Nepal Oil Corporation (NOC) has been making preparations to implement the automatic pricing mechanism to fix the market price of liquefied petroleum gas (LPG) too. Currently, the system is used to set petrol and diesel prices.

Spokesperson for the state-owned oil monopoly Mukunda Ghimire said they had started the paperwork to apply the auto pricing mechanism for LPG. The corporation decided to adopt the auto pricing mechanism bowing to pressure from various government authorities including the parliamentary Industry, Commerce and Consumer Welfare committee, NOC officials said.

Under the auto pricing mechanism, NOC fixes gasoline prices based on the tariff it receives from its sole supplier Indian Oil Corporation (IOC). The Indian corporation reviews petrol and diesel prices every fortnight while kerosene, aviation fuel and LPG prices are revised every month. Presently, LPG costs Rs1,400 per cylinder weighing 14.2 kg. According to Ghimire, NOC has reached the break-even point with regard to LPG after having incurred losses for the last few years.

NOC has been providing subsidies on LPG which reached a maximum of Rs1,043 per cylinder in January 2013. “As a result, the enterprise suffered losses of Rs1.5 billion monthly,” said Ghimire. The corporation’s debts had swelled to more than Rs36 billion then mainly due to this reason, he added.

Ghimire said NOC posted a maximum profit of Rs80 per cylinder during the period mid-April to mid-May. In recent days, NOC’s losses in its LPG business have fallen following a plunge in oil prices in the international market. Oil had dropped to as low as $27 per barrel a few weeks ago.

NOC first adopted the auto pricing mechanism on September 29, 2014. With the system in place and falling petroleum prices in the world market, NOC has been making decent profits. Its monthly profit came to Rs418.7 million as of mid-March.

NOC makes a profit of Rs17.54 per litre of petrol and Rs15.81 per litre of diesel. Similarly, it makes a profit of Rs26.80 per litre of kerosene and Rs29.46 per litre of aviation fuel. This has allowed the corporation to slash its debt burden from more than Rs36 billion to Rs9.64 billion in the last one and a half years.

Despite adopting the auto pricing system for petrol and diesel, NOC has not revised their prices in the past few months. It has not done so citing shortages and price differences between the Indian and Nepali markets as it could lead to black marketeering.

Meanwhile, the corporation has amassed Rs2.81 billion in its price stabilising fund which will be used to subsidize oil prices if the cost should rise. NOC puts 0.5 percent of the retail price of gasoline in the fund.