NOC Leaching in Broad Daylight

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Economy

This year’s budget speech saw an interesting remark from the former Finance Minister Bishnu Paudel. The government decided to levy a Budhi Gandaki Hydropower tax to the citizens. In its defence, the government also further stated that entire Nepali people would not have to bear the burden of this new tax. The taxes would be charged only on petroleum products, and what’s more noteworthy, they said that the Nepal Oil Corporation would bear the entire burden, without transferring that to the customers of the petroleum monopoly.

Here is an excerpt from the budget speech:

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Now how would the government extract a tax without burdening the customers? Let’s take a look at the pricing system of NOC.
NOC Leaching

Source: NOC Fortnightly Profit and Loss Details (http://www.nepaloil.com.np/uploads/pdf/01August2016-Updated.pdf)

If you look at the above appendix, we have highlighted three sub headings of this pricing system. An infrastructure tax ( for Budhi Gandaki Hydropower) which is Rs 5 on petrol (gasoline) and so on, which is added onto the government revenue. If we look below, two more things are added into the price that a customer pays, first one is for NOC’s infrastructure development and second one is for NOC’s profit.

Now, we would expect NOC, a government monopoly to fund infrastructure tax of Rs 5 in petrol, diesel and airplane fuel, from the profit and NOC’s infrastructure development expenses that it charges from the people, which is not at all the case. Instead, what they have done is make use of declining oil prices in the world market which has allowed them to ostensibly “decrease the price” and still scupper huge amounts of profit to fund their bonuses.

While the government argues that the burden is not spread to the customers or the general public, it is clear that NOC has added the cost to its customers by making use of general decline of world oil prices. The readers are urged to note here that only until 2014 AD, NOC was at a loan burden of  US $410,837,180 that it had acquired from Government of Nepal (GoN), Citizen Investment Trust (CIT), Employees Provident Fund (EPF), Commercial Banks and Indian Oil Corporation (IOC) to fund its inefficient business. All of this loan has now been paid (within a span of just over one year) by nothing but manipulating the price of petroleum products.

Thus, great profiteering game of NOC and its bonus-seekers rages on, deluding the Nepalese citizenry of the real prices they need to pay under competitive market, which would be much much lower.

Sovit Subedi

About Sovit Subedi

Sovit Subedi is a research intern at Samriddhi. He graduated from University of Pune with a Bachelors Degree in Economics. His interests are in entrepreneurship, strategy and development.

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