Handful of dust

For the past couple of years, the country has been suffering an erratic supply of petroleum products. As a result, serpentine queues of vehicles at petrol pumps have become a common sight. Even after hours of wait, many are disappointed. In economic terms, the man-days thus lost alone will work out to a horrendous level. Besides, the shortage of oil that causes general inconvenience and disruption in economic activity, say, in transportation, has adversely affected the economy as a whole. Politically, too, this prolonged crisis reflects poorly on the interim government. The source of the crisis is simple — the Nepal Oil Corporation’s inability to pay the Indian Oil Corporation (IOC) in time, with arrears at any point in time running to several billions of rupees. The NOC has failed to pay its bills regularly because the money it gets net of taxes from sale of petroleum products falls short of the price it has had to pay for their import.

After every stoppage of supply, the government decides to release some money enabling the NOC to make partial payment to ensure a few days, or sometimes a few weeks, of uninterrupted supply. It highlights ad hocism on the government’s part in the management of the supply of a product on which the country depends solely on import and which is

also vital to the daily working of the economy. At times, the government has been seen to make humble requests to the IOC or to the Indian government for continued supply despite the NOC failure to pay in time, and this has certainly not been an edifying experience for Nepal. The oil contract signed between Nepal and India is simply a commercial deal, and it should be carried out on a commercial basis. Government leaders have made it clear that the imported oil cannot be subsidised. However, the interim government composed as it is of the eight political parties with their different economic and political priorities has not been able to reach a consensus on how to deal with the oil crunch.

If the crisis is to be ended soon, the NOC should be allowed to get from its sale of oil a price that is enough to pay the import bills. What should, however, be borne in mind is that it is not just the uneconomic price of oil but also the high taxes on oil that have forced the NOC into red. There have also been suggestions of cutting the tax rates, but the finance minister recently dismissed the idea, arguing that even countries like India levy similar or

even higher taxes on oil. He favours making up the shortfall entirely through price hikes. But his comparison is not reasonable. For instance, India meets all its regular and development expenditures through its own resources, but Nepal depends mainly on foreign aid, partly even for regular expenditure. It would certainly be unfair on the government’s part to pile up both the burden of taxation and of price on poor citizens. The government ought to consider

cutting the heavy taxes on oil, which hover at more than one-fourth of the price, when it decides to make upward price revisions. At the same time, the Nepal Oil Corporation should be reformed and options for oil distribution weighed.