Go easy on Nepal's oil dues, MEA tells Deora

India fears rise in petro prices may again destabilise the country.

The external affairs ministry has asked the petroleum ministry not to pressure Nepal for collecting the money it owes to Indian Oil Corporation (IOC).

Citing the "extraordinary political situation" in Nepal, Foreign Minister Pranab Mukherjee has written to Petroleum Minister Murli Deora, appreciating the problem of collecting the mounting dues from Nepal Oil Corporation (NOC) since 2005.

The MEA has now advised the petroleum ministry to work the issue into the new contract that will be finalised between the national petroleum corporations of the two countries in April this year.

"We are fully conscious of the commercial aspects of the problem" the letter says, but adds that India should be reasonable. "It does need to be borne in mind that IOC has benefited from being the exclusive supplier to NOC for the last 33 years. Except for the last two years, this arrangement has worked well and has brought commercial benefit to IOC", the letter says.

In January this year, IOC had threatened to cut fuel supplies to Nepal by 30 per cent if NOC did not pay an extra Rs 15 crore each month to clear the dues. Till the end of December 2006, NOC owed IOC Rs 339.64 crore, for the purchase of 0.75-0.8 million tonnes of petro products each month.

NOC, however, could not even recover the import costs because the Nepal government kept the retail prices stagnant. IOC then started deducting Rs 20 crore against the monthly payment. This led to a modest reduction of dues.

After an interim government took over in Kathmandu after weeks of instability, the MEA felt that the destabilisation of oil prices would create conditions for a royalist opposition to return to power.

India's intervention has had a salutary effect on the finances of NOC. Following four years of losses, it made a hefty profit this February, in part because of fluctuations in the international price of petroleum.