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VOL. 27, NO. 41, June 27 , 2008 (Ashadh 13 2065 B.S.) |
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SOARING OIL PRICE
Adding To The Trouble
Even as it passes through an intense political turmoil generated by its own geo-strategic location, the soaring global oil price has fuelled the internal crisis in Nepal. As there is no sign of reduction in the price of fuel, social and political turmoil looks imminent. The rise in the fuel price will increase the inflation hitting hard the life of overwhelming majority of the people. Past experiences have shown that government involvement in price-fixing often invites troubles rather than bring respite and relief. The time has now come for the policymakers to allow market forces to have determining role in the oil business
By KESHAB POUDEL
"My monthly household bill has increased by twenty to forty-percent a month. The prices of all the items have increased even the transport fare has gone up by around twenty five percent ," said Krishna Ram Dahal, a non-gazetted official at the Ministry of Law and Justice. "The increase in the transport fare has added burden. Besides, even after the rise of their prices, the oil and gas are not easily available in the market."
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Like Krishna, many other Nepalese knew that the bad news would not be limited in their families alone when the government increased the prices of petroleum products by 25 percent.
As Krishna was expecting, there is a stand off between the government and transport entrepreneurs after the unilateral increase of transport fares by transport entrepreneurs and subsequent intervention by the government.
The hike in the fuel price triggered the prices of food stuffs. According to Nepal Rastra Bank (NRB), the prices of grains, cereals, pulses, cooking oils and ghee rose by 13.5 percent, 13.4 percent and 18.8 percent respectively in the year through mid February 2008. The interruption created by the transport strikes has already reduced the stock of such products further pushing the price.
Painful Suffering
As the global price of oil continues to go up, a country like Nepal is certain to face painful situation in the coming days. Although the government has made efforts to minimize the effects by intervening in the prices of oil, it is just going to be a temporary solution. As the current price rate is still below the international rate, the government is unable to maintain the supply as demanded by the market.
From oil price to transport fares, the government has authority to decide market prices. This often creates more troubles. Although the government pleads free market and competition, it continues to play the role of interventionist. This is the where many problems lies.
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A school remains closed : Strikes affecting education |
The indefinite transport strike was sparked by a unilateral decision of the government to increase the transport fares by 25 percent and 43 percent concession to the students in public transport. The disputes may come to an end following the agreement between the government and agitating parties but it is going to be a never-ending process.
"The government intervention in the transport sector often creates problems. Our demand is just to let us increase the transport fare in accordance with the surge in the fuel price," said Dinesh Bhandari, president of Nepal Federation of Transport Entrepreneurs.
Parties in Politics
At a time when the country's major political parties are engaged in negotiations for power sharing, they are yet to realize the gravity of situation in day to day life of common people caused by hike in the fuel price.
Although the government increased fuel price, the state-owned Nepal Oil Corporation (NOC) still incurs about Rs 1.5 billion monthly loss. The government is channeling money from other social sector to subsidize the petroleum products.
As the government declares that it is not in a position to provide adequate subsidy, the NOC has no option other than to reduce the import creating scarcity in the market.
"We are not in a position to supply enough oil because we don't have money to buy it. How can we sell the oil which costs US$140 a barrel at the rate of US$ 100," said Digamber Jha, general manager of Nepal Oil Corporation.
With the demands of adequate supply of petroleum products, Nepal Petroleum Dealers Association has called indefinite strike from June 24. "There is no question to sell the petroleum products as long as the government doesn't supply as per our demand," said Shiva Prasad Grimier, president of Nepal Petroleum Dealers Association.
The short supply of petroleum products will lead to interruption of supply of other essential commodities. This will increase the woes of common consumers.
Reduction of Subsidy
"There are limits to which we can provide such a huge subsidy, "said Purushotam Ojha, Secretary of the Ministry of Industry, Commerce and Supplies. "If we provide subsidy on oil, a large number of people will be deprived of education, health and other such facilities. Without adjustment of prices, we could run out of funds to import oil. We are still losing Rs. 1.5 billion a month."
The crisis grew in the past few months as the price of a barrel of oil has skyrocketed to almost US$ 150, up more than 30 percent since January. The spike is contributing to fears that an era of easy life may be drawing to a close. Rising oil price pose the major growth and inflation risk for a country like Nepal.
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Student protests: Misplaced priorities |
Unlike in the past when the government spent billions of rupees to subsidize fuel costs to keep it cheap for their poor and often quarrelsome citizens, it is unable to do so now because the oil price has increased to such a level that subsidies and price controls are increasingly impossible to maintain. Nepal currently needs to provide Rs. 1.5 billion a month to subsidize the oil - this budget is more than Nepal spends for education and health in a month.
The effect of reduced fuel subsidies will ripple through economies, increasing costs across a wide range of industries, boozing inflation, undermining the government budgets and stirring up unrest among citizens who are already feeling the bite of slower growth.
In Nepal, the main reason governments impose controls on petroleum products such as diesel, kerosene and liquefied petroleum gas is to help tens of thousands who live on less than $1 a day- and go give politicians a chance to stay in power on election day.
The government raised the prices of kerosene, LPG and diesel slightly because they impact directly on family budget. This is the reason the loss on petroleum products is soaring. Diesel, kerosene and LPG is widely used by all sections.
"The only way out for the government is to adjust the prices of petroleum products at par with the international price," said Dr. Shanker Sharma, former vice chairman of National Planning Commission.
Rising Inflation
On the back of rising prices of food, oil and beverages, the year-on-year consumer inflation stood at 8.9 percent in mid-April 2008 compared to 5.6 percent in the corresponding period last year, said a statistics of Nepal Rastra Bank (NRB).
According to the statistics of NRB based on the first nine months' data of fiscal year 2007/08, the inflation was mainly driven by the significant rise of 12.6 percent in prices of food and beverages in the review period. The price rise of food and beverages was 7.9 percent last year.
Of the items in the index of food and beverages group, the prices of oil and ghee, grains and cereal product and pulses increased by double digit. The price indices of oil and ghee sub-group increased by a whopping rate of 33.8 percent on year-on-year basis.
The sub-group of grains and cereal products witnessed a year-on-year price rise of 19.7 percent in mid-April 2008 compared to 8.7 percent a year ago. Prices of rice and rice product of this sub-group increased by 25 percent compared to 4.9 percent in previous year. The price rise of pulse stood at 14.9 percent on year-on-year basis in mid-April 2008 compared to a rise of 17.2 percent in mid-April 2007.
The index of non-food and services group rose by 4.9 percent in mid-April 2008 compared to a rise of 3.2 percent last year, said the report. In mid-April 2008, the year-on-year core inflation went up to 7.0 percent from 6.6 percent a year ago.
After the rise in the fuel price, the inflation is feared to cross the double digit. Inflationary pressures intensified as renewed political unrest disrupted supplies of essential commodities.
In the face of staggering rise in global oil price, Nepal is not in a position to provide subsidy. The option for Nepal is to allow the private sector in the distribution of petroleum products.
