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A Seminar Paper

on
Supply Chain Management of Nepal Oil Corporation

Submitted by:
Rabi Ranjan Patel
Birgunj Public College
PU Regd. No.

Submitted to:
Office of the Dean, Faculty of Management
Purbanchal University, Biratnagar

Birgunj,Nepal

December, 2016
DECLARATION

I Rabi Ranjan Patel declare that this thesis entitled Supply Chain Management of Nepal Oil

Corporation submitted in partial fulfillment of the MBA Degree, the Faculty of Management,

Purbanchal University is my original work carried out under the guidance of Dr. Uttam Regmi,

and has not been submitted anywhere for the award of any other degree or commercial purpose.

In keeping with the ethical practice in reporting scientific information, due

acknowledgements have been made wherever the findings of others have been cited.

Rabi Ranjan Patel.

PU Reg.No:
ACKNOWLEDGEMENTS

I am heavily indebted to my supervisor respected Dr. UttamRegmi without whose

guidance, encouragement and creative suggestions, this seminar paper would have been

incomplete. Despite the scarce time available to him, he was always there to guide me.

At this opportunity, I cannot forget to pay honor to Mr. Binay Shrestha and Dr. Deepak

Shakya and all my teachers and staffs of Birgunj Public College whose worthy cooperation and

inspirations made me qualified for holding Masters Degree and dare undertake this dissertation.

I apologize for any errors in this seminar paper ize for any errors in this seminar paper.

Thank you.

Rabi Ranjan Patel

Birgunj, Nepal
ABBREVIATIONS

CEO Chief Executive Officer

CIT Citizens Investment Trust

DFR Detailed Feasibility Report

EPF Employees Provident Fund

GOI Government of India

GON Government of Nepal

IOC Indian Oil Corporation

KL Kiloliters

LPG Liquefied Petroleum Gas

MOU Memorandum of Understanding

NBL Nepal Bank Ltd

NOC Nepal Oil Corporation

NTL National Trading Ltd

PDO Product Delivery Order

RBB Rastriya Banijya Bank

RBS Rastriya Beema Sansthan

SCM Supply- chain management


EXECUTIVE SUMMARY

Nepal, a land locked country, does not produce any oil and depends totally on imports in the

refined form. Nepal Oil Corporation is the sole organization responsible for the import and

distribution of petroleum products. This study is all about supply chain management of Nepal

Oil Corporation.

The study mechanism adopted in this study in order to find the supply chain management of

Nepal Oil Corporation includes the surfing from internet and obtaining required information

about Nepal Oil Corporation (NOC) Ltd. in terms of its upstream suppliers and downstream

distributors.

Nepal depends on India for the supply and distribution of various petroleum products as the

eastern, southern and western part of the country is attached with India. NOC's trading activities

is related with a special and long-term supply arrangement with Indian Oil Corporation Ltd.

It can be concluded from the observation and analysis which shows the supply chain

management of Nepal Oil Corporation that it is very necessary for the appropriate policy to be

adopted in order to ascertain smooth flow and distribution of petroleum products in different

parts of the country.

It is recommended to Nepal Oil Corporation that to maintain the required level of storage

facilities it has to constantly increase its storage facilities and it is necessary to understand and
analyze the distribution channel of Nepal Oil Corporation so that it could fulfill demand of
petroleum products in coming years.

Chapter I

INTRODUCTION

This chapter deals with background information of Nepal Oil Corporation Limited

(NOC) as well as includes objectives of the study, review of literatures, study

methodology, limitations of the study and organization of the seminar paper.

1.1: Backgroundof the Study

A least developed country landlocked between China and India, Nepal finds it difficult to access

international markets for the export and import of goods and services. Since the country does not

have crude oil sources to meet a rapidly growing national demand for petroleum products, it

depends on India for the supply of petroleum products. In 1974, Nepal signed a Memorandum

of Understanding (MOU) on Petroleum Supply with India, which has since governed the import

of petroleum products in Nepal.

The present study, Supply Chain Management of Nepal Oil Corporation (NOC) Ltd., is

related to upstream suppliers and downstream distributors of Nepal Oil Corporation

(NOC) Ltd. NOC deals with major petroleum products like MS, HSD, SKO, ATF and

LPG.

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. NC headquarter is in

Kathmandu, has five regional offices and also branch offices, fuel depots and aviation

fuel depots with total storage capacity of 71,622 kiloliters (KL) and around 600

employees.

1.1.1 Supply- chain management


Supply- chain management (SCM) can be defined as the configuration, coordination and

continuous improvement of a sequentially organized set of operations. The goal of

supply- chain management is to provide maximum customer service atthe lowest cost

possible. A customer is anyone who uses the output of a process. Therefore,the customers

satisfaction is important to any organization that is focused on customer service.The supply

chain may include internal divisions of the company as well as external suppliers that

provide input to a focal company .A supplier for this company has its own set of suppliers that

provide input(also called second tier suppliers). Supply chains are essentially a series of linked

suppliers and customers until products reach the ultimate customer.

In a supply-chain, a company will link to its suppliers upstream and to itsdistributors

downstream in order to serve its customers. Usually, materials, information, capital, labor,

technology, financial assets and other resources flow through the supply-chain.

Since the goal of the firm is to maximize profits, the firm must maximize benefits and

minimize costs along the supply-chain. The firm must weigh the benefits versus the costs

of each decision it makes along its supply-chain.


Supply Chain Strategy

Information Management
Supply chain planning

Supply Chain Management

Logistic Management
Procurement

Assets Management

Fig.1.1 Supply- chain management

1.1.2 Components of Supply- chain management

Supply chain management(SCM) is a process used by companies to ensure that their

supply chain is efficient and cost-effective. A supply chain is the collection of steps that a

company takes to transform raw components into the final product. The following are

five basic components of SCM.

1. Plan

2. Develop (Source)

3. Make
4. Deliver

5. Return

1. Plan

The first stage in supply chain management is known as plan. A plan or strategy must be

developed to address how a given good or service will meet the needs of the customers.

A significant portion of the strategy should focus on planning a profitable supply chain

management. This is the strategic portion of SCM. Companies need a strategy for

managing all the resources that go toward meeting customer demand for their product or

service. A big piece of SCM planning is developing a set of metrics to monitor the supply

chain so that it is efficient, costs less and delivers high quality and value to customers.

2. Develop (Source)

Develop is the next stage in supply chain management. It involves building a strong

relationship with suppliers of the raw materials needed in making the product the company

delivers. This phase involves not only identifying reliable suppliers but also planning methods

for shipping, delivery, and payment.Companies must choose suppliers to deliver the goods and

services they need to create their product. Therefore, supply chain managers must develop a set

of pricing, delivery and payment processes with suppliers and create metrics for monitoring and

improving the relationships. And then, SCM managers can put together processes for

managing their goods and services inventory, including receiving and verifying shipments,

transferring them to the manufacturing facilities and authorizing supplier payments.

3. Make

At the third stage, make, the product is manufactured, tested, packaged, and scheduled for

delivery. This is the manufacturing step. Supply chain managers schedule the activities necessary
for production, testing, packaging and preparation for delivery. This is the most metric-intensive

portion of the supply chain - one where companies are able to measure quality levels, production

output and worker productivity.

4. Deliver

Then, at the logistics phase, customer orders are received and delivery of the goods is planned.

This fourth stage of supply chain management stage is aptly named deliver.This is the part that

many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from

customers, develop a network of warehouses, pick carriers to get products to customers and set

up an invoicing system to receive payments.

5. Return

The final stage of supply chain management is called return. As the name suggests, during this

stage, customers may return defective products. The company will also address customer

questions in this stage.This can be a problematic part of the supply chain for many companies.

Supply chain planners have to create a responsive and flexible network for receiving defective

and excess products back from their customers and supporting customers who have problems

with delivered products.

Thus, to ensure that the supply chain is operating as efficient as possible and generating the

highest level of customer satisfaction at the lowest cost, companies have adopted Supply Chain

management processes and associated technology.


1.1.3 Key features of Supply- chain management

A supply chain is a set of three or more entities directly involved in the upstream and

downstream flows of products, services, finances and/or information from a source to a

customer.

1. Inventory management

With a supply chain package, companies can significantly improve the way they track and

manage their supplies of raw materials and components needed for production, finished goods to

satisfy open sales orders, and spare parts required for field service and support. This eliminates

excess and waste, frees up valuable real estate for other important purposes, and minimizes

related storage costs.

2. Order management

Supply chain can dramatically accelerate the execution of the entire order-to-delivery cycle by

helping companies to more productively generate and track sales orders. Supply chain also

enables the dynamic scheduling of supplier deliveries to more effectively meet demand, and

more rapid creation of pricing and product configurations.

3. Procurement

All activities and tasks associated with sourcing, purchasing, and payables can be fully

automated and streamlined across a companys entire supplier network with a supply chain

software package. As a result, businesses can build stronger relationships with vendors, better

assess and manage their performance, and improve negotiations to leverage volume or bulk

discounts and other cost-cutting measures.


4. Logistics

As companies expand globally, their supply chains become more and more complex. This makes

the coordination of the numerous warehouses and transportation channels involved quite a

challenging endeavor without supply chain software in place. With supply chain, businesses can

improve on-time delivery performance and boost customer satisfaction by achieving complete

visibility into how finished goods are stored and distributed, regardless of the number of

facilities or partners that participate.

5. Forecasting and Planning

With supply chain, organizations can more accurately anticipate customer demand, and plan their

procurement and production processes accordingly. As a result, they can avoid unnecessary

purchases of raw-materials, eliminate manufacturing over-runs, and prevent the need to store

excess finished goods, or slash prices to move products off of warehouse shelves. Therefore

supply chain management is an extension of the focus on customer service.

1.1.4 History of Nepal Oil Corporation

Nepal, bordered by India in three sides and the northern part by

Tibet/China,does not produce any oil and depends totally on imports in the refined form.

NOC is the sole organization responsible for the import and distribution of petroleum products.

Nepal Oil Corporation ( NOC) Ltd. was established in 26thPoush 2027 B.S. under the

Companies Act, 2021, with the main objective of assuring smooth and uninterrupted distribution

of petroleum products. After few years of establishment, Nepal Oil Corporation was granted

monopoly to import and distribute petroleum products. Before establishment of NOC, various
foreign enterprises like Esso, Vermasale, and Indian Oil International were fulfilling the needs of

petroleum products.

The government owns majority of its share i.e. 98.36% and four enterprises Nepal Bank

Ltd.(0.23%), RastriyaBeemaSansthan(0.47%) , RastriyaBanijyaBank(0.16%), National

Trading Ltd(0.78%), have also invested in NOC. NOC was established with authorized and

issued capital of Rs.1 crore and paid-up capital of Rs 10 lakhs. At present authorized and issued

capital is Rs.50 crores and paid-up capital is Rs. 9,67,15,000. NOC deals

with the trading business of various types of fuel like MS, HSD, SKO, ATF, FO, LPG, etc. It

brings fuel from a third country. All these different types of fuel are sold and distributed all over

the country. It has five Regional Offices, branch offices, fuel depots and aviation fuel depots for

distribution of the fuel from the Eastern region to the Western region in Nepal. It has total

storage capacity of 72,088 KL and around 753 employees. As NOC has no storage facility of

LDO, FO and LPG, it sells these petroleum products as per the import. For LPG, NOC has

private dealer firms that import and sell it with the prior permission from NOC.

1.1.5 Introduction to Nepal Oil Corporation

Nepal Oil Corporation Limited (NOC))is a state owned trading enterprise of Nepal that

imports, stores and distributes various petroleum products in the country. It was

established on 1970 by the Government of Nepal under the "Company Act, 2021

(1964)". The government owns 98.36% of its share and rest is contributed by four other

state owned enterprises: RastriyaBeemaSansthan, National Trading Ltd., Nepal Bank

Limited and RastriyaBanijya Bank.

In the very beginning, the trading activities of NOC were started by storing two products
in two drums under the leadership of the late Mr. SubarnaBikramThapa appointed by

Government of Nepal. His persistent endeavor to develop NOC resulted in more than

30,000 kiloliters (KL) of storage facilities for petroleum products in different

development regions of Nepal. Nepal, being one of the land locked countries of south

Asia, has to depend on India for the supply and distribution of various petroleum

products as the eastern, southern and western part of the country is attached with India.

The prospect of crude oil exploration in Nepal has not yet been proven a feasible one, so

the entire national demand is met by import alone. From the very beginning of NOC's

trading activities, a special and long-term supply arrangement has existed with Indian Oil

Corporation Ltd. (IOC), a leading national oil company of India, having more than 55%

of the market share.

NOC, headquartered in Kathmandu, has over the years expanded and now has five

regional offices, branch offices, fuel depots, and aviation fuel depots, with total existing

storage capacity of 71,622 kiloliters (KL) and employing 508 permanent and other

contract work force. The highest policy making and controlling body of NOC is its

Board of Directors. The Board is represented by all the shareholders.

Nepal is becoming more dependent on petroleum products for meeting its energy

requirement. The demand of products like MS, HSD, SKO, ATF and LPG is about 1.2

million ton (MT per annum with annual increase by around 10%. Petroleum products

constitute about 15% of total energy consumed in Nepal. The nearest sea port from Nepal

isHaldia (Kolkata) which is about 900 km from nearest Indo-Nepal border. The long

transportation distance from nearest sea port to Nepal is the man constraint for import of

POL from third country. All the petroleum products consumed in Nepal are procured and
imported from Government of India (GOI) undertaking national oil company, i.e. Indian Oil

Corporation(IOC) under a 5 years contract agreement signed on 27th April 2012. NOC uplifts

petroleum products as per its requirements from IOCs different refineries, terminals and depots

situated in northern and eastern part of India. The supply of LPG is arranged under a PDO

(Product Delivery Order) system and IOC is providing bulk LPG to Nepalese LPG industries

fromHaldia, Barauni, Mathura &Panipat refineries. Meeting the ever increasing demand of

LPG in Nepal has always been a concern to NOC. The transportation from IOC locations to

NOC depots and to retail outlets is done by tank trucks. To meet the increasing demand, a

MOU between IOC and NOC for construction of cross border petroleum product pipeline from

IOCS depot (Raxaul) to NOCS depot (Amlekhgunj) has been signed. The detailed feasibility

report (DFR) of the proposed pipeline has also been prepared and the construction/investment

modalities are under discussion between the companies. Similarly, the scope of laying LPG

pipeline across Indo-Nepal border has also come in the discussion between the companies.

Currently the Chief Executive Officer (CEO) of NOC is the Managing Director who has

the overall responsibility for day-to-day operations besides the Member- Secretary of

NOC Board. Basically, the operations of NOC are coordinated under two broad

categories of Marketing and Finance administration, each headed by Deputy

Managing Director.
N e p a l O i l C o r p o r a t i o n L i m i t e d

Nepal Oil Corporation logo

t y p G o v e r n m e n t o w n e d
e

I n d u s t r y P e t r o l e u m

F o u n d e d J a n u a r y 1 0 , 1 9 7 0

H e a d q u a r t e r s Babarmahal, Kathmandu ,Nepal

A r e a s e r v e d
Nepal

K e y p e o p l e Er. Gopal Bahadur Khadka ,


(Managing Director)

P r o d u c t s Petrol, Diesel, Kerosene, LPG

Number of employees 6 0 0 ( 2 0 1 6 )

W e b s i t e N e p a l O i l . c o m . n p
1.1.6 Objectives of NOC:

The main objectives of NOC are as follows:-

1. To import different types of petroleum and its products like petrol, diesel, Mobil,
lubricants oil, kerosene, grease, aviation oil from different countries;

2. To provide the technological service for the determination of required place and the
construction of tanks to fulfill the objectives as stated in (1);

3. To establish refining industry for refining and processing of imported crude oil from
different countries on its own or in collaboration with foreign companies;

4. To establish a firm to investigate the possibility of mining, refining and processing of oil
and gas mines in Nepal;

5. To manage the storage of imported petroleum and crude products in Nepal;

6. To manage own tanks or private tanks for distribution and sales of petroleum products in
Nepal; and,

7. To do other auxiliary works for fulfillment of NOC's objectives.

As mentioned above, NOC was established with the main objective of assuring smooth
and uninterrupted distribution of petroleum products.

1.2 Objectives of the Study

The specified objectives of the study are stated below:

1. To analyze the supply chain management of Nepal Oil Corporation Limited.


2. To explain the distribution network of NOC.
3. To find out the supply points of Nepal Oil Corporation Limited.
4. To determine the storage capacity of Nepal Oil Corporation Limited.
5. To provide suitable and useful suggestions based on the findings of the study.

1.3 Review of Literatures

This section of the seminar paper reviews past and current literature on the supply chain
management of Nepal Oil Corporation Limited. It starts by discussing the industry trends,
dynamics, and characteristics in general. It proceeds to describe the structure of the upstream
and downstream supply chain of Nepal Oil Corporation Limited.

Oil has been used since early human history to keep fire ablaze but its usage has evolved over
the years through innovative ways of using it as a source of energy .Lee H.L et a1 (1993) has
the view that the concept of a supply-chain is about managing coordinated information and
material flows, plant operations, and logistics through a common set of principles, strategies,
policies, and performance metrics throughout its developmental life cycle. This provides
flexibility and agility in responding to consumer demand shifts at minimum cost. The
fundamental premise of this philosophy is synchronization among multiple autonomous
entities represented in it. That is, improved coordination within and between various supply-
chain members.

The Council of Supply Chain Management Professionals (CSCMP, 2011) defines supply chain
management in the following way:

Supply chain management encompasses the planning and management of all activities involved
in sourcing and procurement, conversion, and all logistics management activities. Importantly, it
also includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third party service providers, and customers. In essence, supply chain
management integrates supply and demand management within and across companies.

According to White W. J (2004), firms engaged in supply-chain relationships, as customers,


suppliers, or providers of services, need to share a great deal of information in the course of
their interactions.

The definitions of supply chain management have been considered from literature in operations
management, marketing, product design, finance, and information technology. The definitions
have given knowledge on how these processes are integrated within and outside the company to
provide a cohesive and costs-effective advantage against the competition (Mentzer, DeWitt,
Keebler,Min&, 2001).

CSCMP (2011) implies that supply chain management is successful when the goal of getting
the right product to the right customer at the lowest costs is achieved. This is a situation that
will give the highest level of service to the customer and higher competitive advantage to the
company. Therefore, supply chain management touches on the mixture of different supply
chain activities to help maximize a companys profit and total value.

AkashShrestha is the coordinator of research department at Samriddhi. The Prosperity


Foundation where his focus areas are petroleum trade andpublic enterprises has written several
articlesbased on the findings of the studies conducted by the Foundation.

He states that NOC imports petroleum products from IOC, practically on credit. It is supposed to

make the payments in two installments within the next 30 days. Since NOC controls prices of its

products and cannot charge market prices, it has to cross subsidize its products. The combined

profits from all other products still fall short of loss made on LPG by hundreds of rupees per

cylinder. As a result, NOC fails to recover its investment made in the import of products from

IOC.

Thus, in the context of Nepal Oil Corporation, it is found that distribution and sale of petroleum

products is done by Nepal Oil Corporation, petrol pumps, packed dealers and kerosene dealers

and it requires very stringent quality control measures. The products are transported from IOC

refineries, terminal and depots to the corresponding NOC depots and retail dealers by tank

trucks. Thus, to maintain the required level of storage facilities Nepal Oil Corporation has to

constantly increase its storage facilities.

1.4 Study Methodology:


Methodology refers to various sequential steps that are adopted in the study. Study
methodology refers to the series of steps to be adopted in studying problems with
certain objective view. Study methodology includes the following:

1. Study Design
2. Sources of information
3. Presentation and analysis
4. Technique

1. Study Design

Study design is a plan of investigation for the collection and analysis of data. It helps to
move in the right direction in order to achieve the goal.

Conceptual frame work

Preposition (Theory Literature)

Data Analysis & interpretation Empirical ResearchQuestion


Observation

Data collection Method

Fig 2.1 Study Design

Thus, the study design shown in the above figure is less descriptive but more prescriptive
because the secondary data have been mainly used for analysis.

2. Sources of information:

The methods of collecting data and information are primary and secondary. They are:
1. Primary Data:
Personal Observation
Informal talk
Interview with employee

2. Secondary Data
Annual reports of NOC
Newspapers, magazines and journals
Websites of NOC

3. Presentation and analysis


It is related with the analysis and interpretation of the data and information collected
from various sources and research methodology. In the course of analysis, the data
gathered from various sources have been inserted in the diagrams and tabular form.

4. Techniques
There are several tools and techniques which are used for conducting this study which
can be explained with the help of the following figure.

Fig 3.1 Research Tools

Thus, the figure shows the research tools which includes the methods and techniques used for
analyzing the data and information conveniently.

1.5 Limitations of the Study

As very research has its own limitations, this study is not biased. Therefore, this study

has some limitations, which are listed below:

This study is related to only supply chain management of Nepal Oil Corporation
Limited and it does not cover all the aspects of NOC.

In the study, the distribution aspect has been followed with the NOC's viewpoint.
The opinions, attitudes and recommendations of all the dealers and the consumers
could not be ascertained. Hence, a selected few was taken into consideration,
which is another limitation of the study.
Lack of proper literature review and studies about the distribution aspect of NOC
was a major limitation for the study.

1.6 Organization of the project report:

The study is divided into threechapters, including references and appendices.

1. Introduction

Chapter one deals with the background of the study, this chapter starts with background
of the study shedding lights on supply chain management ofNepal Oil Corporation
Limited. Followed by meaning ofsupply chain management, introduction to the NOC and
its objective, objectives of the study, review of literatures, study methodology and
limitations of the study.

2. Observation and Analysis

Observation and Analysis is the second chapter of the study where data collected are
presented and analyzed in a logical manner. It contains description of supply chain
management of NOC, and analysis of storage capacity of NOC, import and sales of NOC,
LPG sales and LPG upliftment .

3. Findings, Conclusions and Recommendations

Major findings, conclusions and recommendation is the last chapter. It is based on


analysis of data and study done in previous chapters.

Chapter II

OBSERVATION AND ANALYSIS


This chapter deals with the observation, collection of information and analysis of the collected

information from various sources. In the course of analysis, the data gathered from the various

sources have been inserted in diagrams and in the tabular form.

2.1 Distribution Network

I, t O e r C m r ie n f ia n l e r a i ne sd N OC Pp ue tm r o p l s a n d
d e p o ts d e p d e a le r s o f
o ts N e p a l
Fig4.1 Distribution Network of NOC
Distribution and sale of ATF is solely done by the corporation as it requires very stringent

quality control measures. Sale of other products are done by Petrol Pumps, Packed dealers and

Kerosene dealers numbering approximately 2500 throughout the nation. Approximately 60% of

all petroleum products are consumed in the central region alone.

The products are transported from IOC refineries, terminal and depots to the corresponding NOC

depots and retail dealers by tank trucks. The number of transporters throughout the Nepal is 494

and the number of tank trucks so engaged is 1180.

To ensure the quality of the products reaching the customers, in case of MS and HSD only, two

samples of each products are drawn, ne sample is kept safely at the dispatching location and the

other one is in the custody of retail dealer and regular monitoring of the quality of the products
are performed by means of surprise checks. Such surprise checks are conducted by committee

comprising of the following representative :

Representatives from Government authorities.

Representatives from Consumer Forum.

Representatives from Dealers Association.

NOC Representatives

Upstream and Downstream:The upstream sector includes searching for potential

underground or underwater Crude oil and natural gas and fields, drilling exploratory wells, and
subsequently drilling and operating the wells that recover and bring the crude oil and/or raw

naturalgas to the surface.

The downstream sector commonly refers to the refining of petroleum crude oil and
the processing and purifying of raw natural gas, as well as the marketing and distribution
of products derived from crude oil and natural gas. The downstream sector touches consumers
through products such as gasoline or petrol, kerosene, jet fuel, diesel oil, heating oil, fuel,
oils, lubricants, waxes, asphalt, natural gas, and liquefied petroleum gas (LPG) as well as
hundreds of petrochemicals.

In the context of NOC, there is no specific national policy in Nepal to govern petroleum
downstream business, i.e., transactions and marketing of petroleum products. The government
enacted Petroleum Act 1983, but it merely deals with upstream business such as exploration,
mining and distribution of crude oil from oil wells. As far as petroleum transaction is concerned,
it is carried out as per the regulations and internal decisions of NOC. NOC regulation has
established the corporation as the import monopolist, stockist and supplier of fuel in the domestic
market. It has authorized NOC to function as the regulatory body of the petroleum sector;
empowered it with the authority to appoint dealers for retail sales; hire transporters for the
transportation of fuel; set operating conditions and standards for dealers and transporters;
formulate quality regulation; control quality; and monitor and intervene in the market as and
when necessary.

Retailing of petroleum products is executed through the appointment of private sector dealers.
NOC appoints the dealers. It sets the terms and conditions for such appointments as per the NOC
regulation and does not allow dealers to deviate from its set operating guidelines.

There are different NOC-authorized dealers that operate petrol and diesel refilling stations across
the country. In addition, there are several kerosene dealers. NOC mobilizes this network of
dealers to supply petroleum products in the country.
However, since 17 February 2006, the dealers have had to collect the supplies themselves, make
all the necessary logistical arrangements for bringing the products to their premises and run the
retail-level business on their own. All petroleum dealers function under a syndicate of the Nepal
Petroleum Dealers Association (NPDA). There is also an association of kerosene dealers known
as the Nepal Kerosene Dealers Association (NKDA).

2.2 Supply Points

Any retail dealers found to be selling out substandard products are penalized as per the existing

rules and the region wise demand of NOC is met through the purchase of petroleum products

from the IOC depots, Terminal and Refinery located near the border with Nepal.

F o r E a s t e r n R e g i o n B a r a u n i R e f i n e r y

F o r C e n t r a l R e g i o n R a x u a l D e p o t

F o r W e s t e r n R e g i o n Betalpur Depot, Mugalsari Termina l

For Mid-Western Region Allahabad Terminal, Gonda Depot

For Far Western Region B a n t h a r a D e p o t

Table1.1 Supply Points


2.3 Storage Facilities

Fig.5.1 Storage Facilities


The increase in storage capacity over the years in line with the growth in the demand of

petroleum products is quite impressive. To maintain the required level of storage facilities NOC

has to constantly increase its storage facilities. Therefore the NOC management is giving
adequate attention to the expansion of storage facilities. Currently, it is working towards

developing storage facilities for petroleum products to meet the demand in Nepalese market.

The current storage capacities in different regions of the country are as follows:

2.4 Storage Capacity of Nepal Oil Corporation Ltd.

l P e t r o l D i e s e l Kerosene J e t A l T o t a l
o

K a t h m a n d u 1 , 8 7 0 8 , 4 0 0 4 , 9 6 0 7 , 7 1 0 2 2 , 9 4 0
A m l e k h g u n j 1 , 9 3 0 1 5 , 7 0 0 5 , 6 0 0 0 2 3 , 6 4 0
B i r a t n a g a r 5 6 0 8 , 9 1 0 2 , 1 7 0 2 8 0 1 1 , 5 3 0
J a n a k p u r 3 0 1 4 0 7 0 0 2 4 0
B h a i r a w a 1 4 0 3 , 0 5 5 3 9 4 5 6 3 , 6 4 9
P o k h a r a 3 5 0 2 , 2 8 0 7 6 0 6 4 3 , 4 5 4
N e p a l g u n j 2 1 0 2 , 2 8 0 7 6 0 2 8 0 3 , 4 6 0
S u r k h e t 0 0 4 5 6 0 1 0 5
D h a n g a d i 8 5 1 , 5 9 0 8 3 0 4 5 2 , 4 8 0
D i p a y a l 0 3 0 3 0 0 6 0
T o t a l 5 , 1 3 5 4 1 , 6 1 0 1 6 , 3 1 4 8 , 4 9 9 7 1 , 6 2 2

Table 2.2 Storage Capacity of Nepal Oil Corporation Ltd.


2.5 Import and Sales

Import of Petroleum Products (in KL except LPG)

S.N. F i s c a l Y e a r P e t ro l D i e s e l Kerosene Aviation Turbine Fuel Light Diesel Oil Furnace Oil LPG IN MT Mineral Turpe

1 2072/73 (2015-16) 283,567 901,393 18,628 139,404 - - 258,299 -

2 2071/72 (2014-15) 251,451 811,100 19,064 123,527 - - 232,660 -

3 2070/71 (2013-14) 221676 716747 2 4 7 2 1 115 7 8 6 2 5 8 2 4 5 0 207038 0

4 2069/2070 (2012/2013 AD) 199749 648513 4 1 8 0 8 109808 0 4 3 5 181411 0

5 2068/069(2011/2012 AD) 187641 655128 4 9 4 9 5 1 0 1 3 1 4 2 2 7 1 4 1 5 159286 0

6 2067/068 (2010/2011 AD ) 162275 612505 5 5 7 8 8 8 2 6 3 1 2 3 8 2 5 8 9 141171 0

7 2066/067 (2009/2010 AD) 124169 446468 70,089 6 8 , 9 3 5 3 7 7 2 1 7 1 115,813 0

8 2065/066 (2008/2009 AD) 100842 302706 155216 6 8 9 3 8 3 0 6 2 9 1 9 96837 0

9 2064/065 (2007/2008 AD) 101912 306687 197850 6 3 7 7 8 1 7 9 4 5 5 8 93562 0


1 0 2063/064 (2006/2007 AD) 8 0 9 8 9 294329 226637 6 4 3 3 5 2 9 0 3 6 9 5 81005 0

1 1 2062/063 (2005/2006 AD) 7 5 9 8 9 315368 239328 66825 8 8 2 6 9 6 77594 0

Table2.3 Import and Sales

Sales of Petroleum Products (in KL except LPG)


S.N F i s c a l Yea r P e t ro l Diesel Kerosene Aviation Turbine Fuel Light Diesel oil Furnace oil LPG in MT Mineral Tu
1 2072/73 (2015-16 ) 283,567 901,393 18,628 139,404 - - 258,299 -
2 2071/72 (2014-15 ) 251,451 811,100 19,064 123,527 - - 232,660 -
3 2070/71 (2013-14 ) 221676 716747 24721 115 7 8 6 2 5 8 2 4 5 0 207038 0
4 2069/2070 (2012/2013 199749 648513 41808 109808 0 4 3 5 181411 0
AD)
5 2068/069(2011/2012 AD) 187641 655128 49495 101314 2 2 7 1 4 1 5 159286 0
6 2067/068 (2010/2011 AD ) 162275 612505 55788 82631 2 3 8 2 5 8 9 141171 0
7 2066/067 (2009/2010 AD) 124169 446468 70,089 68,935 3 7 7 2 1 7 1 115,813 0
8 2065/066 (2008/2009 AD) 100842 302706 155216 68938 3 0 6 2 9 1 9 96837 0
9 2064/065 (2007/2008 AD) 101912 306687 197850 63778 1 7 9 4 5 5 8 93562 0
1 0 2063/064 (2006/2007 AD) 80989 294329 226637 64335 2 9 0 3 6 9 5 81005 0
1 1 2062/063 (2005/2006 AD) 75989 315368 239328 66825 8 8 2 6 9 6 77594 0
1 2 2061/062 (2004/2005 AD) 67586 299730 310826 64041 5 7 7 12653 66142 3
1 3 2060/061 (2003/2004 AD) 67457 299973 348620 52839 6 1 0 14496 56079 4
1 4 2059/060 (2002/2003 AD) 63271 286233 386592 47453 2413 18255 48757 1 2
1 5 2058/059 (2001/2002 AD) 59245 326060 316381 63131 3416 20934 40102 1 3
1 6 2057/058 (2000/2001 AD) 55585 310569 331120 56849 3989 26811 30627 1 3
1 7 2056/057 (1999/2000 AD) 49994 315780 294982 55549 5 4 7 33860 25019 1 3
1 8 2055/056 (1998/1999 AD) 46939 300604 282026 51412 9 6 7 27776 22961 1 0
1 9 2054/055 (1997/1998 AD) 44709 257910 243810 47864 1983 17296 21824 1 0

2.6 Information about LPG Sales

Middle Regional Office, Birgunj

S.N. P D O Issue Quantity Bill No D e a l e Sales Quantity Vehicle No


Chalan No C h a l a n
N o r Date
1 MTH0040250 1 8 . 0 0 1401 Baba Gas Udhyog Pvt. Ltd. Parsa, Chitwan 17.6 2 HR55Q5565 1 1 6 6 1 9 - A u g -
1 5
2 HLD0027590 1 8 . 0 0 1406 Baba Gas Udhyog Pvt. Ltd. Parsa, Chitwan 17.6 6 HR63A090 2 4 6 4 1 1 - S e p - 1 5
6
3 BRN0041804 1 8 . 0 0 1403 Janaki Gas Udhyog Pvt. Ltd Gaidakot-7, Nawalparasi 17.4 3 HR55P7059 2 4 1 9 1 0 - S e p -
1 5
4 BRN0041675 1 8 . 0 0 1405 Leo Gas Udhyog Pvt. Ltd. Bahuari, Bara 1 7 . 6 9 HR37B366 2 4 3 7 1 1 - S e p - 1 5
2
5 BRN0041759 1 8 . 0 0 1402 Nepal Gas Udhyog Pvt. Ltd. Kathmandu 1 7 . 6 9 HR38T490 2 4 4 8 1 2 - S e p -
3 1 5
6 BRN0041758 1 8 . 0 0 1404 Nepal Gas Udhyog Pvt. Ltd. Kathmandu 1 7 . 4 2 HR55T052 2 4 1 8 1 0 - S e p -
3 1 5
7 HLD0027690 1 8 . 0 0 1407 Shakti Gas Udhyog Pvt. Ltd. Pokhara 1 7 . 8 0 NL01L4870` 2 4 2 0 0 7 - S e p -
1 5
8 HLD0027398 1 8 . 0 0 1408 Shakti Gas Udhyog Pvt. Ltd. Pokhara 1 7 . 7 0 HR55P7060 2 3 8 8 0 1 - S e p -
1 5
T o t a 141.01
l
Table2.4 Information about LPG Sales

2.7 LPG Upliftment August 2015

Gas Industries Total Quota for August BARAUNI H A L D I A MATHURA KARNAL Total No.of Cylinder Upl

AMBAR GasUdhyog 270.00 88.320 1 06.25 3 17.760 212.333 14952.49 7


Arati Gas Udhyog Pvt. Ltd. 270.00 53.070 5 3 . 5 0 6 17.460 124.036 87 34 .6 2 4
BABA Gas Industries Pvt.Ltd. 1260.00 371.470 3 02.25 2 1 39 .8 8 0 813.602 57293.85 6
BHANU GAS Industries Ltd. 576.00 194.280 1 77.82 2 372.102 26203.42 6
BHERI Gas Pvt.Ltd. 828.00 7 69 .7 5 0 35.230 804.980 56686.69 9
Butwal Gas Industries Pvt. Ltd. 342.00 130.780 3 5 . 6 6 4 1 40 .0 9 0 306.534 21586.12 8
Chandeswari Gas Pvt. Ltd. 270.00 70.380 8 9 . 0 3 4 17.630 177.044 12467.44 6
EVEREST Gas Industries Pvt.Ltd. 702.00 229.470 1 42.57 7 35.280 407.327 28683.97 5
GAURI SHANKAR Gas Industries Pvt.Ltd. 774.00 70.510 1 95.83 3 35.090 301.433 21226.91 3
Gita Gas Udyog 288.00 52.710 5 3 . 3 3 0 106.040 74 67 .3 4 3
GRIHALAXMI Gas Industries Pvt.Ltd. 702.00 157.950 1 42.03 5 299.985 21124.94 4
HIMALAYA Petro Chemicals Pvt.Ltd. 846.00 88.300 3 36.67 3 35.320 460.293 32413.83 5
Jagdamba Gas Industries Pvt. Ltd. 270.00 88.210 5 3 . 2 4 6 17.650 159.106 11204.24 5
Janaki Gas Industries Pvt. Ltd. 630.00 211.330 1 42.24 2 87.730 441.302 31076.49 7
Kabsons Gas Uddyog 198.00 0.000 0 . 0 0 0
Kankai Gas Udhyog Pvt. Ltd. 324.00 104.630 8 8 . 3 1 9 192.949 13587.47 5
KOSHI GAS Industries Pvt. Ltd. 1656.00 513.190 6 55.38 4 2 46 .6 4 0 1415.214 99659.37 8
Leo Gas Industries Pvt. Ltd. 288.00 88.460 8 8 . 4 6 5 17.640 194.565 13701.27 6
LUMBINI Gas Industries Pvt.Ltd. 504.00 177.090 1 42.61 9 70.300 390.009 27464.43 7
MANOJ Gas Industries Pvt.Ltd. 612.00 177.040 2 30.72 9 70.740 478.509 33696.60 7 8
MANOKAMNA Gas Pvt.Ltd. 738.00 5 11.6 5 0 17.610 529.260 37270.49 7 1
MARUTI Gas Industries Pvt.Ltd. 630.00 191.570 2 3 0 . 3 5 2 421.922 29711.75 6 6
MECHI Gas Industries Pvt.Ltd. 504.00 88.450 2 4 9 . 5 3 7 337.987 23801.04 6 7
METRO Kathmandu Gas Industries Ltd. 468.00 176.590 1 6 0 . 3 3 5 336.925 23726.26 7 1
N.L. Gas Industries Pvt. Ltd. 180.00 35.390 35.390 24 92 .1 6 1 9
Namaste Gas Udyog 270.00 17.700 3 5 . 7 1 0 53.410 37 61 .1 3 1 9
NARAYANI GAS Industries Ltd. 576.00 176.260 1 41.27 0 34.400 351.930 24782.91 6 1
NEPAL GAS Industries Pvt. Ltd. 1746.00 706.460 7 10.80 0 2 27 .4 6 0 1644.720 115821.18 9 4
NOBEL Gas Industries Pvt.Ltd. 468.00 105.670 5 2 . 9 3 7 52.830 211.437 14889.39 4 5
OM GAS Gas Industries Pvt.Ltd. 594.00 194.760 1 77.54 5 70.090 442.395 31153.46 7 4
PanchaMahaLaxmi Gas Industries Pvt. Ltd. 342.00 123.930 7 1 . 0 9 7 34.540 229.567 16166.11 6 7

PARAJULI & BROTHERS GAS Industries Ltd. 378.00 88.480 1 7 8 . 1 9 4 266.674 18779.18 70

PASHUPATI Auto Gas Pvt. Ltd. 7 2 . 0 0 17.680 17.680 12 45 .0 3 2 4


PRIMA GAS Industries Pvt. Ltd. 576.00 194.510 2 1 2 . 4 9 6 407.006 28661.36 7 0
RAJDHANI GAS Industries Ltd. 468.00 159.160 1 2 2 . 1 9 6 34.820 316.176 22265.11 6 7
Rapti Gas Udhyog 324.00 1 92 .3 9 0 192.390 13548.10 5 9
RijalcoBhansa Gas Udyog Pvt. Ltd. 378.00 124.090 1 0 3 . 5 9 8 227.688 16033.79 6 0
ROYAL Multilook Concern Pvt. Ltd. 450.00 3 17 .3 3 0 3 5 . 3 7 0 352.700 24837.13 7 8
SAGARMATHA GAS Industries Pvt. Ltd. 774.00 317.910 3 00.88 6 618.796 43575.61 7 9
SAI BABA Gas Industries Pvt.Ltd. 900.00 244.170 2 31.53 7 1 57 .5 0 0 633.207 44590.44 7 0
SHAHARA GAS Industries Ltd. 432.00 141.070 1 24.39 0 265.460 18693.69 6 1
SHAKTI Gas Industries Pvt.Ltd. 828.00 265.030 1 59.93 5 52.890 477.855 33650.55 5 7
SHREE GAS Industries Ltd. 342.00 141.710 1 24.59 8 52.720 319.028 22465.95 9 3
SHREE KRISHNA GAS Industries Ltd. 540.00 175.720 1 60.27 4 1 04 .9 8 0 440.974 31053.39 8 1
Shree Ram Gas Industries Pvt. Ltd. 558.00 141.470 1 06.94 5 68.660 317.075 22328.42 5 6
ShriSatyanarayan Gas Industries 378.00 53.170 8 9 . 0 9 0 142.260 10017.95 3 7
SIDDHARTHA Gas Industries Pvt.Ltd. 810.00 229.330 2 13.36 4 1 40 .0 1 0 582.704 41034.02 7 1
SUGAM GAS Industries Ltd. (Via Jogbani) 288.00 8 9 . 0 7 6 89.076 62 72 .7 3 3 0
SUGAM GAS Industries Ltd. 342.00 229.400 229.400 16154.35 6 7
Super Gas Pvt. Ltd. 306.00 88.290 1 24.00 1 212.291 14949.53 6 9
SURYA GAS Industries Ltd. 396.00 35.390 7 0 . 7 5 7 17.620 123.767 87 15 .6 7 3 1
TRISHUL GAS Industries Pvt. Ltd. 594.00 230.100 1 60.34 6 88.260 478.706 33710.48 8 0
Triveni Gas Udhyog Pvt. Ltd. 288.00 35.350 1 06.67 4 142.024 10001.33 4 9
UGRACHANDI GAS Industries Ltd. 360.00 123.550 5 3 . 4 6 0 177.010 12465.04 4 9
VALLEY AUTO Gas Industries Pvt.Ltd. 108.00 35.380 35.380 24 91 .4 6 3 2
T o t a l 29016.00 7754.930 7 5 9 7 . 3 8 3 3877.110 8 8 . 2 1 0 19317.633 1360347.72

Table 2.5 LPG Upliftment August 2015

2.8 The Vicious Circle of Petroleum imports in Nepal


Fig. 6.1 Vicious circle of petroleum supply in Nepal

NOC imports petroleum products from IOC, practically on credit. It is supposed to make the

payments in two installments. Sine, NOC controls prices of its products and cannot charge

market prices, it has to cross subsidize its products. The combined profits from all other products

still fall short of loss made on LPG by hundreds of rupees per cylinder.As a result, NOC fails to

recover its investment made in the import of products from IOC. ButIOC will not sell anything

to NOC, unless its dues are cleared. So, NOC approaches the governments for loans. With

government guarantee, it somewhat gets loans to clear IOC dues from institutions like

Employees Provident Fund (EPF) and Citizens Investment Trust( CIT),apart from government

of Nepal and some commercial banks in the country. These are taxpayers money (mostly in

form of saving, some as taxes paid to government). IOC dues are then cleared with this money.

But the same business cycle continues, year in and year out. NOC continues to make losses and

continues to acquire taxpayers money as loans. Amidst all of this, the loans acquired via CIT
and EPF have never been paid. Interest are however paid duly by adding the interest payment

component in the selling price of petroleum products.

Fig7.1 Petrol Import

(Source: Nepal Oil Corporation)

The figure shows the quantity of petrol imported in kiloliter by Nepal from the year

2050/051 to 2070/071. It can be clearly observed that the quantity of petrol imported has

increased in the different subsequent years.


Fig.8.1Diesel Import

(Source: Nepal Oil Corporation)

The above figure shows the quantity of diesel imported in kiloliter by Nepal from the year

2050/051 to 2070/071. As the demand of diesel is rapidly increasing in the Nepalese market

quantity of diesel imported in kiloliter by Nepal has also increased simultaneously.

Fig.9.1 LPG Import

(Source: Nepal Oil Corporation)

The above figure shows the quantity of LPG imported in metric ton by Nepal from the year

2050/051 to 2070/071. Nepal Oil Corporation heavily relies on the import of LPG and its import

has increased in the different years.


CHAPTER III

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

3.1 Summary of findings

The major findings that can be viewed from this study are as follows:

1. Nepal depends on India for the supply and distribution of various petroleum

products as the eastern, southern and western part of the country is attached with

India.

2. The prospect of crude oil exploration in Nepal has not yet been proven a feasible

one, so the entire national demand is met by import alone.

3. NOC's trading activities is related with a special and long-term supply


arrangementwith Indian Oil Corporation Ltd. (IOC).

4. NOC hasfiveregional offices, branch offices, fuel depots, and aviation fuel

depots in different parts of the country.

5. NOC deals with the trading business of various types of fuel like MS, HSD, SKO,
ATF, FO, LPG, etc.

6. The supply of LPG is arranged under a PDO (Product Delivery Order) system and

IOC is providing bulk LPG to Nepalese LPG industries from Haldia, Barauni,

Mathura &Panipat refineries.

7. The products are transported from IOC refineries, terminal and depots to the

corresponding NOC depots and retail dealers by tank trucks.

8. To meet the increasing demand, a MOU between IOC and NOC for construction

of cross border petroleum product pipeline from IOCS depot (Raxaul) to NOCS

depot(Amlekhgunj) has been signed.

9. Any retail dealers found to be selling out substandard products are penalized as

per the existing rules and the region wise demand of NOC is met through the

purchase of petroleum products from the IOC depots, Terminal and Refinery
located near the border with Nepal.

10. NOC is working towards developing storage facilities for petroleum products to

meet the demand in Nepalese market.

3.2 Conclusions

It can be concluded from the observation and analysis which shows the supply chain

management of Nepal Oil Corporation. Similarly, it also shows the requirements that are needed

for effective supply chain management. In fact, it is very necessary for the appropriate policy to

be adopted in order to ascertain smooth flow and distribution of petroleum products in different

parts of the country.


In the context of Nepal Oil Corporation, it is found that distribution and sale of petroleum

products is done by Nepal Oil Corporation,petrol pumps, packed dealers and kerosene dealers

and it requires very stringent quality control measures. The products are transported from IOC

refineries, terminal and depots to the corresponding NOC depots and retail dealers by tank

trucks.

At present NOC is working towards developing storage facilities for petroleum products to meet

the demand in Nepalese market. Therefore, demand of NOC is met through the purchase of

petroleum products from the IOC depots, Terminal and Refinery located near the border with

Nepal.

3.3 Recommendations

Some suggestions and policy recommendations are being put forward for the

improvement of Nepal Oil Corporation.

1. To maintain the required level of storage facilities Nepal Oil Corporation has to
constantly increase its storage facilities.

2. As NOC is facing problems due to political instability, financial loss, poor


infrastructure, threat of competition from private sector etc. it is wise to have a
SWOT analysis so that NOC can run smoothly in coming years.

3. It is necessary to understand and analyze the distribution channel of Nepal Oil


Corporation so that it could fulfill demand of petroleum products in coming years.

4. Distribution and sale of petroleum products is done by Nepal Oil Corporation,petrol

pumps, packed dealers and kerosene dealers so, it requires very stringent quality

control measures.

5. It is needed to explore options to outsource operations and management of the Nepal

Oil Corporation to global energy companies who have the clout to handle government

and supply disruptions.

6. Nepal should call a global tender which can excite global companies including those

from India and China with experience in managing supply chains in landlocked

countries.
7. Adequate number of tankers should be made available to carry petroleum products

and its effective distribution throughout the country.

8. NOC should be overhauled by bringing proficient staffs and the supervision and

working modality of NOC should be revised.

9. Proper transportation facilities, strong networking and chain of command and several

monitoring mechanisms should be introduced in order to avoid unfair trade

practices which can lead to effective supply chain management.

10. In order to improve supply chain management, concerned bodies have to create a

strong data bank, conduct a study as per the requirement of the market and implement

the polices in close consultations with related parties.


References

Agreement between Nepal Oil Corporation and Indian Oil Corporation, 2002

BP, 2004, BP Statistical Review of World Energy. London: BP plc.

Bylaws on Quality Control of Petroleum Products, 1992 of Nepal Oil Corporation.

Code of conduct and directives issued to LPG industries and dealers at different periods by

Department of Commerce/Government of Nepal

Different reports on ensuring smooth supply of petroleum products of Ministry of Industry,

Commerce and Supplies.

Fisher, M.L., 1997, "What is the Right Supply Chain for Your Product?" Harvard
Business Review, March-April, pp. 105-1 16.

Government of Nepal. 2004. Draft Act on Entry of Private Sector in Petroleum Import Business.

Government of Nepal.Nepal Petroleum Act, 1983.

Lewin, G., 2003, "A customer-led strategy for managing the downstream oil supply

chain", World Energy, June

M. A. Cohen and S. Mallik. Global Supply Chains: Research and Applications. Production

and Operations Management 6:193-210, 1997.

Minute of Petroleum Supplies Agreement signed between Government of Nepal and

Government of India, 1974.

Monthly pricing tables and other statistics of Nepal Oil Corporation.

M. P. Baganha and M. A. Cohen. The Stabilizing Effect of Inventory in Supply Chains. To

appear in Operations Research, 1998.

R. Anupindi and R. Akella. Diversification under supply chain uncertainty. Management

Science, Volume 39, pp. 944-963, 1993.

T. Davis. Effective Supply Chain Management. Sloan Management Review 34:35-46, 1993.

Websites
www.nepaloil.com.np
www.google.com
www.wikipedia.com

Appendices
Photographs