Hard choices

Within the past year or so, the world price of crude oil has doubled. The last time the prices of petroleum products had been hiked, the world price stood at US$83 for each barrel. Now, within a few months, the price of crude has soared to around $130 a barrel. The Nepal Oil Corporation, the only agency responsible for the distribution of the petroleum products within Nepal, has been providing statistics of mounting losses with each passing month, as the oil price continues to touch new highs. True, there is plenty of room for improving the management of the oil business, through measures such as reform of NOC, thus cutting cost, leakage, inefficiency and corruption. But at the same time, taking a fresh look at the existing price structure of the petroleum products has been overdue, because heavy losses cannot be sustained for long.

NOC now owes more than Rs.15 billion to its creditors. The government gave it another Rs.800 million to pay its supplier the other day, but such emergency assistance will amount to peanuts. The lines at the petrol pumps have not disappeared for the past couple of years, and the losses have accumulated for seven years. In recent days, the losses have gone up sharply for two reasons – the increasing international price and the appreciation of the dollar vis-à-vis the Nepali rupee. According to the data released by NOC yesterday, the losses on the various products per litre stand as follows: petrol (Rs.19.67), diesel (Rs.43.73), kerosene (Rs.36.07), and LPG gas (Rs.379.98 per cylinder). The total taxes on the prices of the last month in the above order come to Rs.28.08, Rs.14.47, Rs.2.35, and Rs.227.21. To cover just its cost, NOC will have to hike the present prices by a large amount on each of these items. Any price revision will therefore be an unpopular decision, and the incoming government will be faced with difficult choices as soon as it takes power. The only thing it can do is to find a mix of prices to make the increases as less severe as possible without making them unsustainable.

First of all, the government could contribute to this by lowering its taxes, and scrapping them for kerosene. For petrol, the government could set the price substantially at more than the cost; but on kerosene, which even the poorest use daily as fuel and for lighting, the price could be increased relatively moderately; and for diesel it could be fixed at a level to recover cost; so, too, for LPG gas, which is mainly used by urban consumers and industrial users. The government could also consider the idea of dual pricing — for LPG gas, separate pricing for domestic and industrial users; and a cap on the quantity made available to each household per month at subsidised prices for gas and kerosene. But dual pricing could also lead to corruption and manipulations by dealers and employees. This aspect also deserves consideration. But the next government must end the existing shortages soon and make oil easily available. But it should revise the prices only after taking the public into confidence by laying everything before it, honestly and in detail. In future, losses should not be allowed to pile up.