Petroleum Minister Murli Deora has turned down Foreign Minister Pranab Mukherjee’s request for continuing normal supplies of petroleum products to Nepal, saying that the Ministry of External Affairs should pay for the losses if it wanted to extend the goodwill gesture. “If the MEA considers that uninterrupted supplies are to be made for strategic reasons as a gesture of goodwill to the friendly people of Nepal, it may consider supporting the financial losses to the extent of the under-recovery,” Deora wrote to Mukherjee last week. Deora said that the cut was imposed after Nepal Oil Corporation was unable to commit any repayment schedule despite repeated attempts at various levels by Indian Oil Corporation. “Even though there are no contractual obligations on the part of IOC, they have continued with supplies to NOC in the absence of timely payment. This has been done as a goodwill gesture to our neighbouring country.” “IOC is a commercial entity, and cannot continue making supplies in the absence of full payment. IOC would be constrained to cut supplies,” said Deora’s letter. State-run IOC cut supplies to NOC by 20% in November as the latter failed to fully pay bills from April 2005. As of end-December, NOC ended up owing Rs 339 crore to IOC for purchase of petro-products. Deora blamed Kathmandu for NOC’s huge losses. “The main reason for NOC’s persistent default in payment is that it has been incurring huge losses on account of under-recoveries as Nepal government remains extremely unwilling to align domestic prices to the cost of petroleum products.” As NOC’s losses have mounted, banks are increasingly becoming wary of lending to it despite its willingness to pay higher interest charges. It imports about 0.8 million tonnes of products each month from IOC, its sole supplier. On Monday, the IOC board ratified a decision to further cut fuel supplies up to 30% if NOC failed to pay an additional Rs 15 crores each month to clear the previous debt. “The outstanding are being closely monitored and in case NOC fails to make payments of a minimum Rs 15 crores every month, a cut of 30 per cent in supplies will be applied,” said the IOC proposal.
