Faced with an upward trend of international petroleum prices, Nepal, like so many countries, is feeling the pinch. The Nepal Oil Corporation (NOC), the only distributor of oil for Nepal, is reported to be running up losses on an increasing scale. The last unsuccessful price hikes in kerosene and diesel just three or four months before the CA election had to be rolled back within forty-eight hours under nationwide public protests. The last actual price hikes had been introduced when the world price of crude oil stood at $83 per barrel; it has now hit $117 this week. Even with the last hikes, the NOC had claimed that it was still making a loss, though on a reduced scale. According to the NOC, it is incurring a monthly loss of Rs.1.35 billion at its current cost and selling prices. Over the years, the NOC has always claimed that it has been in the red. Never have the domestic petroleum prices been reduced even after a decline in the world oil price.

What the public wants is transparency, as well as accountability and honesty on the part of those who make oil policy and decisions. First of all, the public does not know the details of the oil contract between the NOC and the Indian Oil Corporation (IOC), the sole supplier to Nepal; a PIL case seeking the full disclosure of the deal is still sub judice with the Supreme Court. The very fact that one has to go to court just to obtain information about a commercial deal of a public sector undertaking is a big irony in itself. Secondly, there is a general impression that operating and administrative costs of the petroleum products could be significantly brought down, by cutting inefficiency, waste, leakage, and corruption. There is a third major factor – the various taxes on the petroleum products that account, on average, for about one-fourth of the cost price. With every price hike, the government stands to benefit from increased oil tax revenue. This revenue far exceeds double the losses the NOC says it is incurring.

Public protests have ensued because of the fact that no government has ever been transparent, made any credible effort to prune cost, and been able to explain the real situation to the public adequately. The insensitive and irresponsible approach – ‘NOC is incurring a loss on a scale it can longer sustain, so the increase in the price’ – if repeated, will trigger public protests again. The government and the NOC should learn from the past mistakes, and then come up with a package that will make the oil distribution financially sustainable, minimising the impact of the hikes on the weaker sections of the people. The package should include full transparency, sincere and visible efforts at reducing costs, including revamping the NOC, taking the public into confidence, a wise mix of tax cuts in the petroleum products, as well as wise pricing of the various products. Other ways — such as permitting the private sector to import and distribute the petroleum products and introducing dual pricing for industrial and domestic uses — should also be considered. The major political parties will also do well to develop a consensus on oil policy, lifting oil pricing above petty-political interest.