National 5 (Spotlight Weekly)

Private Concerns

The government appears to be considering allowing private sector involvement in petro business

By A CORRESPONDENT

Amid the growing public criticism over the handling of the petroleum sector under the monopoly of the state-owned Nepal Oil Corporation (NOC), the government is mulling allowing private sector to import and distribute the petroleum products.

According to Kantipur daily (January 22) the cabinet has last week made a policy decision to immediately bring out an ordinance to allow the private sector to engage in the transaction of POL products. Following the decision, the Ministry of Industry, Commerce and Supplies has prepared a draft law and submitted it to the Law Ministry.

As per the proposal the government will fix a maximum retail price and the private sector and the NOC will have to compete remaining within that fixed limit. The proposed bill also has provisions to do away with indirect subsidies to invite healthy competition. At present, the NOC gives cross subsidies thereby profiting from the sales of petrol and aviation fuel to subsidize kerosene and diesel. Sources said that ending indirect subsidies will allow the government to use resources to provide direct subsidy to residents of remote regions in terms of transport cost and so on. Such subsidy will apply on both the NOC and the private sector.

Likewise, the proposed law also envisages setting up 9-member committee coordinated by Supplies Minister to regularize and monitor the market. This committee will also check the possibilities of collusion and carteling among the private players. There will also be a monitoring committee under this committee, which will have representatives from private sector, consumer organizations and so on.

The interested private sector companies could invest on their own or seek foreign partnership in order to conduct their business. The companies could either transact on all types of POL products or on select few. As per the proposal, there will have to be paid-up capital of Rs 1.55 billion in case of companies that want to transact in all types of POL products. For those who want to just transact petrol the required paid up capital will be Rs 200 million; for diesel Rs 700 million and for kerosene Rs 650 million. In case of foreign partnership, up to 51 percent foreign investment will be allowed.

Furthermore, there are also some conditions regarding required physical infrastructures. The companies will have to build reservoirs to store the volumes of products that can cater to at least 15 days of demand. And they have to operate in at least 38 districts covering all the development regions and will have to compulsorily operate in remote regions. Sources said that these conditions have been laid down in order to avoid non-serious private sector companies.

Meanwhile, even as the dispute between the Nepal Oil Corporation (NOC) and cooking gas distributors ended last week, the dealers of petroleum products have given 15-day ultimatum to fulfill their demands. The gas dispute ended after the NOC agreed to increase the transport cost to 12 percent. It has also agreed to form an ad hoc committee to look into all expenditures incurred in the import of LPG. After the agreement, the gas delivery and retail distribution is expected to resume within a week.

In another development, the Petroleum Dealers’ Association has threatened to go on a strike if their demands are not met by the NOC. They have raised objection over the decision to cut down the shrinkage level as recommended by the report prepared by the high level government committee. Earlier, the NOC allowed the shrinkage loss of up to 108 liters in 12,000 liters of POL products. But now the admissible shrinkage loss level has been brought down to 72 liters. Likewise, the dealers have also demanded increasing their omission from 3 to 5 percent.

Competition Law

Just on the eve of Tihar festival last year the sugar were strangely absent from the market. In what appeared to be a clear case of the price carteling, the sugar traders created its artificial shortage. Even the government conceded the presence of sugar cartel and decreased the import tax on the product from 25 to 10 percent to beat the colluders.

The absence of fair competition is rampant in Nepalese markets and the experts have underscored the growing need for a competition law in the country. The monopoly behavior by the Nepal Telecom, Nepal Oil Corporation and sundry others have hurt the consumers, they say.

In the process of getting the membership of the World Trade Organization (WTO), Nepal, too, has made voluntary obligations to introduce competition law to provide level playing field to all.

But the law has not yet been introduced. “The government is engaged in the preparation of the competition law. The delay is because we want to introduce proper law based on our reality,” said Prachanda Man Shrestha, joint secretary at the Ministry of Industry, Commerce and Supplies.

“The government rules and regulations are necessary to allow optimum competition. Such laws should address the structural characteristics of small industries; enforcement mechanism; and curtail anti-competitive practice,” said Dr. Posh Raj Pandey.

According to Ratnakar Adhikari, Nepal needs competition law immediately. “The law is needed to check the arbitrary power of monopolies. Since market powers are exploitative in nature, it is necessary to check them through systematic laws,” said Adhikari, executive director of South Asia Watch on Trade, Economics and Environment (SAWTEE), addressing an interaction on the subject organized by Nepal Bar Association, Committee for Intellectual Property and Development Law.