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Special Edit: Thinking Long-term in Fuels

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A sound decision process, domestic exploration, alternative sources of energy are some means to a better fuel regime in Nepal.


Bir Hospital Emergency ward, Jan 23, during the fuel protests in Kathmandu. Lack of public transport caused hardship to patients and their family members. Photo: Nepal Monitor. More photos here.

Kathmandu and some other urban communities saw their streets burning these past two days, black smokes flying up the housetops and charred streets crowded by people. A lot of fuel, in the form of protests and burning tyres, was spent all over the cities, to revoke a price hike in fuel products.

This was a huge protest, in deed, if one can think of any protest aimed at consumer needs and one that gave voice to consumer grievances. Long used to ideological battles on the streets-- demanding resignation of a home minister, or the restoration of a dissolved house, or an apology from a film star or politician and so on-- Kathmandu and other towns saw something different these past two days.

The ire is justifiable. Drastic shortage in fuel has fueled anger and frustration. As winter matures and water levels deplete, residents in Kathmandu, for example, are now without power for as many as 6 hours a day. Had it not been for constant powercuts, this editorial could have been online some 20 hours ago. The latest price hike, the third one since October last year, came as a shock to many people already battling the chilly winter.

Kathmandu Burning

A scene of protest near Singha Durbar in Kathmandu, early Tuesday morning. Mostly student groups came to the streets and burnt tyres and shouted slogans against fuel price hikes by the government. There has been 3 price hikes in petro-products in 3 months. Photo: Nepal Monitor. More photos here.

Angry student groups took to the streets as soon as Nepal Oil Corporation (NOC) issued a press release on Jan 22 announcing price hike on petrol, diesel, kerosene, aviation fuel, LP gas. There was an increase by up to 20 percent. NOC pointed out the price increase in the international market, particularly in the recent months of November, December and January of 2007, which affected prices in India and ultimately in Nepal.

Price hike is nothing unfamiliar to consumers in recent months. The government monopoly oil corporation (with a little over 1 percent of the total share owned by Rastriya Beema Sansthan, National Trading Limited, Nepal Bank Ltd. and Rastriya Banijya Bank) had raised prices of some of the petro products on October 25, December 5 and 27 last year.

NOC's principle supplier of petro-products is the Indian Oil Corporation (IOC), which has more than 55 percent of market share in Nepal. But due to increasing deficits as well as lack of subsidies from the government, NOC said it is not able to repay the IOC on time, which has hampered a smooth supply of fuel products. Moreover, NOC says IOC raised, as per the international market, the prices of petrol and diesel products twice a month and prices of kerosene, aviation fuel, and LP gas once a month. By the end of December 2007, NOC owed IOC NRs. 2 billion and 24 crore. NOC needed to pay NRs 24 crore every month but it was not able to do so on a timely basis. Until now, NOC had borrowed NRs. 7 billion and 79 crore from the government, financial companies and various commercial banks. NOC said it accrued more than NRs. 60.46 crore deficit every month. NOC said it was forced to hike the price because it had limited stocks of the fuel and was unable to meet the demands of consumers.

Has it been able to meet its purported vision of an integrated oil energy corporate body with a strong commitment to meet people's expectation? Has it been able to realize its mission to establish a strong corporate identity as a premier energy supplier to the people for their utmost satisfaction?

The NOC is short-sighted in constantly hiking the price. It has not been able to import the needed amount of crude oil and refine it for domestic needs. There is not any progress in setting up industries for the exploration of oil and gas reserves of the country. The storage facilities of imported petroleum products in the country, such as in Kathmandu (Thankot), Kathmandu (Airport), Amlekhgunj and Biratnagar and other significantly smaller ones at Bhairahawa, Nepalgunj, Dhangadhi, Pokhara, Surkhet, Dipayal, Janakpur, need substantial improvement in terms of technology and resources. What is the use of merely maintaining storages facilities without the needed fuel? The supply and distribution of petroleum products in the country is not reliable and smooth. The present storage capacity of 70,309 kiloliters, according to NOC, is just enough for only 30 days.

Managing Director of NOC, Digambar Jha, a mechanical engineer by profession, and who also has "experience in commercialisation, business development, marketing and sales promotion" must have known the impact of price hikes and the resulting public outcry. Marketing oil is different from marketing other consumer goods, such as noodles or coke. The NOC leadership and its board of directors (almost all members from government organs) must be able to distinguish between basic needs and market wants of the public.

Yes, price hikes are not uncommon in a market economy. But they should be reasonable and based on a sound decision-making process. How could NOC make such a decision without even consulting the government? There appears to be some crisis of confidence between NOC and the government and that needs to be addressed immediately. Raising prices during the process of the historic constituent assembly elections also raises suspicion among the public about the motives of the government.

Of course, the government on January 23 asked NOC to revoke the price hike, and the protests have been withdrawn. But for a long-term management of fuel products and their prices, there are a few things we need to do.

First, government monopoly in oil must end, opening a way for public/private sector companies in the oil market. Currently, NOC is intent on obtaining the sole agency and distributorship of different countries for the marketing of petroleum products in Nepal. Second, we must explore crude oil depositories (ex. the Scottish company, Cairn Energy, showed interest in this some 3 years ago), in our own country or other alternative fuels and power, such as solar energy or water. We have done a lot of talking about hydropower and the fact that our country is second to only one in that potential and that sort of thing. But we must begin the work, and generate the power we need. That also implies that Nepal must not over- rely on IOC and must seek other subsidiaries.

This is one of the ocassional special editorials by Nepal Monitor.

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Brihát Śhānti Sámjhautā, 2006
(Comprehensive Peace Agreement)

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