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Surging fuel prices hit Nepal’s economy. It’s time to take a greener turn

File: An NOC fuel tanker petrol
File: An NOC fuel tanker

Nepal Oil Corporation, the government-run fuel distribution monopoly, on February 16 said it was going to face a monthly loss of Rs 5 billion as per the current market rates of the fuels. This came as a shock to many because the price of petroleum products had been going up regularly as the price of petrol had peaked at Rs 142/litre just before that.

The rise in fuel costs always causes uproar in the country because it has a ripple effect on all sectors. Following the hikes in fuel prices twice this month, the cost of vegetables has gone up making life difficult for those living on minimum wage. Economists say it will have an impact on every sector of the national economy, suggesting it is about time the country sought alternatives.

The perennial and pervasive problem

File: Amalekhgunj depot of Nepal Oil Corporation after the cross-country pipeline came into operation

Fuel prices make up around 20 per cent of the country’s imports, say the economists. Out of the Rs 1.53 trillion spent on imports in the last fiscal year, Rs 158 billion went on petroleum products. In the first six months of the current fiscal year, Rs 153 billion has been spent so far on petroleum products like petrol, diesel, kerosene and cooking gas. With the year to end, Surendra Kumar Paudel, the immediate past managing director of the NOC, says Nepal will fork out over $500 million more on petroleum products than it did last year.

And, this is not it. Tensions in Europe between Russia and Ukraine will probably increase the fuel prices, even more, say experts. That will in turn affect the entire economy of the country. 

According to the Nepal Rastra Bank‘s data, the country’s inflation rate for the first six months of the current fiscal year is at 6.23 per cent compared to 3.65 per cent last year. Prices of everything like dairy products, vegetables, fruits, alcohol, tobacco and grains have all gone up mainly because of the hike in fuel prices, say experts.

Nepal is completely dependent on imports. The majority of these items come into Nepal via roads, so a rise in fuel costs will automatically increase the price of these products.

“It’ll affect everything from public transport to factories because we are a country that is dependent on imports,” says economist Shiva Raj Adhikari.

Unfavourable options

File image: Nepal Oil Corporation office

Other economists also feel that the negative balance of payment is a result of increasing fuel prices.

The public has been asking the government to decrease the price of petroleum products. But, the government that has to conduct all three levels of elections within a year cannot do it because it needs funds to conduct the polls.

Economist Keshav Acharya says as politicians mostly use hikes in fuel prices as a political tool, it is unlikely that the government will further increase the costs. But, doing that will risk the NOC going into bankruptcy, he says. 

Adhikari says if nothing is done quickly to address the problem, things will soon get out of hand.

The NOC, a week ago, issued a statement asking the government to loan them money to buy oil. Its spokesperson Binit Mani Upadhyay said it used the stabilisation fund to pay Indian Oil Corporation just last month.

“If we raise the fuel prices, the consumer will face the brunt. If we don’t, we’ll have to face the brunt. The NOC that used to generate Rs 100 billion for the government is now facing a loss of Rs 5 billion a month,” says Upadhyay.

With the international rate increasing, the NOC will have to face more losses in the coming days, Upadhyay warns.

“Our estimated monthly loss is going to be Rs 4.82 billion. This is due to the fuel prices going up drastically in the international market,” he says.

Upadhyay informs the NOC currently pays Rs 161.05 for petrol, Rs 140.48 for diesel and Rs 2,135.74 for cooking gas, facing a loss on all these products.

Troubling taxes

There is fear among people that the country will face a shortage of petroleum products.

Last year, the federal earned Rs 938 billion in revenue. Out of the total, 11 per cent of revenue was collected through the sale of petroleum products as the Nepal government still charges Rs 58.48 tax on a litre of petrol and Rs 41.16 on diesel.

The government has been asked to consider decreasing the tax after the Indian government did so on November 4, 2021. After fuel prices reached a record high, the Indian government levied customs of Rs 5 on petrol and Rs 10 on diesel. It is estimated that India after that will incur a loss of INR 1.4 trillion this year.

While the Indian government has suffered, it has made sure that its citizens do not. But, a similar thing happening in Nepal is unlikely.

The government has been asked to waive customs tax, but it has remained mum about it for now. According to a source, the NOC board has approved a tax waiver of Rs 5. But, the Finance Ministry has not made a decision yet. 

The ministry’s spokesperson Ritesh Shakya tells Onlinekhabar that there have not been any discussions regarding this at the ministry.

Time to take a turn

Here’s what the public feel about this.

Economists say the government has to start thinking about different measures to curb the negative balance of payment and lack of foreign reserve due to the hike in fuel prices. To stop this, the government did put restrictions on the import of various products, but economists say that more needs to be done.

Economist Keshav Acharya says the government should start promoting the use of EVs to solve this issue. He says the officials should start themselves by only using the EVs. He also questions why so many people need separate cars.

“We need to manage this because I don’t think there is a need for every other official to have a car. If they do, why not have the EVs,” questions Acharya.

The NOC also states how Nepal needs an alternative to the LPG. Upadhyay from the NOC says since it faced the most loss in LPG, the government needs to manage alternatives soon. 

Surendra Kumar Paudel, a former NOC chief, says it was time Nepal utilised its electricity and promoted the use of induction stoves or similar equipment to save the country from the brunt of increasing fuel prices.

“We need proper planning to move forward as a nation. We can’t sit and watch. We need to be a step ahead or else this issue will carry on for years to come,” says Paudel.

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Nabin Dhungana is a business correspondent at Onlinekhabar.

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