Instead, the company has been distilling light furnace oil - a finished product imported from UAE - for producing diesel, kerosene and mineral turpentine oil (MTO) - something that directly violates regulations governing the sector.
Still worse, officials and experts concerned raise serious questions over the licensing. "How did the company get a license to import crude and market diesel, kerosene and MTO when the government has not yet open up petroleum imports and products like diesel and kerosene are state-controlled?" asked Amrit Nakarmi, an oil expert.
Koshi Petrochemicals, based in Hattimuda -9, Morang, had received a license from the Department of Industry (DoI) on May 20, 2009 to produce diesel, kerosene and MTO by importing crude. It started selling diesel to industries from the very next day, May 21.
Madhav Koirala, the company´s chief executive officer, told myrepublica.com on May 24 that it produced the fuel out of crude it imported from a Gulf country, but refused to name the supplier.
His statement was met with immediate criticism and disbelief. Petroleum dealers in the region even demanded an investigation into the matter, following which the Ministry of Commerce and Supplies instituted a probe. And members of the probe team said their investigation exposed deeper anomalies in the industry than they had expected.
Fishy
"Our initial impression was the industry seemed in quite a hurry to get started," a member of the probe told myrepublica.com.
But interestingly, the company, seemingly so eager to get to work, never actually imported crude, according to customs records. In fact, it did not even import furnace oil, its raw material, after getting the license. "Rather, it is sourcing the raw material from Azad Chemicals, a company belonging to Fujima Organization in Biratnagar," said the source.
While use of light furnace oil as a raw material is unauthorized, the uglier part is that probe team members said they sensed the whole intention was fishy because "furnace oil (being a finished product itself) does not give a commercially viable yield."
"And if the promoters -- who are experienced hands in the field -- still went ahead with the unviable project, it raises a host of other unanswered questions," said the source.
These conclusions of the probe ring a warning bell because the country´s petroleum sector, even while a state monopoly, is infamous for anomalies such as fuel adulteration and quantity theft. The government has not yet put in place an effective authority to check these.
Moreover, the company has not yet gotten its product tested and certified by the Department of Standards and Metrology (DoSM), whereas its license stipulates that it do so prior to starting sales.
The probe also found that the company was producing un-dyed kerosene as well but said it has not sold the product so far. "It may be telling the truth. But this calls for serious monitoring because un-dyed kerosene is best for adulteration," said the official.
Policy Corruption!
The government started a debate on deregulation of the petroleum sector, market operation norms, formation of an independent Petroleum Authority to oversee the sector and benchmarks for pricing and quality, but no substantial headway has been made.
Petroleum Deregulation Act that the government tabled in parliament about three years ago has been gathering dust even as the government´s policy and program announced a few weeks ago stresses the need for the deregulation.
"So, the decision to license Koshi Petrochemicals simply smells rat," said Nakarmi, the oil expert.
DoI officials refute corruption charges. "The company brought a formal letter from the Department of Commerce stating that ´crude import´ was not in the negative list of tradable items. It also has a no-objection letter from Nepal Oil Corporation (NOC)," said a DoI official requesting anonymity.
Nakarmi, however, ridiculed DoI´s refutation. "Import of finished products is also not in the negative list. Does that mean such products are open for import? And how can a no-objection letter from NOC open up the sector? It is a policy issue and needs a decision by the cabinet and parliament," he said.
Experts like Nakarmi and officials are unanimous that the sector must be deregulated, but caution that this must be done in a proper way.
milan@myrepublica.com
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