US embassy cable - 05KATHMANDU2308

UNCLAS KATHMANDU 002308 
 
SIPDIS 
 
SENSITIVE 
E.O. 12958: N/A 
TAGS: EPET, ENRG, ECON, ETRD, EFIN, PGOV, NP 
SUBJECT: FINANCIAL CRISIS IN NEPAL OIL CORPORATION 
DEEPENS: PETROLEUM SUPPLIES MAY BE AFFECTED 
(CORRECTED COPY) 
 
REF: KATHMANDU 02210 
 
1.  (SBU) Only three weeks after averting a 
financial crisis, the state-owned monopoly oil 
importer Nepal Oil Corporation (NOC) has again 
defaulted on payment to its supplier Indian Oil 
Corporation (IOC).  Nepal's Ministry of Finance 
(MOF) and Nepal Rastra Bank (NRB) last averted a 
petroleum supply problem in Nepal in September by 
lending NOC USD 17.5 million to pay off the 
petroleum import bill owed to IOC (reftel). 
 
2.  (SBU) According to reports published on October 
20 in the local media, NOC owed a total of over USD 
27.39 million to IOC for October's petroleum 
imports.  Umesh Prasad Dahal, Marketing Director for 
NOC, told EmbOff that as of October 15, NOC's 
outstanding debt to IOC was over USD 27.39 million. 
NOC made a partial payment of over USD 10.9 million 
on October 15, buying a few days' time from IOC to 
settle the remaining balance of more than USD 
16.4 million.  Dahal further added that the matter 
had been referred to the Ministry of Industry, 
Commerce, and Supplies, as it was increasingly 
beyond NOC's ability to handle the successive 
financial crises.  According to media reports, NOC's 
outstanding loans, obtained solely for the purpose 
of importing petroleum products, have exceeded USD 
58.2 million. 
 
COMMENT 
 
3.  (SBU) Raising the selling price of petroleum 
products is now the only option left for the 
government to solve NOC's financial crisis and 
ensure a long-term solution for petroleum supplies 
in Nepal.  Since the Government of Nepal's recent 
proposals to hand over internal distribution of 
petroleum products to the private sector received a 
cold response from the private entrepreneurs, the 
government is left with no option other than 
adopting a politically unpopular but market-based 
pricing mechanism. 
 
MORIARTY