`Difficult to sustain supplies without arrears being cleared'

Richa Mishra

New Delhi, Aug. 28

, Indian Oil Corporation Ltd has asked Nepal Oil Corp, the state-owned oil company of Nepal, to work out a repayment plan to clear the arrears of close to Rs 250 crore for oil supplies made in the past.

IndianOil annually exports about 0.75 million tonnes of petroleum products petrol, diesel, liquefied petroleum gas (LPG), kerosene, and aviation fuel to Nepal. The business to Nepal works out to around Rs 2,000 crore a year.

A senior IndianOil official told

Business Line

that though the public sector company was not considering to stop fuel supplies at this juncture, it was difficult to sustain it unless payments were made. Besides, IndianOil's liquidity position was tight and arrears did not help.

At a meeting with a high-level delegation from Nepal last Friday, IndianOil has asked Nepal Oil Corp to come back with a plan to pay the existing arrears and also to work out a mechanism to avoid such a situation for the current and future supplies, the company official said.

The issue is not only commercial, but also bilateral, keeping in mind the relations between the two countries. The arrangement to supply petroleum products to Nepal, which has no refinery, is also a Government-to-Government agreement.

Dependent on India

Nepal, which is dependent on India to meet its petroleum product demand, defaulted on its payments starting April 2005. The retail situation was similar to that prevailing in India where the selling price was below the actual cost of production, sources said. While Nepal buys the products from IndianOil at a higher price, it continues selling it to retail consumers at a much lower price.Nepal Oil Corp has a monopoly on the import and distribution of oil in Nepal, and the Government fixes the retail rate. Most oil products are subsidised, and the Government bears the loss. Currently, the retail price of petrol in Nepal is at Nepali Rs 67 per litre (Rs 1.6 Nepali rupee is equivalent to Rs 1 Indian rupee) and diesel at Nepali Rs 52.5 per litre.

(This article was published in the Business Line print edition dated August 29, 2006)
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