Oil loss

When one thinks of public enterprise in Nepal plagued with problems most of the times, one of the names to first strike in mind is the Nepal Oil Corporation (NOC). Barely a month goes without some worrisome developments related to the NOC. Here is one more in the series. A day after the parliamentary committee formed a committee to probe into irregularities in the NOC, the sole oil importer projected a hefty loss of Rs 1 billion in February.



As usual, the NOC attributes the loss to the government’s refusal to adjust domestic oil price in line with the rising international price. Undoubtedly, loss does incur when products are sold at a price less than what is paid to import them. Being a public enterprise, the state, not others, will have to bear the NOC’s loss at the end. It is, in fact, a subsidy in petroleum products.



The question that Republica has put many times is: how wishful it is to use valuable resources to finance loss in oil which is mostly consumed by those who have the capacity to afford the increased price. We say it is a ridiculous policy. Being one of the poorest countries, Nepal has many other urgent obligations to fulfill. The resources could instead be used in expanding basic health services in remote areas where scores of children die each year due to lack of oral rehydration salts when diarrhea hits the country during the rainy season every year. It is no way justifiable for the state to bear oil loss, when hundreds of children are compelled to study in ruined and even roofless classrooms due to lack of budget.



So, there is no other option than to revise the domestic oil price, albeit gradually. If the government chose not to take the unpopular decision, then the obvious question is: how long will the country be able to absorb the loss? Let’s not follow a bad precedence of tolerating losses until the government is left with no options than to announce a hefty price hike. Such tactic has often been proven counterproductive in the past as it sparked demonstrations and riots, compelling the government to roll back its price hike decisions.



The experience of the country shows that creation of an oil fund is one of the ways to limit possible shocks coming from frequent fluctuations in domestic oil price. The fund, where a portion of profits coming from oil business is collected during heydays may be used to cover the losses during bad times. Along with bold steps to check leakages and irregularities at NOC, we urge the government to think of creating such a fund that at least will minimize financial burden on the state coffers.

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