Nepali Times
Economic Sense
Those energy blues


In a change from the past, when the government announced the new fuel prices on Tuesday the protests were sporadic, more a half-hearted formality to go through to give people time to digest the 25 per cent increase. Yet this was perhaps one of the most significant hikes we've had.

The truth is people are tired of spending a quarter of their lives in queues, they have seen the high price of the booming grey market, and they understand the long-term impact of businesses having to close down.

Also, the government sugared the bitter pill by saying the sector would be opened up to private investment. But, like most government pronouncements made in haste, the details remain unknown. With strong government-level contracts between IOC and NOC, and with the Indian government granting IOC a monopoly to supply petroleum products from India, one is left to wonder how private sector players will be able to participate.

For the moment, it's the transport operators who will benefit most from the price rises. As in the past, there is no correlation between the fuel price increase and the hike in bus and taxi fares. The transport companies - who function like state enterprises in socialist countries - are already making unilateral pricing decisions.

The sector remains one of the most unregulated, and has got away with shoddy practices time and again in the past. For every rupee increase in the fuel price, how much should transport fares and freight charges rise? There should be a way to control this. Now is the time for bus and taxi customers to question every extra rupee they are charged.
And at this price, the consumer should be getting a quality product. It is time the petroleum dealers stopped the shabby practice of adulteration and showed themselves to be purveyors of high quality products.

It is not just about quality, but also quantity. Government regulations concerning both fuel quality and the calibration of fuel pumps have always been weak , for obvious reasons which this Beed need not dwell on.

Globally, oil prices will continue to rise as investment in real estate has taken a hit with the subprime crash. Hedge funds and private equity funds are under constant pressure to deliver the high returns they have promised investors, so speculation has now shifted to commodities including oil.

Oil cost $24 a barrel in 2001 and the price has risen nearly sixfold in the past seven years. Those analysts who predicted the $200 barrel may yet be proven right. Nepal has no influence on global oil prices: our GDP is lower than the marketing budgets of some oil firms. But while Nepal cannot do much about the price or supply, it can surely do something on the demand side.

A water-rich, electricity-poor country like ours should be looking at hydropower development more seriously than ever, perhaps even allowing merchant plants to be built without a Power Purchase Agreement in place. The cost of hydropower is low compared with the cost of petroleum products, and the time will come when hydropower pricing can be aligned to oil pricing. Product substitution will eventually take place: people will use electricity for domestic cooking and heating, and will buy hybrid or electric vehicles.

It is also time to explore energy from waste, wind and sun, which can all be developed for less than the cost of oil at $200 a barrel. Energy and water management in the 21st century are going to be just as important as the management of state boundaries was in the the 18th and 19th centuries. Failure will bring disaster. Any takers?

(11 JAN 2013 - 17 JAN 2013)