Systemic failureThe way the Nepal Oil Corporation currently sets the prices of petroleum products makes no sense.
Clichés are so popular because they often reflect an underlying reality. One such cliché in Nepal is that, “Oil prices always go up, never come down.” This is not true all the time. The current petrol price of Rs178 a litre, for instance, is a big dip from the per litre price of Rs199 last June. Yet that fact reveals as much as it hides. The price of petroleum products has plummeted in the international market: Brent crude, the international benchmark for oil pricing, which was trading at $128 a barrel last June, was down to $80 a barrel in the first week of March. So while international oil prices in the time dropped by around 37.5 percent, the corresponding figure in Nepal was around 10 percent. Interestingly, the Nepal Oil Corporation (NOC), the country’s oil monopoly, has an “auto-pricing” mechanism whereby the prices of petrol and diesel are to be automatically adjusted when their prices in international markets change. But that clearly is not the case. The system has rather become a tool for the oil monopoly to fool consumers.
The problem with oil prices, especially in developing countries like Nepal, is that the prices of other commodities tend to move with them. So when the oil prices are jacked up and kept artificially high, the cost is passed on to consumers. Inflation in the country continues to see a troubling rise: The year-on-year consumer price inflation was 7.88 percent in mid-February compared to 6.24 percent at the same time a year ago. A related problem is that when oil prices increase, commodity prices go up as well; but when oil prices drop, the prices of goods seldom come down. It is hard to buy the NOC’s argument that it cannot reduce fuel prices as it is incurring huge losses. Reportedly, it still owes the Indian Oil Corporation, its sole supplier, Rs10 billion while another Rs6.3 billion is due to the Nepal government. Perhaps that is the case. But given the corporation’s tainted history and its notoriously opaque bureaucracy, it is hard to believe anything coming out of there. In the past, the corporation has given its staff bumper bonuses even while the organisation was deep in red.
The easiest way out of the current predicament would be to allow private entities to import and distribute oil, thereby breaking the NOC’s monopoly. The corporation executives as well as their backers in the government argue that since oil is a “sensitive” area, the private sector cannot be trusted with it. Yet this is a fallacious argument. If so, even communication is a sensitive sector and as such no private organisation should be allowed to run any kind of communication services. The argument would also have sounded more credible had the NOC had over the years been able to ensure problem-free and cost-effective access to oil for all Nepalis. Its modus operandi at present increasingly resembles that of an extortion racket. If an arrangement has not served the country, not for years but for decades, it would be wise to explore an alternative.