Nepal Oil says bankrupt, further price hikes expected

The Nepal Oil Corporation has filed for bankruptcy despite fuel prices rising to near record highs. Insiders say the state oil monopoly’s announcement of empty coffers could be a prelude to further price hikes.

The high cost of fuel is digging deeper into consumers’ pockets, and monthly consumer price inflation hit a 64-month high in December, rising to 7.11% year-on-year from 5.32% in November, according to the Nepal Rastra Bank. The figures.

Crude prices on the world market have been on an uninterrupted upward trend for more than a month. From a low of $69 per barrel on December 1, 2021, Brent prices have currently reached over $85 per barrel. This equates to an approximate 25% jump in four weeks.

In Nepal, the state oil monopoly has hinted that the price of petrol could hit an all-time high, even reaching as high as Rs 150 per liter following the rise in the price of crude oil in the international market.

In March 2014, the Nepal Oil Corporation raised the price of petrol to Rs 140 per liter and diesel to Rs 109 per litre, the highest price increase ever recorded in Nepal not including the stratospheric rise in fuel prices during the blockade of the Indian border in 2015.

The sharp rise in prices was the result of more expensive crude and a falling Nepalese rupee against the US dollar.

Nepal Oil Corporation officials say gasoline could hit a record high and the price hike could come between two crucial elections scheduled for this year.

“We are currently at zero. We are at a deficit of 2 billion rupees to finance oil imports or pay the Indian Oil Corporation by January 23,” the Nepal Oil Corporation said in a statement on Wednesday. ‘Indian Oil Corporation is the only fuel supplier in Nepal.

The Nepal Oil Corporation has apparently returned to the bad old days, when the usually loss-making and cash-strapped state-owned company asked the government for donations to import petroleum products.

On Thursday, the country’s only fuel supplier hiked petrol and diesel prices by Rs 3 per litre.

Petrol and diesel will now cost Rs139 and Rs122 per litre, respectively.

The price of aviation fuel sold to domestic airlines was raised by Rs.5 to Rs.106 per litre, and the price of fuel sold to international carriers was raised by $100 per kiloliter to $995 per kilolitre.

Even after the rise, the oil monopoly says its fortnightly losses are huge.

The Indian Oil Corporation reviews the export prices of gasoline and diesel/kerosene fortnightly, and other products such as aviation fuel and LPG monthly.

The new price list sent by the Indian Oil Corporation on January 16 caused the Nepal Oil Corporation to suffer a fortnightly loss of 2.24 billion rupees, the company said.

As a result of the price review, the company says it incurs a loss of Rs 13.18 on every liter of petrol sold, Rs 8.81 on every liter of diesel and Rs 646.16 on every cylinder of cooking gas .

In the first six months of the current fiscal year, the company said its balance sheet went from bad to worse. It says its first half losses soared to 19.26 billion rupees.

Company officials say it is covering its losses by dipping into its savings.

“We need 12 billion rupees to maintain a steady supply of petroleum products for three months,” Sushil Bhattarai, the company’s deputy managing director, told the Post.

The company said it was forced to borrow money to finance imports.

“We are currently using money from the price stabilization fund, and the fund is running out,” Bhattarai said.

“Of the 14 billion rupees in the fund, 6 billion rupees have already been used. We are also planning to make a payment of Rs 2 billion to the Indian Oil Corporation from the price stabilization fund on January 23,” he added. “We need to seek loans from banks or the government as prices may continue to rise.”

As the coalition government led by Sher Bahadur Deuba has not appointed a minister for industry, trade and supplies for a long time, company officials said things could get worse.

“There is no other option but price adjustment,” Bhattarai said.

In November last year, the state oil monopoly wrote to its parent ministry to use the price stabilization fund as it continued to drive petrol prices to unprecedented highs. sign of falling world oil prices.

The company created the Price Stabilization Fund in 2014, a reserve created to absorb extreme price volatility of certain commodities and avoid harming the consumer.

He had also asked the government for loans to pay for imports.

According to international media, oil prices traded within striking distance of a seven-year high on Monday at $86.71 a barrel, threatening to push global inflation even higher as supply remained tight and fears of another coronavirus pandemic-induced demand slowdown have faded.

In 2015-2016, the Nepal Oil Corporation announced that it was finally debt free after 14 years since adopting an automatic pricing mechanism. Its debts had ballooned to 36.87 billion rupees by January 2015. The company was able to repay all its loans within a year and a half, thanks to the fall in oil prices on the international market and the new pricing mechanism.

Nepal used to subsidize fuel costs to avoid soaring market prices. Every time the price rose, the oil monopoly reduced imports to control its ballooning losses, leading to shortages and massive queues outside gas stations.

Due to oil volatility in June 2008, Nepal’s annual inflation reached double digits, reaching 12.62% in 2009, one of the highest.

Inflation rose again.

Monthly consumer price inflation reached 7.11% in December. The highest level the country had seen so far was 7.9% in September 2016-2017.

Nepal imported petroleum products worth Rs 106.10 billion in the first five months of the current fiscal year, a jump of 115.9 percent from the same period last fiscal year.

There is already a surge in demand for goods not only globally but also in the domestic market. But there was a break in the supply chain due to excess demand which created pressure on prices,” Gunakar Bhatta, spokesman for Nepal Rastra Bank, told The Post last week. “Naturally, current inflation is being driven higher mainly by an increase in transportation and freight costs.”

Nepal imports most of its goods, mainly food and fuel.

Experts warn that inflation could soar into double digits this fiscal year.

“There are early indications that inflation will hit double digits by the end of this fiscal year,” economist Bishwambher Pyakuryal said. “Rising fuel prices are the key factor in the explosion of inflation.”

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