Just a beginning

At last, the government has hiked the petroleum prices. This time, the decision has been based on the consensus of all the major political parties. For each litre, petrol will now sell at Rs.100 (up by Rs.20), diesel at Rs.70 and kerosene at Rs.65 (up by Rs.14 each), and LPG per cylinder at Rs.1,200 (up by Rs.100). Now, the Nepal Oil Corporation says that its total monthly loss has come down to Rs.1.7 billion rupees from Rs.2.7 billion. According to Supplies Secretary Purushottam Ojha, the new adjustments seek to distribute the burden of the loss evenly among the government, the NOC and the consumers. Tax cuts, price hikes, and the latest government loan of one billion rupees will see NOC through another month of crisis. In yet another measure aimed at making the oil easily available at all times, the government has decided to adopt the policy of opening up the import and distribution of the petro-products to private investors.

The government’s (and NOC’s) failure to adjust the prices regularly has been the main cause of the prolonged acute shortages. This period of crisis has involved a considerable economic cost for the nation. While the consumers were often unable to get the supply at the official prices, others, such as dealers, made a killing on the black market. So, the consumers did not benefit from the unsustainably low prices. This state of affairs must not be allowed to continue in future. But, even now, there is no guarantee of this. First of all, the ongoing supply disruptions have to be rectified. What will happen one month hence? To ensure supply, NOC will need fresh infusions of loans. NOC debts stand at Rs.16 billion at present. But the current hikes are still insufficient to make cost and revenue equal, let alone repay the outstanding NOC loans.

The protests against the hikes have mainly erupted because they have often involved adjustment of the losses accumulated over a long time, making the burden heavy on the consumers all of a sudden. This must not happen again, and the remaining deficit should be gradually filled through small increases periodically, say every two months, over a period of, say, two years. A certain degree of cross-subsidisation may well be considered, so also whether it is feasible to discriminate in price between domestic and commercial consumption. In particular, petrol could further be made dearer to make a profit on it. Over the past one year, the world price of oil has doubled, and further price rises are being predicted. Credible efforts are required to make the NOC operations more efficient, cutting waste and corruption. Besides, special measures will be necessary to cut down on oil consumption and on oil bills. The government should lead the way, and it has made an initial gesture by announcing a reduction in the petrol facility provided to its officials. More should follow. It will be advisable to strengthen the system of public transport. As for private investment, it is too early to say definitely now, given the nature of the oil business and the lack of details. But, as long as the NOC prices remain below cost, can the prospective private investors expect to be competitive?