Gasoline prices rolled back at PM’s orderOn Saturday, state-owned monopoly Nepal Oil Corporation had jacked up fuel prices by Rs2 to Rs6 per litre.
Nepal Oil Corporation on Sunday tossed out its auto pricing mechanism and rolled back fuel prices following an executive order by Prime Minister Pushpa Kamal Dahal.
On Saturday, the state-owned oil monopoly had jacked up gasoline prices by Rs2 to Rs6 per litre after receiving a new price list from its sole supplier Indian Oil Corporation. The price of a 14.2-litre cooking gas cylinder was hiked by Rs215 per cylinder to Rs2,110.
Addressing Parliament on Sunday, Prime Minister Dahal said he had ordered the price increase to be cancelled.
“The corporation was gradually making a profit and paying back its loans a few months ago. That was an appropriate time for the corporation to implement the auto-pricing mechanism, but it was against consumer sentiments and sufferings,” he said.
“I issued a directive to roll back the decision without consulting with the concerned ministers and ministries because the oil corporation cannot take an independent decision to hike prices in the present context. The corporation is part of the government, and its decision cannot be different. So, the price hike was rolled back given the current pressing situation.”
When Nepal Oil Corporation launched the auto pricing system, which transfers global price fluctuations to the retail price of gasoline, experts were cynical about its efficacy as petroleum products have always been a political commodity in Nepal.
The auto pricing mechanism had been non-functional for nine years before it was revived on July 17.
Even though the pricing formula was restored, it only applied to petrol, diesel, kerosene and liquefied petroleum gas (LPG), and not jet fuel, which had experts crying foul.
The government company has not given any credible reason why aviation fuel was left out.
On Sunday, the prime minister said auto pricing was against the public's choice.
An unnamed senior official of the corporation said, “After years, we implemented an automatic price mechanism by enacting a law. The domestic price increases and decreases according to fluctuations in the international market which the law has clearly mentioned. But this time too, it has not been followed.”
He added, "The implementation of an automatic price mechanism can only be continued if consumers and the political parties support it.”
Economist Pushkar Bajracharya said that the government had made the right decision in the given situation when everything was becoming expensive. “But it is a populist decision. This kind of short-term decision is not sustainable,” he said.
"The government needs to be clear about its policy. The government needs a certain provision to tackle the crisis situation,” he said.
“Sunday’s decision which was taken unilaterally by the prime minister is not based on system and policy, and it will not be helpful in controlling inflation either.”
After the price rollback, the corporation said it would now offset the losses through the Price Stabilisation Fund, and requested the government for a cash bailout. But interestingly, according to corporation officials, it doesn't have a penny in the Price Stabilisation Fund.
On Saturday, the corporation had raised the price of petrol by Rs2 to Rs185 per litre, and of diesel and kerosene by Rs6 per litre to Rs179 per litre, based on the pricing formula.
The price of aviation fuel was increased by Rs8 per litre to Rs144 per litre for domestic airlines, and to $1,095 per kilolitre for international airlines, effective from Saturday midnight.
Issuing a press statement after the price rollback, the corporation said that fuel prices would now be adjusted from the Price Stabilisation Fund to offset the losses.
The corporation said as per the new tariff, it would incur a loss of Rs350 million monthly.
According to the corporation, it would incur a loss of Rs2 on every litre of diesel sold, Rs5 on every litre of aviation fuel sold, and Rs181 on every litre of LPG cylinder sold.
However, the corporation enjoys a profit of Rs2 on every litre of petrol sold.
“The price hike has been rolled back following the prime minister's directive considering the upcoming festivals,” the corporation said. It added it was seeking bailout funds from the government.
Manoj Kumar Thakur, deputy director of the corporation, said there was no money in the Price Stabilisation Fund. “We don’t even know how much the government will provide to offset the losses,” he said.
"The corporation has total liabilities of Rs30 billion, including a Rs2.10 billion loan from the government. The corporation has settled a Rs24 billion debt to Indian Oil Corporation by using the Price Stabilisation Fund," Thakur said.
The government put Rs500 million as seed money in the Price Stabilisation Fund and the corporation deposits 1 percent of its sales revenue in the fund.
“We are assessing the modality to adjust the increased prices,” said Thakur.
Consumer rights activists say there is no provision in the work procedure of the automatic price mechanism to increase the price by more than 5 percent.
“The automatic price mechanism is not being implemented fairly and honestly,” said Bishnu Prasad Timilsina, general secretary of the Forum for Protection of Consumer Rights-Nepal.
"The price of petrol in Nepal was around Rs180 per litre when the crude oil price was more than $130 per barrel, and the retail price is still the same when the crude oil price is down to around $90 per barrel," he said.
"There is a need to conduct a study of the automatic price mechanism," Timilsina said.
"The price of cooking gas is the same for household users and commercial users. Hotels get a 13 percent VAT refund privilege but ordinary consumers are compelled to pay the full price," he said.
Lawmakers say there is no competition in the oil business as the government company has a monopoly.
Lawmaker Rabi Lamichhane told Parliament on Sunday that Nepal Oil Corporation does the oil business, imports oil itself, regulates itself and always says it is in a loss. “But it also pays bonuses to its employees,” he said.
"Nepal’s petroleum business has a longstanding problem and it needs to be resolved," he said.
Brent crude oil price reached $92 per barrel on Sunday, and international news reports say that it may reach $100 per barrel by the end of this year.