Oil corporation cites its debt burden for keeping fuel prices high, raking in profitsBrent crude oil dropped to $80 per barrel in the first week of March, after peaking at $128 per barrel in June last year.
Despite a sharp drop in the international crude oil prices, Nepal’s oil monopoly is continuing with its “unfair profiteering” from consumers.
Brent crude oil dropped to $80 per barrel in the first week of March, after peaking at $128 per barrel in June last year.
But in the domestic market, Nepal Oil Corporation, which has no other competitor, has not bothered to review the retail prices at the pumps.
“That’s an unfair profiteering from the consumers,” said Bishnu Prasad Timilsina, general secretary of the Forum for Protection of Consumer Rights-Nepal. “The corporation is exploiting the consumers.”
The global crude prices have been declining due to a resurgence of global recession fears and inflationary concerns.
Nepal Oil says it still has a huge amount to pay to its supplier—Indian Oil Corporation—and that the local pump prices are not likely to drop anytime soon.
“We have Rs10 billion in dues to pay to the Indian Oil Corporation,” said Binitmani Upadhyay, deputy director of the corporation. “We have another Rs6.30 billion loan from the government.”
In Nepal, the price of petrol increased by 25.35 percent to Rs178 per litre within a year.
Similarly, the prices of diesel and kerosene increased by 40 percent to Rs175 per litre.
The price of liquefied petroleum gas or cooking gas jumped 14.28 percent to Rs1,600 per cylinder. The biggest hikes were in domestic aviation turbine fuel, which jumped 46.55 percent to Rs170 per litre.
The aviation fuel sold to international carriers went up by 29.68 percent to Rs1,420 per kilolitre.
The corporation is offsetting losses on cooking gas through cross-subsidy—which means, it earns profit from petrol, diesel and aviation fuels to subsidise cooking fuel.
“That’s a violation of the auto pricing mechanism,” said Timilsina.
Experts say that Nepal’s Oil’s auto pricing is applicable to two products - petrol and diesel and it doesn’t apply to the other three products, and that’s like cheating consumers.
The budget for the current fiscal year, too, had announced the full implementation of the auto pricing mechanism. But that’s nowhere to be seen.
Experts say the rise in fuel prices makes everything expensive.
The year-on-year consumer price inflation remained at 7.88 percent in mid-February 2023 as compared to 6.24 percent a year ago, according to Nepal Rastra Bank.
The food and beverage inflation stood at 6.19 percent, whereas the non-food and service inflation rose to 9.22 percent in the review month.
Inflation-stricken consumers complain that they are hit with a new price hike every time prices of crude on the international market go up, but the state-owned oil monopoly does not respond with the same quickness when it is the other way around.
“With the reduction in oil prices in the international market, reaching $80 a barrel, the corporation was enjoying a profit of Rs580.12 million, fortnightly,” Upadhyay said.
“But again, the price of liquefied petroleum gas has been increased. Now, we are facing a loss of Rs635 per cylinder, and the losses come to Rs1.84 billion a month.”
“So, we cross-subsidize cooking gas with other fuels.” The appreciation of the US dollar against the Nepali rupee is also adding to the woes,” Upadhyay added.
He said that so long as the corporation has Rs16 billion in dues to pay the Indian Oil Corporation, the fuel prices in the domestic market may not come down.
Timilsina said it was a silly argument from the fuel supplier.
“Nepal Oil Corporation is not transparent and consumers are suffering from its profit-making policy. No one questions its monopoly.”
According to the Department of Customs, Nepal imported fuel worth Rs194.96 billion in the first seven months of the current fiscal year that ended in mid-February. The fuel imports were worth Rs182 billion in the same period last fiscal year.
The import of fuel was worth Rs383.92 billion in the last fiscal year 2021-22.
The government has been dragging its feet to deregulate the oil monopoly for decades.
But in Nepal, fuel is a geopolitical commodity. A two to three-day supply disruption paralyses the country’s social and economic harmony.
“Besides, there is mismanagement, political intervention and lack of transparency to make Nepal Oil Corporation an inefficient organisation,” said Keshav Acharya, an economist. “There is no proper accounting that the public can believe.”
The corporation has also not been able to control leakages and the fuel adulteration is massive, Acharya added.
Nepal Oil made a profit of Rs12.68 billion in 2019-20. In 2020-2021, the corporation’s imports dropped to a record low due to the Covid-19 restrictions. In 2021-2022, due to an increase in global oil prices, the corporation said it had incurred a loss of Rs50 billion.
Raising fuel prices increases the market prices—from drinking water to rice because everything should be transported, particularly to the Kathmandu valley, the country’s financial and economic hub.
“There are too many changes in the government. Look, if the government changes within two months, there are more and more political appointments. No one will be accountable to check what’s happening in the market,” said Acharya.
The corporation has been losing public trust for decades.
“It is true. The public no longer trusts the corporation,” said Sushil Bhattarai, former deputy managing director of Nepal Oil Corporation.
“In India, the auto pricing mechanism functions quite well.”
“In Nepal, the fuel market is still a monopoly. And when there is no competition, consumers obviously will suffer,” said Sujeev Shakya, founder chair of Nepal Economic Forum, a Kathmandu-based economic policy and research institution.
“Works were done to deregulate the sector on different occasions, but the results are always zero.”
“As there is not even a 2-3 percent profit margin in the fuel business, petrol pumps and cooking gas refuellings are mushrooming. There must be something wrong,” said Shakya.
According to consumer rights activists, in Nepal, the only businesses that never go in losses are the petrol pumps and cooking gas refuellings because the government guarantees them certain commissions to sell products.