Nepali Times
Oil and politics don’t mix

Politicians are known for populist grandstanding, that is what they are made for. So it's not surprising the UML comrades want to have it both ways: Supplies Minister Ishwar Pokhrel hikes petro prices with a fishy one-week delay and his party's student wing is out on the streets vandalising public property in protest. Even by the reckless standards of Nepali politics, the UML's two-faced opportunism is stunning. Then Pokhrel makes the shocking admission to us (p 8) that dealers are allowed to hoard.

All this doesn't make the fuel price hike less inevitable. The 30 percent increase in global oil prices in the past year has put Nepal Oil Corporation Rs 5.12 billion in the red. The corporation's losses are threatening to bankrupt the state as well.

The basic rule of business is you can't sell a product for less than what you bought it for unless you are: a) stupid, b) a welfare state or c) Nepal Oil Corporation. To be able to afford subsidies, a government needs to be honest, efficient and have a revenue source. Our government is none of the three. So, NOC is putting up public property as collateral to borrow month-by-month from banks to pay Indian Oil for refined petroleum imports. But it can't pay anymore because its selling price is much lower than its buying price.

There is another reason for raising prices: smuggling of cheap subsidised fuel across the open border to India. This is a well-oiled business in which folks on both sides get a cut. Forty percent of the kerosene Nepal imports is either used to adulterate diesel or is smuggled into India. The Nepali state is subsidising Bihari consumers.

Things got so serious that on the eve of Prime Minister Sher Bahadur Deuba's visit to New Delhi in September, Indian Oil announced it would slap excise duty on its exports to Nepal as a warning against smuggling.

This week's fuel price rise has narrowed the gap with India but there is still a NRs 1.64 per litre difference in kerosene, Rs 4.15 for diesel, nearly Rs 2 for petrol and a whopping Rs 5.49 for aviation turbine fuel. (It makes sense for an Indian Airlines Airbus to tank up in Kathmandu instead of Calcutta.)

Despite the price rise there is still a domestic differential of Rs 5 between kerosene and diesel and a big
Rs 26 with petrol. As long as this gap remains, we will keep getting adulterated fuel at the gas stations.
NOC must be completely overhauled into a clean energy company. Only then can it repay its debts, go into profit so the government can invest the surplus into renewable energy. Nepal's strategy must be to cut our crippling dependence on imported fossil fuels.

Till then, here's a \'win-win\' situation: we waste 600 million units of hydropower worth Rs 1.5 billion every monsoon. Let's swap that for refined fuel from Barauni.

Let's stop playing politics with fuel and use pricing mechanisms to control adulteration and smuggling.

(11 JAN 2013 - 17 JAN 2013)