Article_Mini Research Economics Ver 3 2011-06-18

8/2/2019 Article_Mini Research Economics Ver 3 2011-06-18

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Price Discrimination a Solution for

the Perennial Problems faced by

Nepal Oil Corporation

Submitted toProf. Dr. Devi Bedari

Submited by

Anit Datta

Rabin Shrestha

Rupesh K. Shrestha

Sabin Panta

OnJune 18th, 2011


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Executive summary:

We examined the current pricing mechanism of different petroleum products of Nepal Oil

Corporation on the basis of data provided in their website. We discover substantial deficit in

tax revenue collection from NOC in comparison to the subsidy provided to them by the

government. To address and minimize this deficit we have proposed two alternatives of price

discrimination by segregation of end users of diesel in the transportation and non transportation

sectors and household(domestic use for cooking purposes) and commercial sectors (mainly

industrial uses). Our analysis shows substantial reduction in the subsidy after the price

discrimination strategy is implemented based on segregation of groups.

Key words: NOC, Price Discrimination, Oil, Subsidy


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Background:

Nepal Oil Corporation (NOC) was established in January 1970 by the Government of Nepal as

a state-owned trading company to deal with the import, transportation, storage and distribution

of various petroleum products in the country. With its fuel depots and aviation fuel depots in

various different parts of the country, it has a total storage capacity of 71,558 kilolitres (KL)

(NOC, 2011). There are around 600 employees working in its headquarter in Kathmandu and

various branch offices in different locations in the Nepal.

Nepal is a land locked country bordering three sides by India and the northern part of snow fed

Himalayas by Tibet/China. Nepal does not produce any petroleum products and depends totally

on imports in the refined form, as it does not have any oil refinery. NOC is the soleorganization responsible for the import and distribution of petroleum products through 1500

retail outlets throughout the country owned by the private sector (quote).

Nepal is becoming more dependent on oil for meeting its energy requirement. The demand of

petroleum products like MS, HSD, SKO, ATF and LPG1 is about 1.2 million ton (MT) per

annum, with annual increase by 20% (NOC, 2011). Petroleum products constitute about 11%

of total energy consumed in Nepal (NOC, 2011).

The nearest port for importing petroleum products in Nepal is about 900 km far, which is

Haldia (Kolkata), India. The transportation from nearest sea port to Nepal is the main constraint

in the import of POL from a third country. All the petroleum products consumed in Nepal are

procured and imported from India's, Indian Oil Corporation (IOC) under a 5 five-years'

Contract Agreement signed on 31st March 2007. NOC procures petroleum products as per its

requirement from IOC's six nearest refineries and depots situated in the eastern and northern

part of India. The transportation from IOC locations to NOC depots and to retail outlets is done

by tanker trucks. To meet the increasing demand, a MOU between IOC and NOC for

construction of cross border Petroleum Product Pipeline from IOC's depot to NOC's depot in

the central region is under way. (quote)

Current status:

Analyzing Analyses of the its financial reports show that, NOC operates at a heavy loss, which

1 MS (Motor Spirit, i.e. Petrol ); HSD (High Speed Diesel); SKO (Superior Kerosene Oil); ATF (Air Turbine Fuel); LPG

(Liquefied Petroleum Gas)


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increases with the increase in import and distribution. The most critical problem it faces is

inadequacy of cash flow. The government does not allow NOC to adjust the upward price with

increase in the international POL (stands for?) pricing. As a result, NOC, faces acute problem

of managing cash flow especially when the price goes up in the international market and the

government is unwilling to adjust price accordingly. However, it is not easy for the government

to increase the prices as it entails not only economical reasoning, but also political

considerations. The political considerations overshadowing economic justifications are the

main reasons why the prices of petroleum products have not responded appropriately to the

price structure of the international market. The pricing of petroleum products, especially diesel

and kerosene, has been a sensitive issue in Nepal. The upward revision in pricing of these items

has always attracted negative reactions leading to political and social dissatisfactions.

Consumers in the remote areas of the country have to pay more prices for kerosene, due to

heavy cost incurred in transportation of the product. In these areas, kerosene is used mostly for

lighting, and some for cooking, including cooking in the restaurants and hotels.

Kerosene and petrol have almost equal production costs and in most countries they are priced

almost the same. In Nepal kerosene is cheaper than petrol, due to the subsidy given by the

government. Kerosene is considered as a fuel consumed by the poor for cooking purpose. But

the subsidy on kerosene has rather benefited the rich more than the poor. Petroleum subsidies

tend to be inefficient in part because they are poorly targeted (Baig, Mati, Coady, &

Ntamatungiro, 2007). The higher the household income, the higher is the subsidy, because

higher-income households consume larger quantities of petroleum products and thus benefit

relatively more from subsidies (Baig, Mati, Coady, & Ntamatungiro, 2007). Moreover, many

transporters in Terai use kerosene as fuel in their vehicles especially in heavy vehicles like

trucks & tractors and enjoying the benefit of cheap kerosene.

Consumer activists are demanding dual pricing a cheaper one (less than the actual cost) for

the poor and expensive one (more than the cost price) for the rich - by adopting the ration card

system that India has been using; however, the experts do not see this idea as practical. An

effort by Salt Trading to use ration card system for kerosene in 2010 did not work out. As such

a system has proved to be a breeding ground for corruption in India, the economists and other

experts in this field are strongly against this idea (www.economist.com).

The petroleum prices in Nepal are kept in close proximity to that in India to avoid the chancesof cross border smuggling. The prices in India were fairly stable, and it was possible for Nepal


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to follow the Indian pricing pattern in the past. Currently, India has deregulated the petroleum

industry and with this deregulation a fortnightly price adjustments have been implemented.

This has affected NOC considerably. The sensitive political issue regarding the petroleum

pricing for the government and the frequent adjustment of petroleum prices in India has made it

is very difficult for NOC and the Nepali government machinery to respond quickly to the price

hikes in India and avoid huge losses. Due to the decrease in cash flow, which usually is spurred

by net losses incurred by NOC, the usually response of NOC is to curtail volume of the import

of petroleum products. This phenomenon has lead to the massive scarcity of petroleum

products in the past. Most of the time, whenever there is a short supply, a typical government

response is to form a committee to evaluate the current status of NOC and recommend future

course of action including pricing mechanism. Since 2050 B.S. several committees were

formed and very few recommendations from these individual committees were implemented.

The current situation of NOC including the monopoly in oil supply and full ownership of the

government is likely to continue, unless some economic intervention is made.


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Purpose:

The problem in broad terms is the recurrent shortages in supply of petroleum products in Nepal

managed by a firm that operates at a loss most of the time.

The main purpose of this paper is, therefore, to investigate the current pricing structure of

different petroleum products of NOC and make a suitable recommendation to avoiding the

perennial problem. at the company. As mentioned above, tThe current situation mentioned

above is likely to continue as the government which meanscontinues to be un-willingness of

the government to adjust the price based on international market. This will means a definitely

result cash flow problem for the NOC in future which willand ultimately lead toa short supply

of the oil petroleum products in Nepal. Therefore, rather than pressing for an adjustment to

international market, it is prudent to analyze the current pricing structure of NOC.

Our analysis focuses on the following areas:

i. The current pricing structure of petroleum products.

ii. Cost and benefit of the tax collection from NOC and subsidy provided to NOC.

iii. A new pricing mechanism.

Pricing structure, tax collection and subsidy:

The current pricing structure of different petroleum products (as shown in Ttable: 12) of NOC

shows losses in petrol, diesel, kerosene and LPG. The losses against price per liter are 7%, 34%

and 16% for petrol, diesel, and kerosene respectively. NOC appears to bear 22% of loss against

a price it charges for one LPG cylinder. In terms of the total losses in rupees, major losses is are

incurred in diesel followed by LPG, petrol and kerosene. Fuels for aviation are sold at a slight

profit margin.

The pricing structure also includes government taxes including VAT. A comparison betweentax collection and subsidy given by the government gives an interesting insight. On April 1,

2011, the government collected tax revenue of NPR 1.61 billion from NOC, and gave it a

subsidy of NPR 1.96 billion. A deficit for the government was NPR 350 million. On June 1,

2011 the government collected NPR 1.62 billion in tax revenue from NOC, but gave a subsidy

of NPR 1.34 billion, earning a surplus of NPR 280 million. These figures clearly indicate the

irrationality on the part of the government to provide subsidy to NOC when we compare it with

the tax revenue.


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In India, if we look at the figure of 2008, Indian Oil IOC was running at losses of $76 million a

day, and would run through its line of credit of $21.4 billion by July 2008 (Bloomberg.com).

That's because the Indian government insisted that Indian OilIOC subsidize all the gasoline,

diesel, and cooking oil it sells, so much so that prices were a third cheaper at the a pump in

India than they were in the U.S. Since the oil it purchases purchased abroad wais more

expensive than what it sellsold at home,. Indian OilIOC basically loses lost money every time it

makes made a sale. This situation has improved a bit after the hike in the oil prices in 2010 by

13%, but the main problem still exists. This example of India also highlights the need to reform

oil pricing in Nepal.

The sales data (see table: 2) and chart of FYs 1993/94 to 2009/10 (Figure: 1),

shows unprecedented increase in sales of diesel and swift decline in kerosene. In

these petroleum products NOC incurs huge losses. Some of the reasons for the

trends can be attributed to the following:

In 2000, a year before the sales of kerosene, kerosene used to cost Rs 13 per liter and

diesel Rs 23 per liter (www.noc.gov.np). This difference used to be a big incentive for

some dealers to mix kerosene into diesel. Although, it is difficult to verify, the dealers

were alleged to have mixed as much as 25% kerosene with 75% diesel. However, as the

price gap between kerosene and diesel started to narrow, the incentive declined, and so

did the consumption of kerosene.

The increasing use of generators to avoid longer hours of load-shedding has also

resulted in substantial increase in demand of diesel in both manufacturing and service

sectors of Nepal.

The use of diesel in agriculture sector has also increased substantially due to the

increasing trend of using diesel water pumps.

The booming construction sectors especially the housing sector has led to the increase

in the use of trippers to transport construction materials. The trippers are fueled by

diesel.

Nepal governments policy to subsidize petroleum products especially diesel, LPG and

kerosene is in line with the intention to provide greater benefits to the economically

marginalized population. But the question arises if this subsidy is really benefittingbenefiting

the indented end users or a different segment of users that are already well-off to do in the


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society and would not require a subsidy to consume these products. In this project we will try

to accommodate such discrepancies that existsdiscrepancies that exist, due to which the nation

at large is facing mass shortages of petroleum products..


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Alternative pricing models:

We propose two an alternatives of to the current pricing mechanism for by NOC. The

alternative uses the concept ofBesides the above discussion, the proposal takes into account the

following facts:

Only about 31.3% of total consumption of diesel per month is in the road sector diesel

fuel consumption (World Bank report 202 MT per year, i.e. 244,420 KL2 of oil

equivalent).

The subsidies on diesel and LPG are for all sectors including household, industrial and

service sectors.

The analysis is based on monthly volume and the base date is April 2011

First alternative:

This first alternative that we propose is to use the f first degree price discrimination. The

approach is to charge different prices for diesel and LPG products for different groups of

consumers. The price discrimination is not based on different utility functions of the groups,

but based on the equitable use of subsidy. Subsidies in diesel and LPG are intended for

transportation and household consumption respectively, because cost of fuels that in

transportations of goods and cooking aeffects the livelihood of a common man.

Table 2 shows that the total monthly loss in April 2011 was Rs. 1.96 billion. It is safe to

assume that NOC incurs loss in most of the months. Such recurrent losses have been attributed

as the cause of the shortage of the supply of petroleum products by NOC. Any price

discrimination that does not address this issue will not solve the problem of short supply.

Therefore, we propose to discriminate prices so that the total profit/loss is at least zero.

Table 4 shows the result when the above proposed model is imposed on the sales of petroleum

products in April 2011 (Table: 2). The following assumptions were made in the model:

The total consumption of diesel per month in the road sector diesel fuel consumption is

31.3% (based World Bank report3) which comes to 20,370 KL for transportation sector

and 47,630 KL for non transportation sector.

Since there is no data available for t he consumption of LPG in household cooking and

commercial use, it is equally distributed between the two sectors.

The retail price of diesel for transportation sector and th ose of LPG for household

2 1 MT = 1,000 Ton; 1MT (of HSD) = 1.210 KL

3 202 MT per year, i.e. 244,420 KL/ year; 1 MT = 1,000 Ton; 1MT (of HSD) = 1.210 KL


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cooking and kerosene remain the same; however the rest of the prices are subject to

change.

The total profit/ loss of NOC is set at zero, which implies that the firm is at break even.

The table below shows that the retail prices of diesel (for non-transportation sector) and LPG

for (non-household cooking) increased by 50% and 36% respectively. However the retail prices

of petrol, aviation fuel (domestic) and aviation fuel (international) increased only slightly.

Table 4: Change in prices imposed by model

Table

Impact Analysis:

The subsidized diesel price will lowermaintains the cost of operation for transportation

companies at the current rate, (since most of the trucks that carry goods run on diesel engines).

The lower transportation cost will lowers the prices of foods and groceries items. Hence, the

subsidy will continues to have a positive impact on the mass. Whereas the

commercial/industrial sector that uses diesel and LPG as a source of fuel will now have to pay

more for the fuel. It does not make sense for the government to provide subsidized diesel and

LPG for profit making companies and collect a tax on their earning. It is also safe to assumethat for these companies the fuel constitute small portion of their cost structures.

Since the model assumes break even situation, NOC does not face cash crunches and therefore

roots out the cause of short supply. Any other intervention that reduces cost or increases

revenue leads to profit for NOC.

The price discrimination, if implemented, would result in substantial reduction in the subsidy

burden by around Rs 1.27B, and increase in the revenue for the government by Rs. 927Mill,

which ensures the governments tax revenues and also solves the cash flow problem for NOC.

Second alternative:

In this model, we proposed equal distribution of monthly sales volume of diesel to both

transportation and non transportation sectors. Accordingly, we proposed the same pricing as

first alternative (i.e. Rs. 68.50 per liter in diesel for transportation sector and Rs. 90 for non

transportation sector). The price discrimination of LPG gas is same as first alternative (see

Table No. 4).

Impact Analysis: The recommendation, if implemented, would result in substantial reduction


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in the subsidy burden by around Rs 964Mill and increase in the tax revenue for the government

by Rs. 651Mill.

Interpretation:

In our proposed model, the main focus is on the segregation of different end users of petroleum

products and the impact on subsidy vis a vis tax collection. We showed that, if government can

scientifically segregate the end users of diesel and LPG gas, it can save substantial amount of

subsidy.

Limitation and further studies:

The study has not considered the administration cost and the leakage cost to implement price

discriminate. The estimated administrative cost was Rs 56 million during the month of April,

which is around Rs. 675 million a year. The technical loss is another area where NOC is

incurring considerable loss i.e. Rs. 60 million a month and around Rs.720 million a year.

Needless to say, these costs have a direct impact on the price of the petroleum products.

Similarly, we have not included the price of petroleum products of the border areas of Nepal

with India. Any substantial differences of prices in Nepal and border part of India will have

direct impact on the supply of the products. If the price of petroleum products in the border

towns of India are more than that in the border town of Nepal, there is a high chance that

outflow of these products to India is inevitable.

These are the areas where further study will require analyzing the impact on the prices of the

petroleum products.

Implementation of the price discrimination:

The success of any price discrimination lies in its implementation. The implementation of Tthe

price discrimination needs to be planned carefully and should broadly be done through can be

implemented in twothree distinct phases:

First Segregation Phase: This phase includes dividing consumers into the following four

Segregate group as follows:

Transportation and non transportation sector for diesel users

Household and non household sector for LPG users

This phase is politically sensitive and difficult to implement. Different interest groups will put

pressure on the government to include them within the favorable group i,e. within household


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group or transportation group. Another challenge of segregation of group is the formulation of

eligibility criteria. It may take longer period i.e. more than probably a year so to finalize

segregation due to the sensitivity of the issue. The government use population census data has

two options to formulate the eligibility criteria.

i.Taka data from population census report of 2058.

ii.As the new population census is going to start very soon, government may wait to get

final report and start segregation after the report.

Second Implementation Pphase: Discriminate the price as per the alternatives as above once

the segregation of group is completedThis phase begins after the segregation phase is over.

Though the above model uses the sales data of a month, it may not be practical for NOC to

readjust prices so often. It can project sales of extended period and use the model.

Evaluation/ Control Phase: This phase should begin from the day the price discrimination is

implemented. This requires that indicators that would be used for the evaluation be identified in

advance. The indicators need to measure the extent of cross-selling of diesel and LPG from

subsidized sectors to non-subsidized sectors. NOC will need to chart out corrective actions in

the event of this inevitable phenomenon before the implementation phase. This phase should

mainly be used to focus on the evaluation of the effectiveness of pre-identified corrective

actions, than to come up with brand new corrective actions. NOC will not have time to wait for

the inevitable problem of cross-selling to arise, as some black marketers will have started

laying networks as soon as they get the hint of price discrimination and long before NOC

actually implements it.

Increase in consumption of diesel and LPG by subsidized sectors and corresponding decrease

in their consumption by non-subsidized sectors will be a good indicator of cross-selling.


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Limitation and further studies:

Every element that constitutes the cost and prices of the petroleum products could be a subject

of research and economic modeling. This study has limited itself to the re-adjustments of

market prices keeping the firm at breakeven. The study has not, for example, considered

addressed the cost of inefficiency that seeps into administration cost and the technical (leakage)

costs. to implement price discriminate. The estimated administrative cost was Rs 56 million

during the month ofin April 2011, which comes to is around Rs. 675 672 million a year. The

technical loss is another area where NOC is incurring considerable loss i.ein the same month

was. Rs. 60 million a month and which adds up to around estimated Rs.720 million a year.

Needless to say, these costs have a direct impact on the prices of the petroleum products.

Higher prices of diesel and LPG imposed on non-subsidized sectors create an incentive for

black marketers to import cheaper diesel and LPG through open boarder between India and

Nepal. Similarly, we have not included the price of petroleum products of the border areas of

Nepal with India. Any substantial differences of prices in Nepal and border part of India will

have direct impact on the supply of the products. If the price of petroleum products in the

border towns of India are more than that in the border town of Nepal, there is a high chance that

outflow of these products to India is inevitableThe implementation of the pricing model should,

therefore, be supplemented by a stringent regulation of cross-border trade.

The sales data (Table: 2) and chart of FYs 1993/94 to 2009/10 (Figure: 1), show unprecedented

increase in the sales of diesel from 2008 and swift decline in kerosene. In these petroleum

products NOC incurs huge losses. Some of the reasons for the trends can be attributed to the

following:

In 2000, a year before the sales of kerosene, kerosene used to cost Rs 13 per liter and diesel Rs

23 per liter Until Nov 2008, diesel used to be priced higher than kerosene (www.noc.gov.np).

This difference used to be a big incentive for some dealers to mix kerosene into diesel.

Although, it is difficult to verify, the dealers were alleged to have mixed as much as 25%

kerosene with 75% diesel. However, as the price gap between kerosene and diesel started to

narrow from 2001 (Figure: 2), the incentive declined, and so did the consumption of kerosene.

The price of diesel for non-subsidized sector will be higher than the price of kerosene. This is

likely to increase the adulteration of diesel with kerosene. A further research will be required to

address this issue in the proposed model.


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The pricing structure also includes government taxes including VAT. A comparison between

tax collection and subsidy given by the government gives an interesting insight. On April 1,

2011, the government collected tax revenue of Rs. 1.61 billion from NOC, and gave it a

subsidy of Rs. 1.96 billion (source). A deficit for the government was Rs. 350 million. On June

1, 2011 the government collected Rs. 1.62 billion in tax revenue from NOC, but gave a subsidy

of Rs. 1.34 billion (source), earning a surplus of Rs 280 million. These figures clearly indicate

the irrationality on the part of the government to provide subsidy to NOC when we compare it

with the tax revenue. A separate study will be required to analyze the disparity. A debate on

the benefit of subsidy as compared to tax collection can be initiated to find a solution for the

problem of revenue and or profit for NOC.


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Discussion & Conclusion

Pricing of petroleum products is a sensitive issue all over the world especially for developing

and underdeveloped countries. The debate of deregulation of oil prices existed since 1970s

mainly for those countries that controls the supply of the oils in their countries. Most of the

developing and underdeveloped countries; subsidy play a dominate role while fixing the price

of oils. However, the debate of benefit of subsidy as compared to tax collection is again the

matter of dispute among these countries.

Subsidies in China, India, Mexico and Indonesia have kept domestic oil prices low. Developing

nations have recently been protesting oil price subsidies, saying that these are contributing to

the growing global demand for oil and preventing prices from easing. The largest oil price

subsidies in the world are provided by the developing economies of China, India, Mexico and

Indonesia. Some analysts argue that these oil subsidies are responsible for the growing demand

for fuel in the emerging economies. Countries that do not provide any subsidies, such as the US

and the UK, have seen a downturn in demand over the past few years, while China and India

contribute significantly to the global demand for oil.

Protests by the US and other developed economies against oil price subsidies in Asia and the

emerging economies are based on the fact that these developed nations are paying more for

their oil due to the absence of subsidies. Unfortunately, the problem with oil price subsidies is

that once they are put in place, it is political suicide for any government to repeal them. While

developing nations argue that subsidies are the only way the poorer sections of the population,

such as the farming community, can be helped, oil price subsidies play a crucial role in keeping

oil prices high across the world.

In India, the introduction of differential subsidies and taxes on various products led to a

mis-utilization of selected petroleum products and a burgeoning demand for subsidized

Petroleum products, which had to be met increasingly through imports. The large subsidy

on LPG combined with that on kerosene and the historical subsidy burden contributed by

diesel together with infrequent adjustments to pooled prices and a mismanagement of the

pool account built up a deficit of $4.42 billion (Rs 184.4 billion) by 1997-98, $6.5 billion in

1998-99 and almost $14 billion in 2000 (LPG subsidy in India, Center for Energy Economics)..

In April 2002, the government of India has announced that subsidies for all petroleum based


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products would be phased out except for LPG and kerosene which the government pledged

would see their subsidies phased out within a 3 to 5 year period. LPG and kerosene are used as

domestic cooking fuels by a large portion of the population.

As per the government policy of 2003, the subsidy component by the government has remained

constant since 2004-05 at Rs 22.58 per per LPG cylinder and Rs 0.82 per litre of kerosene. The

balance subsidy is provided by the marketing companies from their own pockets. The Indian

government has provided an outlay of 236.4 billion rupees ($5.3 billion) for fuel subsidies in

the next fiscal year, less than an estimated 383.86 billion rupees for the current fiscal year,

according to the budget. (www.businessweek.com/.../mukherjee-signals-costlier-oil-may-boost-

india-subsidy-bill.html) -

In view of other countries experience and current condition of NOC, the government has very

little option rather than deregulate the oil pricing. The country cannot afford subsidizing oil

price for long given the fact that it imports 100% oil to meet the domestic demand. Due to the

ballooning trade deficit with India and limited foreign currency reserve, sooner or later it must

allow private sector to come into the picture thereby reducing the monopoly of NOC. Parikh

Committee India also suggests that at current levels of prices of petrol, diesel, PDS kerosene

and domestic LPG, the financial burdens on the companies as well as on the government will

be unsustainable.

But for a country like Nepal, deregulating the price should be based on clear long term policy.

The long term policy should be open oil market for the private sectors which will ensure the

demand and supply and fix the price accordingly. However, to reach that point, government

should formulate careful strategy. The first degree price discrimination as proposed above

should be the first step of deregulation. The next steps would be to reduce the subsidy and

improve the functioning of NOC by cutting down its costs, allow private sectors to operate in

the oil market and slowly deregulate the oil price.

A viable and sustainable pricing system for petroleum products is a key requirement of stable,

long-term growth of the economy. Similarly, a financially strong and globally competitive oil

market provides an enduring platform to strengthen energy security of the country. It is

therefore important that private sectors should have the freedom to set prices based on

competitive market conditions. The government needs to extend subsidy to the targeted


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consumers in such a manner which does not impinge on the freedom of oil companies to set

prices in the market place.


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Kerosene

Diesel

Annex

Figure 2: Sales of petroleum products (all except LPG in kiloliters, LPG in metric ton)Source:


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Price Differences of Diesel & Kerosene

0

2

4

6

8

10

12

4/4/1996

10/4/1996

4/4/1997

10/4/1997

4/4/1998

10/4/1998

4/4/1999

10/4/1999

4/4/2000

10/4/2000

4/4/2001

10/4/2001

4/4/2002

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4/4/2007

10/4/2007

4/4/2008

10/4/2008

4/4/2009

10/4/2009

4/4/2010

10/4/2010

Dates

Rs.perlitr

e

Figure 2: Difference in retail prices of diesel and kerosene per liter

Source: www.noc.gov.np


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Table 4: Pricing structure of petroleum products in Nepal

Petrol* Diesel* Kerosene* Aviation* Aviation

Intl*

LPG per

cylinder

16th April 2011 purchase price fromRaxaul

64.67 73.08 71.32 63.55 63.55 1,167.52

All govt. taxes including VAT 30.90 12.42 2.04 12.73 0.27 212.07

Interest expenses 0.98 0.90 0.76 0.77 0.66 14.08

Transportation & insurance expenses 1.85 1.85 1.85 1.85 1.85 105.81Administration expenses 0.50 0.50 0.50 0.50 0.50 7.10

Technical loss 0.88 0.56 0.47 0.57 0.49 1.39

Dealer commission 2.47 1.75 1.97 - - 56.00

Dealer expenses 1.06 0.69 0.84 - - 49.89

TOTAL COST 103.31 91.75 79.75 79.97 67.32 1,613.86

KTM retail price 97.00 68.50 68.50 90.00 77.40 1,325.00

Profit/loss per liter (6.31) (23.25) (11.25) 10.03 10.08 (288.86)

Monthly sales vol. 16,000.00 68,000.00 4,500.00 2,500.00 6,500.00 1,100,000.00

PROFIT/LOSS 2011 APRIL (100,960,000.00) (1,581,000,000.00) (50,625,000.00) 25,075,000.00 65,520,000.00 (317,746,000.00)

* Rs. per liter

Source: www.noc.gov.np
http://www.noc.gov.np/http://www.noc.gov.np/


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Table 4: Sales of Petroleum Products [in KL except LPG]

FiscalYear PETROL DIESEL KEROSENE ATF LDO FO

LPG inMT MTO

1993/1994 31061 195689 162157 30650 1530 27319 9308 0

1994/1995 34983 226622 180900 37524 3794 32003 13049 0

1995/1996 41193 250500 208715 40619 4449 18293 18600 0

1996/1997 44709 257910 243810 47864 1983 17296 21824 108

1997/1998 46939 300604 282026 51412 967 27776 22961 108

1998/1999 49994 315780 294982 55549 547 33860 25019 132

1999/2000 55585 310569 331120 56849 3989 26811 30627 132

2000/2001 59245 326060 316381 63131 3416 20934 40102 132

2001/2002 63271 286233 386592 47453 2413 18255 48757 120

2002/2003 67457 299973 348620 52839 610 14496 56079 48

2003/2004 67586 299730 310826 64041 577 12653 66142 36

2004/2005 75989 315368 239328 66825 88 2696 77594 0

2005/2006 80989 294329 226637 64335 290 3695 81005 0

2006/2007 101912 306687 197850 63778 179 4558 93562 0

2007/2008 100842 302706 155216 68938 306 2919 96837 0

2008/2009 124169 446468 70089 68935 377 2171 115813 0

2009/2010 162275 612505 55788 82631 238 2589 141171 0
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Table 4: Price Discrimination Model with the Road Sector Diesel Fuel Consumption Data from World Bank

PETROL per liter

Diesel per liter w/

price discrimination Diesel per li ter Kerosene per li ter

Aviation fuel per

liter

Aviation fuel for

international

LPG per cylinder

w/ price

discrimination LPG per cylinder TOTAL

16th April 2011 purchase

price from Raxaul 64.67 73.08 73.08 71.32 63.55 63.55 1,167.52 1,167.52

All Govt. taxes incl VAT 30.90 12.42 12.42 2.04 12.73 0.27 212.07 212.07 1,614,997,000.00

Interest Expenses 0.98 0.90 0.90 0.76 0.77 0.66 14.08 14.08 102,003,000.00

Transportation & Insurance

expenses 1.85 1.85 1.85 1.85 1.85 1.85 105.81 105.81 296,766,000.00

Administration expenses 0.50 0.50 0.50 0.50 0.50 0.50 7.10 7.10 56,560,000.00

Technicall loss 0.88 0.56 0.56 0.47 0.57 0.49 1.39 1.39 60,414,000.00

Dealer comission 2.47 1.75 1.75 1.97 - - 56.00 56.00 228,985,000.00

Dealer expenses 1.06 0.69 0.69 0.84 - - 49.89 49.89 122,539,000.00

TOTAL COST 103.31 91.75 91.75 79.75 79.97 67.32 1,613.86 1,613.86

KTM retail price 97.00 90.00 68.50 68.50 90.00 77.40 1,800.00 1,300.00

Profit/Loss per liter (6.31) (1.75) (23.25) (11.25) 10.03 10.08 186.14 (313.86)

Monthly sales vol. 16,000 47,630 20,370 4,500 2,500 6,500 550,000 550,000

PROFIT/LOSS 2011 APRIL (100,960,000.00) (83,352,500.00) (473,602,500.00) (50,625,000.00) 25,075,000.00 65,520,000.00 102,377,000.00 (172,623,000.00) (688,191,000.00)
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http://www.noc.gov.np/http://www.noc.gov.np/http://www.noc.gov.np/http://www.noc.gov.np/http://www.noc.gov.np/http://www.noc.gov.np/http://www.noc.gov.np/http://www.noc.gov.np/http://www.noc.gov.np/http://www.noc.gov.np/http://www.noc.gov.np/http://www.iocl.com/http://www.ongcindia.com/http://www.enerfaxgold.com/http://www.iocl.com/http://www.ongcindia.com/http://www.enerfaxgold.com/

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Article_Mini Research Economics Ver 3 2011-06-18