Yet another hike

By hiking the prices of petroleum products for the third time in six months, the seven-month-old Deuba government has brought their selling prices “close to their procurement costs.” The price of kerosene within these six months has been raised by 50 per cent, that of diesel by over 32 per cent, and that of petrol by nearly 15 per cent. Now a consumer pays Rs.36 for a litre of kerosene (Rs.30 at a subsidised rate for a very limited quantity), Rs.41 for diesel, Rs.62 for petrol, and Rs.850 for a cooking gas cylinder, which has registered a Rs.100 increase over the existing price. Over the past six years, kerosone has gone up by a whopping 252 per cent, diesel by a similar 148 per cent, and petrol by 55 per cent. Understandably, Nepal imports all of these products. So the rises in their international prices push up their import costs. The present hikes are bound to raise the general price level.

The Nepal Oil Corporation (NOC), the state-owned importer and distributor of petroleum products, has always put forth these reasons for any price hikes, as well as the smuggling of those “subsidised” products out of the country making it impossible for it to sustain the losses any further. Multilateral agencies such as the World Bank and the IMF have put pressure on the government to make administered prices “realistic” through sharp hikes, often making further loans conditional on compliance. Indeed, a poor economy like Nepal cannot go on subsidising petroleum products heavily. At present, the NOC is said to have to repay Rs.3.60 billion in arrears for petroleum imports.

This time around, the government has asked the NOC to cut down its regular expenses by Rs. 20 million and given it the authority to revise the prices every two months. Indeed, prices need to be constantly reviewed. But our bureaucrats and politicians have been too lethargic, and when they adjust, prices explode. Besides, hardly ever have prices been reduced even when import costs have gone down. A significant contributor to the total costs of public corporations has been the inefficiency, leakage and corruption that bedevil them, including the NOC. Bureaucrats and politicians have milked the corporations for their personal and partisan purposes over the years, including the Panchayat era. Therefore, consideration needs to be given to a better and cheaper distribution system, allowing competition, an effective mechanism for cutting waste and corruption in the NOC, a better way of making the impact less on the poor, such as cutting taxes if any on petroleum products, and shifting the burden of the hikes more to the luxurious side, such as car owners. At any rate, the public must not be made to pay for the profligacy of government and NOC authorities.