu valley alone consumes 60 percent of petroleum products imported to Nepal. ATF too has similar situation. In the past, there were limited numbers of aircrafts, now the number of flights has increased drastically and so the demand of ATF. Turkey’s plane alone loads over 15,000 liters. Just imagine the demand.

How do you see the food storage?

We are in the process of procurement. We have 33000 metric tons food for emergency. We need to have 25,000 metric tons for domestic and 8000 metric tons for SAARC. We have good ware houses. However, our budget is very poor to buy the food.

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