FINANCIAL CRISIS IN NEPAL OIL CORPORATION

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