New bill to end NOC monopoly

KATHMANDU, July 6: Amid deepening fuel scarcity, the government has renewed its push to liberalize petroleum sector and finalized the Petroleum Products and LP Gas Bill that envisages ending over three decades old state monopoly in the sector.

The new bill broadly categorizes petroleum business into three groups -- refinery business, finished oil imports and liquefied petroleum gas (LPG) import and marketing -- and welcomes private sector into the business.


Interestingly, it has specified a hefty paid-up capital requirement for the aspirant players though. Private players aspiring to import crude and operate refinery will need to invest paid-up capital of Rs 20 billion, the bill says.

Those eyeing to import and trade refined products will need paid-up capital of Rs 10 billion, while LPG importers and bottlers also will need to have paid-up capital of Rs 3 billion.

This means the government will need to raise the paid-up capital of Nepal Oil Corporation -- the state-owned monopolist -- to Rs 10 billion, if the bill is endorsed by parliament. Its paid-up capital presently stands at Rs 96.7 million. Existing gas bottlers to will need to adjust their capital requirement accordingly.

“The huge capital requirement has been provisioned just to make sure that only competent and quality players jump into the business. If private players teamed up with foreign investors with technical know-how, it will be even better,” said a member of the bill drafting committee.

Given the volume of oil business, which is estimated to cross over Rs 100 billion in the next five years, the Ministry of Commerce and Supplies (MoCS) reckons that Nepal can effectively sustain only two private players, apart from NOC.

“Loose paid-up capital requirement, on the other hand, could open gate for a large number of unscrupulous traders. This has hurt the industry as well as consumers dearly,” said the source.

The bill also envisages ending regulatory function of NOC and moots establishment of a seven-member Nepal Petroleum Authority (NPA) to monitor and regulate the sector.

“The government will appoint the chairman and four members, including two technical members, on the recommendations of a recommendation committee to be headed by the Chief Secretary,” reads the bill.

Joint-secretaries of the Ministry of Law and Justice and MoCS, meanwhile, will be ex-officio members, while executive director will function as its member-secretary.

The authority has been entrusted with the responsibility of defining specification of petroleum products and LPG; setting quality standard; monitoring the operations of companies; formulating and enforcing policy, plans and programs; devising pricing mechanism; ensuring competition; setting up norms and regulations for petroleum and LPG retailers, and protecting interest of general consumers.

While ensuring smooth supply of fuel too has been included in its responsibility, the bill also categorically bans strike and other activities that obstruct import and distribution of petroleum products and LPG in the country. In case of defiance, it provisions up to Rs 500,000 in fine and jail term of three years. It also specifies up to six months jail term for players supplying substandard fuel or creating artificial shortage in the market.

Apart from other stringent punishment for wrongdoers, the bill also empowers the authority to instantly scrap operating licenses of the companies that are found engaging in anti-competitive practices and flouting the bill´s provisions.

Despite all efforts, the draft committee, however, has failed to incorporate a clear provision on deregulation of prices in the new bill. Instead, it says the government will form a commission to review the domestic prices of petroleum products and LPG at appropriate times.

“And the commission can set prices considering the demand of consumers,” reads the bill, indicating that the government is still reluctant to open the prices.

As state-regulated prices, which has been inflicting huge loss to NOC, has remained one big obstacle to petroleum sector liberalization, officials doubt the bill will actually help the sector attract private sector investment with such a loose pricing provision.