Nepali Times
Strictly Business
Fuelling discontent


The lesson from this week's petrol riots is this: when market forces are subverted in the buying and selling process of essential commodities, it invites riot forces. Just look at how the petrol business has been run in this country.

Dipping into its foreign currency reserves, Nepal buys petrol from global markets. It pays market rates to purchase the 'mother stock' of petroleum products from India and other countries. The government organ which alone is entrusted to buy petrol, the Nepal Oil Corporation (NOC), has long been considered a den of corruption.

The NOC's business model is straightforward: buy petrol at (high) international prices, do bits of processing in Amlekhganj, and sell it to domestic consumers at (low) government-fixed rates via a consortium of dealers. In a competitive business setting, such a buy-high-and-sell-low pricing scheme would bankrupt a firm. But successive governments threw open the treasury to keep the NOC going so that 'the poor ' would continue to have access to petrol (as if they owned cars and buses!), and few saw reason to protest against petrol prices. But in recent times, with global petrol prices continuously heading north, coupled with a relative decline in the Nepal government's ability to provide huge subsidies, the NOC's only option was to raise the domestic price.

And when it did that early last week, the reaction from 'the poor ' (whose choice of protest included motorcycle rallies!) was vicious. After two days of shutdowns, the government agreed to roll back the prices. That meant diverting money away from, say, primary education or basic health care to continue to provide subsidised petrol for a few. In this politics of hasty compromise were these questions: have we locked ourselves into a dangerously unsustainable position here? If so, is there a way out?

The NOC is a Panchayat-era monopoly, set up to streamline petroleum purchasing, pricing and distribution decisions. With government money available, NOC bigwigs discovered that the only incentive they faced was to make money for themselves and their political masters. There was money to be made when conducting international purchases, in selling subsidised Nepali petrol in India, in adulterating fuels, and in deciding who gets to own petroleum depots across Nepal. Ministers, who signed the government cheques, saw NOC as a quietly lucrative entity that helped pay for party expenses and elections.

The NOC is a huge drain on public resources. Sure, ministers can keep propping it up for their own narrow political interests, but that comes at a very, very high cost to us all. To get out of this unsustainable position, it's time to think of dismantling the NOC. Let's instead have competing private domestic and international suppliers who can buy petrol directly from anywhere and sell it straight to Nepali consumers. As with airlines and long-distance bus services, competition-not a monopoly-will provide choices of products and services to consumers at market-driven lower prices. The only losers will be NOC officers and their political masters.

If we fail to think through alternatives to NOC now, no matter who's in government later, we will find ourselves more vulnerable to riot forces than to those of the market.

(11 JAN 2013 - 17 JAN 2013)