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Kathmandu,Monday March 06, 2000 Fagun 23, 2056.
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Int’l trend may
raise petroleum prices in Nepal
By Ameet Dhakal
KATHMANDU, March 5 - Swelling international prices
of petroleum products has once again heightened the possibility of hike in the domestic
prices of petroleum for the second time within a period of less than six months.
International price of petroleum has increased by
almost 50 percent since last September, after NOC raised the price of diesel and kerosene
by 48 percent and 23 respectively. West Texas Intermediate crude prices in United States
hit over US $ 30 per barrel last week, from about US $ 20 per barrel during last October,
reaching its highest level since Gulf War in 1991(see the adjoining chart).
International petroleum price has seen an
unexpected swing from bust to bump in the last one year. Crude oil prices sank to US$ 10
per barrel in early March last year, hitting roughly what it used to cost before the First
Oil Shock of 1973. Contrary to the much-hyped international media threat of “drowning
in cheap oil,” oil price has soared up since then by almost three folds since last
March.
The bloating international price has been directly
reflected in prices offered by the international petroleum suppliers to NOC. Per metric
ton price of kerosene and diesel during its last import on 16 February touched US $
256.090 and US $ 258.49 respectively.
Price of diesel and kerosene shot up further after
February 16 and touching US $ 270 and US $ 278 last Friday. This price was US$ 195
and US$ 225 for kerosene and diesel respectively when NOC last hiked the prices on
September 27.
With this continuous upward movement in the price
of petroleum, many speculators predict rise in the domestic petroleum prices in the near
future.
Officials at Nepal Oil Corporation (NOC), the
monopoly government undertaking dealing with the import of oil, however, say they would
wait till the first half of April before they request the government for price hike.
“We will not press the government for hike
till April as we have the cushioning of past profit to resist the pressure of rising
international price of petroleum products till then,” says Yuba Raj Sharma, Managing
Director of NOC.
NOC officials are, clearly banking on the hope that
the international pressure on petroleum price would recede after April as the winter wanes
leaving room for warmer days and night.
Obviously, petroleum price hike is a politically
sensitive decision and the political leadership would always try to defer it till the last
minute. However, if the international price increases along the trend beyond April,
neither NOC will have the cushioning of past profit anymore to sustain the deficit nor the
government will have the political guts to go ahead with such an enormous deficit.
Going by the present cost structure, NOC’s
profit margin, achieved after the last price hike, has already eroded. Presently,
NOC’s per litre loss has increased to Rs 5.34 and Rs 1.82 in case of kerosene and
diesel respectively.
Though NOC continues to enjoy a profit margin of
about Rs 4 per litre in the sales of petrol, low volume of sales of petrol cannot offset
the loss accruing from the sales of kerosene and diesel. Currently, NOC sells 340 thousand
kilolitres of diesel, 305 kiloliters of kerosene and 43 thousand kiloliters of petrol
annually.
If the international price continues to move
upward, the government will be left with the only option of sacrificing revenue it derives
from taxing the imports of petroleum products to contain further price hike. For
instance, government taxes Rs 5 per litre in the import of diesel (including Customs
tariff, Value Added Tax, SAF Games tax and Local Development Tax).
Government can exempt these taxes on petroleum to
avoid the politically damaging decision but is unlikely to do so in the wake of rising
fiscal deficit. Fiscal deficit has grown alarmingly in the first half of the current
fiscal year and could grow disproportionately by the end of the fiscal year.
Thus, given the rising fiscal deficits at home and
increasing petroleum prices abroad, government is unlikely to find alternatives to
petroleum price hike, but it is likely to wait until India raises petroleum prices to find
a “natural excuse” as in the past instances.
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