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Kathmandu Saturday October 14, 2000 Aswin 28, 2057.
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Petro-price hiked
Kerosene hits the roof
By Bhaskar Sharma & Prem Khanal
KATHMANDU, Oct 13 - Bowing under mounting pressure due to
bloating international oil prices and recent price hike by India, the government has
finally announced to increase the price of diesel by 20 per cent, petrol by 17.50 per
cent, kerosene by 100 per cent and LPG by 19 per cent.
However, in the case of kerosene, the government for the
first time has also made up its mind to introduce the ration card system nationwide, under
which, each household with ration card will be entitled to 3 litres of kerosene every
month at subsidized rates of Rs 15.50 per litre, exclusive of transportation charges which
the consumer has to bear.
"The Cabinet today took the decision in line with the
recommendations put forward by NOC to raise petroleum prices," said Madan Raj Sharma,
Executive Director of Nepal Oil Corporation (NOC).
The new prices for petrol, diesel and kerosene are Rs 47, Rs
27.50 and Rs 26 per litre, up from Rs 40, Rs 23 and Rs 13 respectively. Similarly, the
price of LPG per cylinder was hiked from Rs 465 to Rs 550.
Petro-price increase at home followed price hike by India on
September 29, propelled primarily due to rising international oil prices and depreciating
rupee against the US greenback.
Though raise in domestic oil prices will to some extent help
in bridging the oil deficit and providing cushion to the weakening rupee, in addition to
curbing cross border smuggling arising out of price differentials between the two
neighbouring countries, yet it is bound to have an inflationary pressure on the economy.
"Petroleum price hike in the domestic market will surely
cause inflation and slow down the rate of economic growth. Nepal, however, could not
remain in isolation without raising price under the present circumstances. It should now
try to come up with alternative measures to minimize the damage caused by the price
surge," said Dr Yuba Raj Khatiwada, Chief Economic Advisor with Nepal Rastra Bank
(NRB).
With the Indian announcement to hike prices on September 29,
Nepal was sure to review its own pricing structure. However, the matter was left lingering
considering the socio-political impact it would have during the Dashain festivals.
India raised the prices of diesel, kerosene and petrol by IRs
3 on an average. Per litre diesel price in New Delhi presently stands at IRs 16.54 (NRs
26.50), up by IRs 2.50. Similarly the price of petrol and kerosene has also increased by
IRs 2.38 to touch IRs 28.45 (NRs 45.52) and by IRs 2.81 to IRs 8.36 (NRs 13.38)
respectively.
Nepal had last raised petro-prices on September 27 last year
when it hiked kerosene prices by 23 per cent and diesel by 48 per cent, leaving the price
of petrol unchanged. The price of petroleum products in the international market then had
swung from bust to bump.
While the price per barrel of crude oil last March had fallen
as low as US $ 10 per barrel, its price at the time of hike last year hovered around US $
20. Since then petro-price has continually upsurged, which today hovered around US $ 35
per barrel.
"Petro-price hike is bound to increase costs of
production and inflate the import bill. However, it was inevitable considering the recent
price hike in neighbouring India and soaring world oil prices," said Dr Shankar
Sharma, member of National Planning Commission (NPC).
However, member of the opposition, Dilli Raj Khanal said that
price hike should have been delayed considering the recent assurances of Indian Prime
Minister Atal Bihari Vajpayee to roll back oil price hike to around 10 per cent from the
present average of 18 per cent.
He also said that if the government adopts a policy of
increasing prices of petroleum products at times when world prices are high, it should
simultaneously reduce prices with a decline in international price level.
Though the decision to raise petroleum prices will deal a
hard blow upon consumers yet it will help in containing the losses that NOC is incurring
not only in the sale of kerosene, which the government subsidizes, but also in diesel and
LPG.
With the introduction of new prices, loss per litre of diesel
and kerosene, under ration card, will stand at Rs 4.50 and Rs 9.75 respectively.
Similarly, the loss per cylinder of LPG comes down to Rs 100 from Rs 187.
However, kerosene in the open market will fetch profits of Rs
0.60 per litre. Similarly, petrol would enjoy profits of Rs 5.40 per litre, which will
still be difficult for NOC to provide a cushion to its accumulating losses. Low volume of
sales of petrol could never fully offset the loss accrued due to sale of kerosene, diesel
and LPG.
The annual demand for kerosene and diesel presently stands at
around three hundred fifty thousand kilolitres each while that of petrol is only about
sixty thousand kilolitres.
With price of petroleum products in the international markets
still showing no signs of coming below US $ 30 per barrel, it is unlikely that pressure on
NOC will fully recede although price is hiked at par with India. The only hope left would
be for OPEC to bow down to international pressure, especially USA, to increase the
production quota to contain the per barrel price of crude oil at the principally agreed US
$ 25.
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