National 2 (Spotlight Weekly)

Accumulated Pressure

Because it felt to adjust the petro prices in the past, the government now needs to face the pressure of its decision – which was long overdue

By SANJAYA DHAKAL

It was like a stretched rubber band. The pussyfooting by the government in the past in adjusting the prices of petroleum products had resulted in a gradual build up of strain in its vital economics. The strain – like an earthquake - had to snap at some time. And when big earthquakes come, they are messy and they only trigger disaster.

Instead of choosing to let go of such strains over a long period of time – through minor tremors that do not cause mass panic – the government let the pressure build to a crescendo before it finally took the decision of substantially increasing the price of petroleum products ranging from 10 to 25 percent increase unleashing a wave of protests from student organizations and opposition parties who want to use the issue for their own political motives. As usual, the student unions have started to burn tires, engage in senseless vandalism and block traffic in what they call as 'show of protest against anti-people decision.'

The cabinet decided to increase the price of petrol from Rs 56 per liter to Rs 62 (an increase of 10.71 percent); diesel from Rs 35 to Rs 41 (up 17.14 percent); kerosene (at open market) from Rs 28 to Rs 36 and kerosene (on subsidy) from Rs 24 to Rs 30 (up 25 percent). Likewise, the price of cooking gas per cylinder has been increased from Rs 750 to Rs 850 while the aviation fuel has been hiked from Rs 46 per liter to Rs 48.

"The government had two alternatives – either commit suicide or raise the price. We chose the latter," said Ishwore Pokharel, Minister for Industry, Commerce and Supplies, announcing the price hike during the 35th anniversary program of state-owned Nepal Oil Corporation (NOC) on January 10. His remarks clearly pointed to the government's desperation in view of soaring losses of the NOC.

According to Dr. Upendra Koirala, chief of the NOC, with the revised rates the corporation would make a net profit of Rs 50 million a month. Till now, it was bearing losses to the tune of Rs 300 million per month. It had outstanding dues to the Indian Oil Corporation (IOC) running to the tune of Rs 2 billion and had accumulated losses worth over Rs 5 billion. The NOC was on the verge of being declared bankrupt.

"Even with the new increased price, it would take us 30 months to just survive. Here we are not talking about recovering the accumulated losses," said Dr. Koirala. He added that even now the price of petrol in Nepal is lesser by Rs 1.58 per liter compared to India. Likewise, he added, the price of diesel is less by Rs 4.05 and kerosene (open market) by Rs 2 compared to the same in India.

Economists agree that the decision to hike the price of petroleum products was inevitable given their rise in international market. "But the way they announced it so abruptly was not called for. They prolonged and dilly dallied in taking the decision in the past and now they have increased the price in retrospective manner," said Professor Dr. Bishwambher Pyakuryal, president of Nepal Economic Association. "It is just like if the power utility decides not to give bills to its customers for, say six months, and later charge them at one go. While this is not something that the customers can deny, they will be hard pressed to pay so much of accumulated dues at once," he likened.

The latest hike in the price of petroleum products – which is third such decision in the last four months – is based on the recommendations of the report prepared by a team led by Dr. Shankar Sharma, vice chairman of the National Planning Commission (NPC).

As per its recommendations, the government has also decided to slash the import duty on cooking gas by 50 percent (from the existing 13.5 to 6.75 percent) – which would mean that the government requires to bear Rs 21.4 million as liability every month. As per the new price structure, the government extracts revenue of Rs 7.5 per liter in diesel and Rs 1.75 per liter in kerosene.

Moreover, as per the recommendation of the team, the government would now allow the NOC Board of Directors to adjust the prices of petroleum products every two months based on its international price swing. Whether the periodic price adjustment is implemented properly remains to be seen.

In India, similar price revising mechanism is already in place –and they sometimes adjust the price twice a month. "Such regular revision would not make the people feel the pinch," added Dr. Pyakuryal.

The cabinet meeting has also decided to introduce the concept of selling diesel at subsidized rate to farmers who use it in irrigation and other purposes. The NOC would make available 10 million liters (at the maximum) of diesel at the rate of Rs 35 per liter to the farmers. Moreover, the NOC would bear the transportation expenses and make available the fuels in remote areas at the same rate as in Kathmandu. The subsidized kerosene would be made available to backward classes, students, victims of conflict and laborers. The government would need to spend Rs 1.35 billion annually to meet these obligations.