The board´s decision has forced NOC management to review an understanding that it reached during talks with IOC top brass in Mumbai last month. [break]
The IOC talks team led by NOC acting chief Suresh Kumar Agrawal had last month reached an understanding to allow IOC to revoke 50 percent discount that it pledged on its profit margin. In return, IOC had agreed to eliminate refinery- and duty-related costs, termed as Price Adjustment Factor (PAF), passed on to Nepal.
Interestingly, the NOC management had agreed on the deal without due consent of the board as well as Supplies Ministry.
“The team had straightaway bought the Indian supplier´s argument that such a deal will bring net gain of Rs 90 million to NOC in a month. However, our calculation showed the result will be otherwise,” said a source.
Under what India says as special facility for Nepal, IOC is presently charging price worth 2.5 percent of cost of crude as well as transportation up to the Indian port as its profit margin. IOC says this is half the amount than what it otherwise has charged the Indian consumers.
Following the board´s decision, NOC management has informed IOC about its change in stance over the understanding reached in Mumbai. “A letter in this connection has already been sent to IOC. It has not responded yet,” the source told Republica.
As NOC and IOC gear up negotiations to review Supply Agreement, NOC board has instructed the management to push IOC to eliminate PAF, without seeking anything in return from Nepal.
“It is already an established fact that supplies made to Nepal should not be subjected to Indian duty and taxes. Changes in the international market situation over the past 10 years, when India deregulated prices, have also proven that rates of refinery charges that we agreed on were quite high. So, our demand for elimination of PAF is valid,” said the source.
A high-level commission formed by the government last year too had identified that PAF related cost passed on Nepal by IOC was faulty and had suggested to the government and NOC to get it corrected when the two side sit for talks to renew the NOC-IOC Supply Agreement.
The same commission, interestingly, had even suggested to the government to seek IOC to further lower the marketing margin -- contrary to what NOC management agreed on -- saying that Nepal´s consumption over the past 10 years have grown by four fold.
“This has already enabled IOC to reap four-fold more profits from petroleum trade with Nepal than in 2002. Hence, Nepal should negotiate for cut in its profit margin,” said the source.
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