Most petrol (gas) stations in the capital remained shut Thursday, displaying "No petrol" signs while hundreds of cars and motorbikes queued at state-run outlets.

Indian Oil Corporation last week reduced supplies to Nepal Oil Corporation, which has a monopoly on imports and distribution of oil, due to its failure to clear bills amounting to 91 million dollars, Industry Minister Rajendra Mahato told AFP.

"There has been a shortage of fuel in the country as Indian Oil Corporation has cut the supplies by 40 percent to Nepal Oil Corp from last Friday for failing to pay overdue bills," Mahato said.

State-run Nepal Oil Corp has been struggling to reduce mounting losses which are running at 3.84 million dollars a month.

Nepal monthly imports about 60 million litres (15.6 million US gallons) of oil products, mainly by tanker trucks across its southern border with India, according to Nepal Oil spokesman Ichha Bikram Thapa.

Indian Oil, which is the sole supplier to Nepal, had agreed to provide fuel for a monthly payment of 3.69 million dollars to clear all outstanding dues. But Nepal Oil has failed to make regular payments.

"We have not been able to pay the monthly sum since April this year and the arrears to IOC is just increasing," Thapa said.

"This situation arose because we have been selling oil products at a loss at prices fixed by the government. We have been unable to recover our import costs," said Thapa.

Thapa added that the situation would soon worsen as the company had reserves for barely four days.

Nepal Oil has been losing money against a backdrop of rising energy prices in the international market, he said.

"The company will go bankrupt if there is no price hike in line with international prices," the spokesman said.

But the minister said a price rise was not on cards.

"At the moment NOC doesn"t have funds to clear the debts but we are looking for alternatives to resume the supply from the IOC," Mahato said.

The minister added that Nepal had requested the Indian government to consider not cutting supplies.

"India"s response has been positive and we are hoping that the supply will resume in the next few days," Mahato said.

PIN/AFP