During the negotiations on Petroleum Supply Agreement, which concluded on Monday, Indian Oil Corporation (IOC) has agreed to waive off Price Adjustment Factor (PAF), which includes cost associated to refineries and duties.[break]
The Indian supplier was so far charging Nepal 2.5 percent (of the crude and transportation cost up to the Indian port) as PAF. Officials said the new change agreed through the talks will bring down the rate of import for Nepal Oil Corporation (NOC). “Roughly, it is estimated to lower the import rate by Rs 1.5 per liter compared to the past,” said a source.
IOC agreed to waive off PAF without effecting any change in marketing margin - which is IOC´s profit margin.
In the previous meeting held between NOC and IOC in Mumbai last month, IOC had said it would remove the discount pledged on marketing margin, raising it to 5 percent from 2.5 percent (of crude and transportation cost up to the Indian port) if it was to waive off PAF.
“This means we will continue to enjoy discount on marketing margin and also get PAF waived off,” the source told Republica.
But this also means Nepal´s effort to further lower and fix marketing margin at a flat rate failed. NOC had pushed for a cut in profit margin mainly arguing that rise in crude prices and volume of consumption in Nepal since the last agreement has significantly raised profit that IOC enjoys from Nepal.
Referring to comparisons in Brent crude price, which was $60 barrel in 2007 and $124 at present, and Nepal´s consumption, which was just around Rs 25 billion per annum then and about to touch Rs 100 billion now, NOC had pinpointed that IOC was presently enjoying some 3.5-fold more profit than what it had eyed in 2007.
However, IOC officials refused to lower the profit margin. IOC also refused to fix the marketing margin at a flat rate. NOC had pushed for the flat rate mainly as such an arrangement would have cushioned it during fluctuations of crude prices as well as exchange rate.
Likewise, IOC also refused NOC´s request to allow it import petroleum products from other Indian companies.
Keeping in view of growing interests shown by other Indian oil companies, such as Essar Group and Bharat Petroleu, NOC had requested the IOC to open up exports to Nepal for other companies as well.
“We had perceived IOC will not respond to it positively. And we were true,” said the source, adding that IOC will continue to enjoy its monopoly in Nepali petroleum market.
NOC presented the new arrangements worked out for the new supply agreement to the NOC board for approval on Monday itself. However, as the board meeting went on till late, Republica could not take reactions of the board members.
If the board endorsed it, top NOC and IOC officials will ink the deal, and the new arrangement will come into effect from April 1.
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