The Nepal Oil Corporation jacked up the price of petrol to Rs 140 per litre (up 7.69 percent) and diesel to Rs 109 per litre (up 8.82 percent). The new prices come ahead of World Consumer Rights Day that falls on Saturday.

Aviation fuel sold to domestic carriers now costs Rs 143 per litre (plus Rs 6). International airlines will have to shell out US$ 1,400 per kilolitre of jet fuel (plus US$ 100). Fuel prices were last raised six months ago.

State-owned oil monopoly NOC has blamed international events for the massive hike, including the price of crude oil which has drastically increased and the weakening Nepali rupee against the US dollar. NOC said that it had been forced to hike prices in an attempt to cut its ballooning losses which amounted to Rs 56.57 million daily.

“Now, losses have come down to Rs 35 million daily,” said NOC spokesman Mukunda Ghimire. “Besides, we were also under pressure to settle unpaid bills amounting to Rs 14 billion to Indian Oil Corporation before their fiscal ends in March.”

Ghimire said that NOC had paid Rs 5 billion and was in the process of paying the remaining amount to its sole supplier. “We have also asked the government to release an additional Rs 5 billion.” NOC said that it did not have any immediate plans to increase the price of liquefied petroleum gas (LPG). Petrol prices have increased by 25 percent since January 2012 while diesel and kerosene prices rose 28 percent over two years.

Economist Biswamber Pyakurel said that in a country like Nepal where the monetary policy did not control prices or affect inflation, the hike in petroleum product prices would have a direct impact on service delivery and create reverse multiplier effects on the economy.

Spillover effect

The fuel price hike will lead to a rise in prices in almost all the sectors such as transport, aviation, auto and textiles. As transporters increase their freight rates, food and vegetable prices will go up correspondingly.

School and public buses will begin raising their fares. Costlier diesel in particular is a serious issue in Nepal as it will add to transportation and irrigation costs.

Friday’s gasoline bombshell came on the heels of Wednesday’s hike in milk prices when state-owned Dairy Development Corpora-tion jacked up prices of non-skimmed and skimmed milk by Rs 6 and Rs 8 per litre respectively. Private dairies promptly followed the lead by hiking their own rates by Rs 6 per litre on Thursday.  

The debt-ridden NOC issued its customary excuse that it was no longer able to sustain its massive and recurrent losses. The corporation owes Rs 34.16 billion in loans to the government and assorted financial institutions.

“Harmonising fuel costs in line with international market trends is so far good, but in a country where the government is unable to manage its liquidity and capital expenditure is distressing, reducing NOC losses by creating a heavy inflation burden on consumers is an unrealistic plan,” said Pyakurel.

In addition, the government does not have a proper mechanism to monitor market prices and end the prevailing cartel and syndicate system in transport. “It will lead to a sharp rise in inflation.”

The government has targeted to rein in inflation at 8.5 percent during this fiscal year. The latest macro economic report of Nepal Rastra Bank shows that there has been a moderate decline in inflation—8.8 percent in mid-February compared to 9.7 percent in mid-January. However, food inflation remained high at 10.8 percent.

Pyakurel added that among a number of options, the need of the hour is breaking NOC’s monopoly.

Transport entrepreneurs and private air operators are allowed to raise the fuel surcharge when petroleum prices are hiked by over Rs 4 per litre.

Dol Nath Khanal, general secretary of the Federation of Nepal Transport Entrepreneurs, said they had requested the NOC to roll back prices. “If NOC does not roll back the prices, we have no alternative but to raise the transportation charges.”

There was an alternative

The government has introduced a colour-coded LPG cylinder system—blue cylinders for commercial users and red for household users.

The government had introduced the system with a view to ending the subsidies given to commercial users and allow the NOC to offset its losses in the LPG business by selling it at the actual price.

The government has also planned to provide one cylinder of LPG monthly to a household with four members at a subsidized rate. If they wish to buy another cylinder, they have to pay the actual price.

The government currently subsidises LPG to the tune of Rs 864.92 per cylinder and customers pay Rs 1,470 per cylinder. According to NOC, the actual cost of a cylinder of LPG is Rs 2,334. As LPG accounts for 77 percent of NOC’s loss, or Rs 1.29 billion per month, company sources said that if the dual pricing scheme was implemented, it could cut its losses by more than 50 percent.

Commerce Ministry officials said that NOC would not have to raise gasoline prices if dual pricing on LPG was enforced. However, they said that the government decided to allow NOC to raise fuel prices after it started badgering the ministry for Rs 5 billion in bail-out funds.

With the revised rates, NOC will be enjoying profits of Rs 11.19 per litre of petrol, Rs 11.38 per litre of kerosene and Rs 33.33 per litre of aviation fuel. However, it will be incurring a Rs 5.24 loss per litre of diesel.

Inflamed, students give govt 24 hrs to roll back decision

Various political parties, student unions and consumer groups have flayed the hike in fuel prices, warning the government to roll back its decision.

Student unions aligned with major and fringe political parties, including the ruling Nepali Congress and the CPN-UML, have taken to the streets against the Nepal Oil Corporation's decision to increase the prices of petroleum products. Over a dozen of unions including the All Nepal National Independent Students' Union-Revolutionary halted transportation before all the government colleges in the Valley for one hour from 4pm on Friday.

The CPN-Maoist expressed its serious concerns over the NOC decision. In a statement, the party condemned the hike in fuel prices. The party has charged the government with promoting inflation rather than controlling corruption and leakage plaguing the oil monopoly. The party has threatened protest if the government does not take back its decision.

The student unions also issued a 24-hour ultimatum to the government to withdraw the decision. They have warned of stern protests unless the price hike is withdrawn by 12 noon on Saturday.

“The government has disappointed the people by increasing fuel prices when it should be providing subsidies,” said ANNFSU Chairman Kishore Bikram Malla. A meeting of 13 student unions on Saturday will decide the modality of further protests.

In a statement, ANNISU-R Chairman Himal Sharma termed the hike as an irresponsible act of the government.

Communist Party of Nepal Chairman Lok Narayan Subedi asked the government to roll back its decision immediately.

The Nepal Sadbhawana Party termed the decision “anti-people” and urged the government to probe black marketing and irregularities in the fuel business.

A day before the world celebrates World Consumer Rights Day, the National Human Rights Commission drew the attention of the government over the difficulties facing the people.

“There is serious injustice to the consumer,” the NHRC stated. “The transportation sector has been crippled from syndicate and irregularities in energy supply. Prices of goods and services are unjustifiable. Lack of easy access to goods and services and unusual hikes in commodity prices have made their lives difficult.”