Nepal allowed to import petroleum products from third country

In a major policy shift, India for the first time has agreed to move beyond product exchange regime on petroleum trade and has allowed Nepal to import processed petroleum products from a third country, The Kathmandu Post daily reports on Tuesday.

However, the new accord sealed by Nepal Oil Corporation (NOC) and Indian Oil Corporation (IOC) on Friday categorically stated that NOC cannot deal with Indian firms other than IOC while importing petroleum products from India.

“Important development is that the new agreement includes an 'enabling clause' that allows NOC to directly import processed oil from third country without IOC's involvement,” Ichchha Bikram Thapa, NOC spokesperson was quoted as saying.

The new agreement has provisions, which aims to tighten business knots between the two firms, as IOC has agreed not to export petroleum products to parties other than NOC in Nepal.

The agreement came into effect from Sunday and will remain effective for the next five years. NOC officials said that the new agreement has also diluted the earlier mandatory clause, which sought NOC to provide value equivalent of crude oil to IOC for the processed oil supplied to Nepal.

“Now it is up to NOC to choose whether it wishes to hand over crude oil to IOC for the import of processed oil,” said Thapa.

Likewise, IOC has agreed to exempt customs duty paid in India to exports made to Nepal, which, according to officials, would lower NOC's monthly cost of fuel import by Rs 70 million on average. In the past, IOC was transferring customs duty paid while importing the product to NOC. It was contrary to duty-free petroleum supply facility agreement the governments of Nepal and India signed in 1971.

“The basic spirit of the new agreement remains intact with the past accords,” said Thapa, adding that the changes made in the latest accord has been worked out to ease past difficulties.

Of the major changes on payment arrangement, IOC has allowed NOC to clear the monthly import bill by the end of the month. Previously NOC was required to settle the account on the 15th of every month.
Likewise, NOC can now make the monthly payment in four equal installments. In the past, payment in installment was not allowed.

In case of default in payment, the new agreement mentions IOC will charge interest on the outstanding sum. “The rate will be same as lending rates of State Bank of India,” said the NOC official.

In another change, IOC has decided to generate provisional monthly import bill taking reference of import recorded on the previous month. Previously, such a bill was generated considering imports made two months back.

A senior official at Ministry of Industry, Commerce and Supplies said that the new accord has been devised more like a business agreement between two petro-firms, and not the agreement between two countries.

“Such an approach was taken considering the impetus given to the petroleum sector liberalization,” said the official.