Two weeks ago the country was almost shut down to protest a steep hike in fuel prices. What the opposition parties should actually have been protesting is a nationwide adulteration scam that costs the Nepali people Rs 1.2 billion a year.

Our investigation has shown that from the moment the "mother stock" of petrol and diesel enters Nepal from India, there is systematic adulteration every step of the way: along the side of the highway to the Nepal Oil Corporation depot at Amlekhgunj, in the diastribution network from Amlekhgunj to Kathmandu, at petrol pumps all over the country. The protection racket goes up the NOC ranks, to the politicians. And everybody gets his share.

Krishna Upreti of New Sita Oil in Parsa, Chitwan, told us bluntly that there is no way he can make a profit without mixing kerosene with petrol and diesel. "By the time I sell my petrol it is almost 50 percent adulterated," he told us. "If adulteration was stopped, half of all the petrol pumps would go out of business."

We checked if Upreti wanted his name used in this story. "Go right ahead," he told us. The fact that petrol pump owners can say such things on record is an indication of how barefaced and brazen the crime has become. When the government decided to crack down on adulteration two years ago, petrol pumps went on strike. Today, our sources tell us, the tentacles of profiteers from adulteration reach the highest levels of government.

Protected by their patrons, the foot soldiers in this business are the tanker operators and petrol pumps. One senior NOC official, appalled by the blatant corruption within his organisation, says: "Cuts from allowing adulteration is the only way you can make extra money in this corporation."

Last year, an internal NOC investigation charged a petrol pump in the tarai with having its regional chief on a Rs 60,000 a month retainer to look the other way during spot checks against adulteration. If that is the "going rate" for one gas station, and there are 600 of them nationwide it is easy to calculate the scale of this scam.

When confronted with evidence, most officials and even the cynical public, have a ho-hum "so what else is new" reaction. But the matter is much more serious than just loss to the consumer, the national exchequer and the damage done to the internal combustion engines. Adulterated fuel is not just cheating consumers but has other far-reaching effects.

Adulterated fuels make exhaust gases more poisonous, worsening the pollution crisis, causing acute respiratory infections and other ailments. For example, when kerosene is mixed with petrol it does not burn completely and releases more cancer-causing hydrocarbons, nitrous oxides and carbon monoxide instead of the less-harmful carbon dioxide. "It shortens your life, and it shortens your vehicle's life," says Amrit Nakarmi, who teaches at the Institute of Engineering at Pulchowk.

Adulteration of diesel has a different effect, kerosene additive lessens diesel's lubricating function, leading to faster wear and tear of the pistons and higher maintenance costs. In addition, the soot particles carried by diesel exhausts also have unburnt and harmful hydrocarbons from the kerosene.

Finding the bureaucracy is up to its neck in it, the government two years ago set up a three-member commission under a former Supreme Court judge to investigate the NOC. It found up to 65 percent adulteration in petroleum products.

The estimate of our sources who have carried out tests to see how much deviation there is between diesel sold at the pump and the mother stock from India say the adulteration is as much as 45 percent. For petrol, it is 25 percent. Translated: for every litre of diesel you buy, nearly half has been removed and replaced with kerosene and water.

Last year Nepal used 800,000 kilolitres of petroleum products, of which petrol was 70,000 KL and diesel 350,000 KL. At today's prices and if the 25 percent added to petrol was kerosene, then the amount Nepalis have overpaid for petrol adds up to Rs 437 million. Likewise, the amount you've been overcharged in diesel purchases adds up to Rs 708 million. Altogether, the Nepali people are cheated of at least Rs 1.2 billion every year, and the spoils are shared by the tanker syndicates, the filling station owners, NOC officials and politicians.

Sources at the NOC with inside information on the process told us adulteration takes place in three stages:

. during transport from the Indian border to Amlekhgunj
. on the way from Amlekhgunj to the dealers, and
. before fuel is actually sold to consumers

NOC imports kerosene and diesel from the international market through global competitive bidding and delivers the fuels to the Indian Oil Corporation at the port. It then takes the different products it needs-including petrol, aviation fuel and lubricants-from convenient IOC depots along the border. Roughly two-thirds of NOC's supplies from the IOC enter Nepal at Raxaul and are stored at Amlekhgunj. The tanks here can store up to 12,770 KL, but our sources tell us the fuel is already contaminated by the time it reaches Amlekhgunj.

Every day up to 200 tankers hired by the NOC transport petroleum products from the border town of Raxaul to Amlekhgunj. The tankers are filled at noon, but they come across the Nepali customs only at around 2 pm, and show up at Amlekhgunj, just 35 km away, only after 20 hours.

We followed some of these tankers, and found out many stopped at petrol pumps between the border and the depot at Amlekhgunj. All of these have a similar layout: storage tanks in an area adjoining the station but separated by high walls and tall metal gates. Many tankers headed to Birganj, where our sources told us the petrol and diesel are extracted and replaced with the cheaper kerosene. One tanker operator bragged to us that the amount mixed depends on an "understanding" between the petrol pump owner and transporter. He said that the going adulteration ratio is "putting 1,500 litres of kerosene in a 25,000 litre tanker".

The present per litre market price of petrol is Rs 47, diesel is Rs 26.50 and kerosene is Rs 22. The tanker operator sells petrol and diesel for a rupee less than the market price and purchases kerosene at a rupee over, thus the pump gets two rupees for every litre. It's even more lucrative for the tanker operator: the differential is Rs 23 per litre for petrol and Rs 3.5 per litre for diesel. In other words, for every 25,000-litre petrol tanker he drives, he makes Rs 34,500. Of late, many petrol pumps have started operating their own tankers to increase their profit margins. There is a petrol pump every kilometre along the 35 km stretch between Raxaul and Amlekhgunj, a density several times higher than the national average. And there are more coming up.

Tanker operators privately admit to hanky-panky, but they have their own gripes. The Amlekhgunj depot only takes in fuel in the mornings, and they have to pay NOC officials even to get their supply unloaded at Amlekhgunj; the rate is the price of 100 litres of the fuel being transported. If it is petrol, that makes a greasing charge of Rs 4,700 to the official. But that is a small price to pay because after it is taken in at Amlekhgunj, the fuel then gets the NOC's seal of approval.

Pradip Raj Adhikary heads the Amlekhgunj depot. He does not mince words when asked if his fuel is adulterated. He responds with a series of rhetorical questions: "Yes, it is, but why single out petroleum products? Is edible oil pure? Can you guarantee that Coca-Cola is not adulterated? If I were a trader wouldn't I too have done that?"

One way for testing oil quality at Amlekhgunj is by measuring the volume (after making allowances for evaporation losses) and density. There is a two-degree temperature difference between Raxaul and Amlekhgunj, so the volume of oil shrinks by the time it reaches the depot. The standard loss allowed is 1.06 litres per KL petrol and 0.75 litres per KL of diesel.

But the same standard can also serve to justify thousands of litres in accumulated losses. Our NOC source told us that if employees at its depots reported losses lower than the "standard" they were dismissed as "ghans khane" (grass-eaters). Trucks leaving Raxaul are kept on the road overnight to ensure that the tanks cooled down and even water is added for cooling. The greater the temperature differential, more room there is for adulteration.

A petrol pump and tanker operator in Birganj told us that payoffs can be made at Raxaul to ensure that a higher temperature is noted in the despatch slip. There have been days when, according to drivers, they've reported a 8-10-degree temperature difference between that of Amlekhgunj and the Indian border.

The second tier of adulteration takes place at the petrol pumps where owners, by their own admission, add kerosene to diesel and petrol. Tirtha Dongol of the Consumers' Forum Nepal told us that most pumps have two or three underground storage tanks: one for holding adulterated fuel, and the other for "unadulterated" supplies received from the NOC. There are valves to switch the supply from one tank to another, and Dongol says gas stations open the tank containing unadulterated supplies during the NOC checks.

In Kathmandu, NOC's general manager, Madan Raj Sharma, says the corporation has taken action against those who are caught, but laments: "We do not have the capacity to do nationwide spot checks." Just as well, given how much money seems to change hands during spot checks.

Sharma says the government's move to lower kerosene prices from Rs 26 to Rs 22 after opposition pressure will boost adulteration. "Today there is a price difference of 5.50 rupees (between kerosene and diesel) and in a poor country like ours it becomes difficult to guarantee there is no adulteration at all," says Sharma.

That doesn't seem too convincing considering that just across the border in India, they don't have an adulteration problem. Some of it does go on, but at the petrol pump level and certainly not at an institutional level like with the NOC. In fact, oil companies there challenge customers to test their fuel if they are not so sure. And here petrol pumps shut down just at the hint of a check, and the government sits with them across the table and begs them to come back in business.