A Nepalnews investigation reveals that there are dim prospects of the state-owned monopoly, Nepal Oil Corporation (NOC), being able to raise a short-term loan of whopping Rs two billion from commercial banks within the next four days.
In a public notice published in the state-owned Gorkhapatra daily on Wednesday, the Corporation called upon the commercial banks to make a bid if they were ready to lend huge funds to it for a period not more than six months.
The notice said the NOC would pay back half of the loan (that is, Rs one billion) within the first three months while the rest of the loan (Rs one billion) would be paid within the next three months. “The commercial banks must submit their proposal with details on what condition and at what rate of interest they would be able to provide loan by 12:00 p. m. Friday,” the notice said.
The NOC had raised the price of petroleum (POL) products only three weeks ago.
Talking to Nepalnews, spokesperson of the NOC, Sushil Bhattarai, said the NOC had a monthly transaction of Rs 2.75 billion while it had dues worth over Rs 3.15 billion to be paid to the Indian Oil Corporation (IOC) immediately.
This is the second time that the NOC has sought short-term loans from the commercial banks. “There was no overwhelming response in earlier bids,” Bhattarai admitted, adding, “We are paying back our installments to the lenders.”
When contacted by Nepalnews, a senior official with a leading private sector bank in Kathmandu said the bank he was affiliated with was not going to bid to provide loan to the NOC. Requesting anonymity, he said (the bank) did not have confidence that the NOC would be able to repay loan within such a short period.
Similarly, a senior official at the public sector Nepal Bank Limited told us that the bank would consider the matter only if the NOC approached them for loans. He, however, admitted that NBL didn’t have such a large liquidity to provide loans to the NOC.
NOC officials too are well aware about questions related to their creditworthiness. Bhattarai of the NOC tried to brush aside such suspicions saying that the NOC had enough liquidity to pay back the loans it would borrow. “We are a government-owned Corporation. So, banks should not worry about repayment of the loans,” he added.
According to NOC officials, the monthly loss incurred by the Corporation was running at well over Rs 570 million until last month. NOC continues to incur heavy losses despite the government raising price of POL products five times over the last 14 months, officials said.
Earlier, the NOC had demanded a long-term loan of Rs three billion from the Ministry of Finance to pay its dues to the IOC. The government, however, replied that it should try to manage its financial matters on its own. Owing to continuous demand for hike in POL products by the NOC and under pressure from donor agencies including the World Bank and IMF, the government gave the nod to raise the price of petroleum products last month as soon as the municipal polls were over. The donors have advised the government to break the monopoly of the NOC in the import, sales and distribution and involve private sector in the oil business.
From last month, the NOC has allowed the petroleum dealers to fix rates for retail sales from gas stations.
The tradition is such that NOC procures crude oil from the international market and later buys refined oil from the IOC depots near Nepal-India border. The IOC has recently said it will slap 10 percent interest if the NOC failed to make monthly payments in time.
As commercial banks look less than interested to come to the rescue of the loss-making state-owned Corporation, NOC officials are facing have hard times to arrange money to pay back their dues to the IOC.
Analysts say deregulation of the oil sector as well as promoting healthy competition in the petroleum business would go a long way towards easing burden off the consumers as well as the state-owned NOC.