As per the decision taken last week, the government did not hike the prices for general consumers and transporters but raised the prices of diesel and kerosene for bulk buyers like industries, hotels, missions, hospitals and business houses. The government expects that the dual pricing in fuel will be helpful in improving finances of the Nepal Oil Corporation and stepping up imports to meet the demand.
However, we see no such good results coming because the NOC has yet to put in place an effective mechanism to check possible seepage of fuel meant for retail consumers. In such a situation, the bulk buyers can get cheaper supply by setting up a profit-sharing mechanism with the dealers, diverting away cheaper supply meant for general consumers to industries. Thus, the decision is neither expected to bring about substantial changes in financials of NOC, nor ease supply in the market. Instead, it will bring more complications for the fragile domestic fuel market.
Apart from enforcing dual pricing in kerosene and diesel, commerce ministry of late has also announced that it is pushing the government to write off NOC’s past loans, which stands at Rs 18 billion and waive off VAT on liquefied petroleum gases. The ministry has argued those are crucial steps toward addressing the problem. We disagree. The problem facing the sector lies on ‘state administered price’ and reluctance and apathy of the government to deregulate it. Hence, the only solution that can bring a sea change in the sector is ‘reforms’.
As a country that depends entirely on imported oil to fulfill supply, Nepal simply has no capacity to sustain suppression of retail prices. The government must deregulate the prices in a planned manner, open the sector to the private sector and induct competition. Only this will serve the interests of general consumers. Other efforts will only serve crisis management, and will do no good to the economy.
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