Identifier
Created
Classification
Origin
08KATHMANDU531
2008-05-09 10:30:00
UNCLASSIFIED
Embassy Kathmandu
Cable title:
NEPAL'S OIL CRISIS DEEPENS
how-toVZCZCXRO9511 RR RUEHBI RUEHCI DE RUEHKT #0531/01 1301030 ZNR UUUUU ZZH R 091030Z MAY 08 FM AMEMBASSY KATHMANDU TO RUEHC/SECSTATE WASHDC 8474 INFO RUEHNE/AMEMBASSY NEW DELHI 2408 RUEHBJ/AMEMBASSY BEIJING 6476 RUEHKA/AMEMBASSY DHAKA 2082 RUEHIL/AMEMBASSY ISLAMABAD 4828 RUEHLO/AMEMBASSY LONDON 6043 RUEHLM/AMEMBASSY COLOMBO 6792 RUEHSA/AMEMBASSY PRETORIA 0120 RUEHCI/AMCONSUL KOLKATA 4164 RUEHBI/AMCONSUL MUMBAI 3853 RUCPDOC/DEPT OF COMMERCE WASHINGTON DC RHEHNSC/NSC WASHDC RUEAIIA/CIA WASHDC RHEFDIA/DIA WASHDC RUEKJCS/SECDEF WASHDC RHMFIUU/CDR USPACOM HONOLULU HI
UNCLAS SECTION 01 OF 02 KATHMANDU 000531
SENSITVE
SIPDIS
E.O. 12958: N/A
TAGS: PGOV ENRG ECON ETRD EFIN EPET NP
SUBJECT: NEPAL'S OIL CRISIS DEEPENS
Summary
-------
UNCLAS SECTION 01 OF 02 KATHMANDU 000531
SENSITVE
SIPDIS
E.O. 12958: N/A
TAGS: PGOV ENRG ECON ETRD EFIN EPET NP
SUBJECT: NEPAL'S OIL CRISIS DEEPENS
Summary
--------------
1. (SBU) Nearly a month after the Constituent Assembly
Election, Nepal is again facing major fuel shortages
and the Indian Oil Corporation (IOC),Nepal's sole
source of petroleum products, is again seeking
payment. On April 28, the Nepal Oil Corporation was
only able to make a partial payment; in response, the
IOC cut supplies by 45 percent. In order to ensure
continued supplies and prevent yet another fuel
crisis, the GON will need to grant, once again,
another financial package to NOC to settle its
payments to IOC. Both Prime Minister Koirala and the
Maoist leadership have met with Indian officials in
the past week to discuss this very issue. END SUMMARY.
Oil Supply Tightens After Election
--------------
2. (SBU) In a bid to maintain a smooth supply of
petroleum products during the April 10 Constituent
Assembly (CA) election, the state-run Nepal Oil
Corporation (NOC) used a March private bank loan to
make a cash payment of Nepali Rupees (NRs) 250 million
(USD 3.9 million) to the Indian Oil Corporation (IOC),
NOC's sole petroleum supplier. Shortly thereafter,
the NOC cut the supply of diesel and kerosene to
dealers by almost 25 percent, warning that it did not
have the resources to continue financing regular
imports.
Supplies Dwindle
--------------
3. (SBU) On April 28, the NOC delivered only part of
its scheduled payment of NRs 1.67 billion (USD 24.7
million) to the IOC. The NOC's payment was nearly USD
9 million short. The IOC responded by cutting
supplies of all petroleum products, including petrol,
diesel, and kerosene and cooking gas (LPG),by 45
percent. On May 4, the NOC, faced again with a short
supply, cut the distribution of petroleum products by
nearly 50 percent in the Kathmandu Valley. NOC
officials warn that the supply of all petroleum
products will continue to shrink and that by mid-May,
when the IOC will revise prices upward again to
reflect the rise in global oil prices, the NOC may
only be able to meet 25 percent of the demand in the
Kathmandu Valley. Reserves in the Valley are
estimated to be down to a 3-day supply.
NOC and Dealers Warn of Crisis
--------------
4. (SBU) Digambar Jha, Executive Director of the NOC,
reported that in May NOC's monthly losses would cross
the USD 25.9 million mark, up from USD 8 million in
May 2006. The government-supported price controls and
the rising international price for crude oil have
resulted in huge losses for the NOC. NOC finance
manager, Bachhu Kumar Kafle, estimates that the NOC
owed more than USD 310 million as of April 2008,
including USD 37 million to the IOC and USD 173
million to commercial banks in Nepal. In addition,
over the last two years, the Finance Ministry has
provided USD 100 million to settle IOC's import bills.
Jha stated that in order to ensure normal supplies and
avoid a crisis, the GON must immediately grant a
financial package to the NOC to settle its payments to
the IOC.
COMMENT - NO QUICK SOLUTIONS
--------------
5. (SBU) Although long lines and a thriving black
KATHMANDU 00000531 002 OF 002
market are sure to remain part of life
SENSITVE
SIPDIS
E.O. 12958: N/A
TAGS: PGOV ENRG ECON ETRD EFIN EPET NP
SUBJECT: NEPAL'S OIL CRISIS DEEPENS
Summary
--------------
1. (SBU) Nearly a month after the Constituent Assembly
Election, Nepal is again facing major fuel shortages
and the Indian Oil Corporation (IOC),Nepal's sole
source of petroleum products, is again seeking
payment. On April 28, the Nepal Oil Corporation was
only able to make a partial payment; in response, the
IOC cut supplies by 45 percent. In order to ensure
continued supplies and prevent yet another fuel
crisis, the GON will need to grant, once again,
another financial package to NOC to settle its
payments to IOC. Both Prime Minister Koirala and the
Maoist leadership have met with Indian officials in
the past week to discuss this very issue. END SUMMARY.
Oil Supply Tightens After Election
--------------
2. (SBU) In a bid to maintain a smooth supply of
petroleum products during the April 10 Constituent
Assembly (CA) election, the state-run Nepal Oil
Corporation (NOC) used a March private bank loan to
make a cash payment of Nepali Rupees (NRs) 250 million
(USD 3.9 million) to the Indian Oil Corporation (IOC),
NOC's sole petroleum supplier. Shortly thereafter,
the NOC cut the supply of diesel and kerosene to
dealers by almost 25 percent, warning that it did not
have the resources to continue financing regular
imports.
Supplies Dwindle
--------------
3. (SBU) On April 28, the NOC delivered only part of
its scheduled payment of NRs 1.67 billion (USD 24.7
million) to the IOC. The NOC's payment was nearly USD
9 million short. The IOC responded by cutting
supplies of all petroleum products, including petrol,
diesel, and kerosene and cooking gas (LPG),by 45
percent. On May 4, the NOC, faced again with a short
supply, cut the distribution of petroleum products by
nearly 50 percent in the Kathmandu Valley. NOC
officials warn that the supply of all petroleum
products will continue to shrink and that by mid-May,
when the IOC will revise prices upward again to
reflect the rise in global oil prices, the NOC may
only be able to meet 25 percent of the demand in the
Kathmandu Valley. Reserves in the Valley are
estimated to be down to a 3-day supply.
NOC and Dealers Warn of Crisis
--------------
4. (SBU) Digambar Jha, Executive Director of the NOC,
reported that in May NOC's monthly losses would cross
the USD 25.9 million mark, up from USD 8 million in
May 2006. The government-supported price controls and
the rising international price for crude oil have
resulted in huge losses for the NOC. NOC finance
manager, Bachhu Kumar Kafle, estimates that the NOC
owed more than USD 310 million as of April 2008,
including USD 37 million to the IOC and USD 173
million to commercial banks in Nepal. In addition,
over the last two years, the Finance Ministry has
provided USD 100 million to settle IOC's import bills.
Jha stated that in order to ensure normal supplies and
avoid a crisis, the GON must immediately grant a
financial package to the NOC to settle its payments to
the IOC.
COMMENT - NO QUICK SOLUTIONS
--------------
5. (SBU) Although long lines and a thriving black
KATHMANDU 00000531 002 OF 002
market are sure to remain part of life