Currently, Nepal Oil Corporation (NOC) provides subsidy on LPG through a cross-subsidy mechanism. For example, the state-owned fuel supplier enjoys a profit of Rs 10 and Rs 7 on a litre of petrol and diesel, respectively, and allocates Rs 38 subsidy on a LPG cylinder as cross-subsidy measures.

Speaking at a Supply and Consumer Welfare Sub-committee of the Parliamentary Commerce and Consumers Welfare Interests Committee, Ram Saran Pudasaini, joint-secretary at the Finance Ministry, said the government was considering ending the cross-subsidy mechanism to implement direct subsidy. He, however, said there is a need for an extensive discussion with stakeholders before implementing the new subsidy regime.

If the direct subsidy mechanism is introduced, the subsidy amount will directly be transferred to the consumers’ bank accounts. The Indian government has also been providing direct subsidy to users. NOC Spokesperson Mukunda Ghimire said the corporation has been asking the government to enforce the system. “NOC can sell petrol and diesel at cost price if direct subsidy is given on LPG,” he said, adding such a provision would help maintain transparency and reduce burden on consumers.

As per the revised fuel tariff sent by Indian Oil Corporation (IOC) on February 1, NOC has been providing Rs 38 subsidy on a cooking gas cylinder. Due to the failure to impose the proposed dual pricing system, LPG subsidies are in the favour of higher-income groups and urban areas. Even commercial users are receiving VAT refund on LPG.

Enforcing direct subsidy would also reduce financial burden of NOC as it will not be entitled to provide subsidy for commercial users, said Ghimire. According to NOC, consumption of LPG surged 14.12 percent to 207,038 tonnes in 2012-13. The per capita LPG consumption stands at 7.81 kg.

NOC officials said due to extended load-shedding and LPG being cheaper than other energy sources, its import is rising. Nepal’s LPG import bills amounts to around Rs 20 billion annually. The stats show LPG consumption jumped 213 percent over the last 10 years. The consumption started rising after 2007-08 and it soared 19.59 percent to 115,813 tonnes in 2008-09 and 21.89 percent to 141,171 tonnes in 2009-2010. In 1993-94, the consumption of LPG was at 9,308 tonnes.

LPG consumption has soared dramatically due to its multiple uses and perennial power shortages. A normal urban household today keeps three cylinders of LPG, one for cooking, and another for room heating and the third for heating water for the bathroom.

According to National Population and Housing Census 2011, about 21.03 percent of Nepali households use LPG. In the cities, the figure is 67.68 percent.

Loans to be converted into capital

The Finance Ministry on Monday said it has started the process of converting the government’s loans to Nepal Oil Corporation (NOC) into paid-up capital.

The oil monopoly, which makes an annual transaction of more than Rs 130 billion, has a paid-up capital of just Rs 95 million. NOC owes Rs 34.66 billion in loans to the government and banks and financial institutions. Of them, the government loan stands at Rs 12.64 billion. The loan burden is passed on to the consumers. Consumers are paying an additional Rs 4 on a litre of fuel as interest to the loans. The ministry said infusing capital into NOC is also aimed at privatising it.

“The move would enable NOC to compete with private players once its capital base is increased,” said Ram Saran Pudasaini, joint-secretary at the Finance Ministry.