National 6 (Spotlight Weekly)

Fueling Controversy

The government takes a half-hearted decision to raise the price of petrol and cooking gas but keeps mum on kerosene and diesel

By SANJAYA DHAKAL

A week after the government declared its relief package, it announced a hike in the prices of petrol and cooking gas. The Nepal Oil Corporation (NOC), the state-owned oil importer, had requested the government to hike the prices of all petroleum products. But the government, which did not want to be on the wrong side of the public wrath, which was likely to be generated by price rise, decided to adopt a cautious approach - resulting in a situation where neither the NOC is satisfied nor the consumers are happy.

The current hike, according to government sources, is but only the initial step. In due time, they say, the government will review the prices of diesel as well as kerosene.

Petrol-driven vehicles : Hard hit

The current hike in the petroleum products were the result of the NOC's request for the same. According to the NOC, it presently is incurring heavy losses due to low price of kerosene, diesel and cooking gas. According to the NOC, despite the recent hike, it will lose around Rs.2.88 billion, Rs.1.5 billion and Rs.715 million respectively in the sales of kerosene, diesel and cooking gas each year. The petrol, however, yields it the profit of Rs.715 million a year.

Because they are consumed mostly by poor masses and transportation and industrial units, the government is reluctant to raise the price of kerosene and diesel. It has been adopting the strategy of providing cross-subsidy by hiking the price of petrol. However, because of huge difference in the consumption volume of petrol and other petroleum products, the cross-subsidy is inadequate to address the problem.

"The current hike is inadequate. Unless the prices of kerosene and diesel are reviewed, we will continue making losses," said Rudra Bahadur Khadka, acting managing director of the NOC. According to him, the oil pool deficit is so huge that the corporation will have to ask for Rs.1.5 billion from the government to import petroleum products for the month of December itself.

The NOC had recommended the government to up the price of kerosene, diesel and petrol by Rs.6 to Rs.8 per liter, and cooking gas by Rs.195 per cylinder. But the cabinet refused to heed the NOC's suggestions and instead gave green signal to rise the price of petrol to Rs.52 per liter (up by Rs.6). The price of cooking gas also was raised by Rs.100 per cylinder.

"The government is in a dilemma. On one hand, it does not want to raise the hackle unnecessary by raising the prices. On the other, it cannot continue providing subsidy even when it is running a deficit budget," said an economist.

The economist said that the recent decision by the government would neither address the problems of the NOC nor help it win public sympathy. Already the student wings of leftist parties have started demonstrating against the hike.

On the other hand, thanks to the huge difference in price of kerosene and petrol, the problem of adulteration persists. The NOC had even decided to tint the poor man's fuel with blue color to check this problem. Likewise, the price difference in kerosene between India and Nepal stands at staggering Rs.11 per liter. Due to the open border, any difference in prices are likely to create a potential difference and will trigger smuggling. Presently as kerosene fetches more in Indian market, smugglers tend to smuggle it to Indian border cities.

Adding to the woes of the NOC is its lack of transparency. In the past, the corporation has been accused of hiking the prices of petroleum products even though their prices in international market have come down. "The corporation has always raised the prices whenever the international oil prices shot up but it has never rolled back the prices when they come down," said another economist. He said that allowing private sector to enter the market of importing oil could break the monopoly of the NOC and pave way for better transparency in petroleum prices.