PETROLEUM SHORTAGE
Fuelling The Fire
The serpentine queues at petrol stations in the capital valley have not shortened since a long time. People are spending hours to fill up their vehicles with the fuel. The state-owned sole supplier Nepal Oil Corporation (NOC) is bleeding due to escalating prices in the international market. A month after it hiked the price of fuel, the unprecedented acceleration in the international oil market has rendered the NOC breathless. When the NOC hiked the price of petroleum products on October 25, 2007, the international price of crude oil stood at US$ 82 per barrel. In a matter of one month, this price increased to over US$ 94 per barrel. International analysts have predicted that this price could soon cross US$ 100 per barrel. Amid soaring losses and growing demand, the NOC is unable to buy as much fuel as required from its sole supplier Indian Oil Corporation (IOC)
By SANJAYA DHAKAL
It is a sordid saga of misplaced politics fuelling the fire of disenchantment and frustration of the people.
As political parties dither from making economically practical decision and continue to engage in fruitless parleys over protracted political deadlock, the crisis of oil is beginning to explode.
As one economist put it, the problem of fuel shortage could soon overtake the political crisis. “We do not want to know what the Finance Minister or the Supplies Minister thinks. We want to know what the seven parties want to do about this problem, which will become a bigger crisis than the political one if not resolved soon,” warned economist Dr. Raghab Dhoj Pant.
Dr. Pant believes that since the people have been paying tax, the government must ensure smooth supplies. "People have paid Rs 8 to 9 billion tax last year (on fuel alone). And they are still forced to stand in long queues to get petrol," Dr. Pant said.
NOC’s Inability
The state-owned Nepal Oil Corporation (NOC) officials have said that they will not be able to ensure smooth supplies of petroleum products unless the market price is increased again at par with the rise in international market.
According to NOC spokesperson Ichha Bikram Thapa, when the NOC made the recent price hike decision on October 24, the international market price of crude oil had stood at US$ 82 per barrel (159 liters) of crude oil. This price, he said, has already increased and is reaching near $100 per barrel in recent days. He said that in the last one month, the NOC's monthly losses have increased from Rs 70 million to Rs 370 million due to rise of price in international market. In fact, latest data have shown that December’s international price will push its monthly loss to beyond Rs 600 million.
"As our import price with the Indian Oil Corporation has increased, we are in difficult position and compelled to hike price again," said Thapa.
Till November end, the NOC’s total outstanding dues to IOC stood at Rs 2.6 billion. That apart, the NOC also had huge liabilities owing to its loans from various institutions. As of November 23, the NOC’s total liability stood at Rs 9.65 billion – Rs 3 billion as loan from the government; Rs 8.2 million as loan from Finance Minister as part of Financial Diagnosis; Rs 2.53 billion as loans from Employees Provident Fund and Citizen Investment Fund; Rs 1.5 billion as loans from various commercial banks; and Rs 2.61 billion as outstanding dues to IOC. In 2063/64, the estimated cumulative loss of NOC had stood at Rs 2.5 billion.
As per its agreement with IOC on March 30, 2007, the NOC needs to pay Rs 240 million as monthly installment to clear past dues. Besides, the IOC will only supply that amount of fuel, which can be bought by the amount of money NOC pays. Since NOC is in big loss, it has been unable to pay adequate amount to buy adequate volume of oil – hence the prolonged shortage.
The NOC’s statement on November 23 had shown that in petrol it is incurring loss of Rs 5.19 per liter. Similarly, it is incurring loss of Rs 9.6 per liter in diesel; Rs 3.87 per liter in kerosene; and Rs 148.33 per cylinder in cooking gas. It earned Rs 15.73 profit per liter in aviation fuel, though. These losses have further increased in recent days.
Long Term Solution
The NOC, in its current financial state, cannot be expected to ensure smooth supplies unless the government employs exercises to attain long term solution to this problem.
The NOC officials say that putting in place a properly regulated pricing mechanism, which automatically adjusts the domestic price with international price fluctuation will be the first step in this direction.
But to take this first step, the politics must be extricated away from oil. The populist and revolutionary politics do not mix well with the oil and this fact has to be understood by the seven parties and their student wings together, said an economist.
In the rush for populism, the parties claim that they are working in favor of poor people by not allowing the NOC to adjust fuel price – but, in fact, they are subsidizing the relatively well-off people at the cost of millions of people who live in abject poverty. Nepal’s economic survey says that of the total energy consumption of 8478 tons of oil equivalent in 2062/63; the overwhelming portion – 85.85 percent - is occupied by traditional sources such as fuelwood, biomass etc. Only 13.45 percent is fulfilled by commercial sources such as petroleum products and electricity. While 0.61 percent is fulfilled by renewable sources such as solar power, biogas etc. This energy consumption outlay gives one indication about who will benefit from subsidizing petroleum products.
Likewise, as NOC spokesperson Ichha Bikram Thapa said, in order to resolve the fuel crisis once and for all, the government should also explore the option of involving private sector in the sales and distribution of petroleum products. This issue of privatization has not been seriously debated till now.
Another solution pointed out by the NOC officials could be short-term tax discounts. The NOC had paid Rs 8 billion as revenue to the government in the fiscal year 2063/64. At the current market price, the NOC pays Rs 26.9 as various taxes on per liter of petrol; Rs 11.23 on diesel; Rs 2.5 on kerosene; Rs 11.35 on aviation fuel; and Rs 196/cylinder on cooking gas. The taxes include custom duties, which is charged flat on the basis of volume of import; Value Added Tax (except on kerosene); local development tax and road maintenance charges.
The government says that revenue collected from petroleum products are being used in social sectors like education and health and cannot be done away with for the time being.
“We cannot do this tax away at the current moment as it will affect budget allocation on social sectors,” said Dr. Pushpa Raj Rajkarnicar, a member of National Planning Commission (NPC).
Unless one or the combination of these long-term solution suggestions are not implemented soon enough, economists have warned that the problem could soon spiral out of control. The anger building up among the people standing in the queue of petrol stations can give enough indication for that.
