If you thought the government's odd-even restrictions on fuel and the price hike announced Tuesday night were related to the Iraq war, think again.

The real reason is that Nepal Oil Corporation is bankrupt. Mis-management, corruption and past political interference have contributed. But the main factor behind NOC going belly-up is the subsidy on kerosene and diesel that the state-owned enterprise has to foot. By an across-the-board increase in the price of petrol, diesel, kerosene, LPG and aviation fuel, the government hopes to reduce NOC's deficit from Rs 700 million to Rs 100 million.

Government officials explain that the price hike is aimed at stopping smugglers from selling cheaper Nepali kerosene in India because of the 20 percent price differential across the border. In addition, they hope to make it less lucrative to mix kerosene with diesel and petrol and curb rampant and open fuel adulteration.

The price of petrol is up from Rs 52 per litre to Rs 56. Diesel has gone from Rs 26.50 to Rs 35.50. Kerosene is up nine rupees to Rs 28. Aviation fuel has taken off to Rs 34, prompting domestic airlines to raise air fares by Rs 350. Bus costs went up by 30-40 percent. Subsidised cooking gas, which was being used by public transport vehicles has gone up from Rs 650 to Rs 700 per cylinder.