Petroleum shortage has once again hit the life of urban population hard. Long queue of vehicles can be seen in front of petrol pumps. Nepal Oil Corporation (NOC) says that the supply will resume in a day or two but customers don’t believe this statement.
This shortage appeared as Indian Oil Corporation (IOC) lowered its supply to Nepal demanding the outstanding payment of Rs 5.18 billion. But, as usual, NOC is unable to arrange the amount and the government also turns deaf ear to the NOC problem. The current Finance Minister Dr Ram Sharan Mahat is considered to be strongly against fuel subsidy. It seems easy supply will not resume anytime soon.
Moreover, it is not one-time problem. In fact, it is the second most recurrent problem of urban Nepal after load-shedding. The reality is that Nepal has no oil mines, so it has to import oil from international markets where the price goes up all the time.
According to the 1974 agreement between NOC and IOC, IOC bids for crude gasoline from international market and supplies it to Nepal as per the latter’s demand. Nepal has to pay IOC and payment is revised twice a year. Due to inadequate numbers of tankers to carry petroleum products and insufficient NOC storage capacity, private sector plays the complementary role of transportation and supply. However, NOC takes up several responsibilities including pricing, quality control, and monitoring of technical and other losses.
Each of these activities provides scope for illegal operations, making the price, quality and supply of petroleum problematic.
Diesel price affects the price of all imported and transported items including food, clothing and luxury goods. Consumer Price Index (CPI) that measures the price of goods indicates that between 2000 and 2013, price of petroleum products has increased around 450 times whereas the price for other goods increased only 170 times. This shows how helpless we are to the vagaries of international fuel cartels like OPEC.
Fuel price in Nepal is government-regulated. Whenever it increases, student unions take to the streets. To bring an end to the strikes, government often rolls back the price and increases subsidy. As a result, the government has accumulated a huge financial burden.
If every other commodity like food, clothing, and medicine along with automobiles are sold in the market at the purchased price plus excise and profits, why can’t the same be done for petrol, diesel, kerosene, and LPG? In the name of fuel subsidy government as well as NOC seem to be playing lose-lose game. As NOC has to sell petroleum at a price much lower than the purchase price it has already incurred a debt of Rs. 34 billion from different sources. This current shortage has evolved from the additional due payment of Rs. 5.18 billion that is to be paid to the IOC; IOC has already cut 35 percent of its regular supply to Nepal.
Successive governments have tried to stabilize the fuel price just to please the public. They have created large deficits. Moreover, every government recruits party faithful at the NOC. Government officers enjoy privilege petrol and diesel quota. It all proves that NOC is not doing business but has become a party-palace where the powerful make merry. Most employees at the NOC are neither technicians nor business experts.
NOC’s involvement in corruption is clear. From 1997 to 1999 the price of gas decreased in the international market but NOC did not lower the price. Despite the fact that NOC was continuously losing billions, in 1999 it distributed bonus to employees worth Rs 174 million, amounting to 30 months’ salary. They took allowances even for washing clothes.
Investigation found that NOC staff accepted bribes from transporters and dealers who adulterate the petroleum products or cheat in measurement. Such problems have appeared due to the wrong recruiting process, internal corruption, inefficiency among workers and monopoly of NOC in petroleum business.
Obviously, it is not only NOC that is to be blamed; the private sector is equally responsible for the mess. The associations of petroleum dealers, transporters, gas companies and gas dealers have created a vicious cartel cycle in the country. They use pressure tactics like stalling supply and creating artificial crisis in the market to raise profits and commission margins. Energy experts also say that the Indian government uses petro weapon to keep Nepali government honest.
There are two options to manage the fuel problem. First, the market should be opened for the private sector and the NOC be dissolved. Second, NOC should be overhauled by bringing proficient staffs. The first option seems unfeasible for years. Private sector, at present, is less capable of international business or being accepted by the IOC. Until then the role of NOC is paramount. However, the supervision and working modality of NOC should be revised.
Many have suggested an autonomous price determining body. Also, the government should stop fuel subsidy that is mostly abused. Rather, the poor can be provided identity cards that entitle them to subsidized product. To mitigate the adverse effect on general public due to the increment of fuel price, the tax rate should be lowered.
The cumulative burden of the NOC is about Rs 40 billion, more than our budget for health or physical infrastructure. In 2013/14 the government allocated Rs. 30.4 billion for health and Rs. 35.3 billion for infrastructure. If the government stops paying NOC’s debts, more investment in these areas would be possible.
The money thus saved can be utilized for the exploration of cooking gas and other fuel sources. Natural gas has been reported at many locations such as Dailekh, Pyuthan, Dang and even in Kathmandu Valley at Pulchowk and Chobhar. The exploration of petrol initiated by a Canadian team few years ago had shown possibility of finding petroleum at some places.
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