Oil price adjustments
We have long argued that the price of petroleum products Nepal imports should reflect international market price. In a market economy, the price of any product is determined by the subtle interplay between the forces of demand and supply. Currently, the major oil-producing countries have cut down on supply to increase their margins. In light of the resultant increase in demand, the Indian Oil Corporation, the sole supplier of petroleum products to Nepal, has also had to revise the prices it was offering to Nepal Oil Corporation (NOC). On receiving the revised list, the NOC on Sunday increased the price of petrol, diesel and kerosene by Rs 4.5 each. This is how it should be. There is no reason to treat oil as special commodity that is not subject to market forces. Past efforts to do so by subsiding oil backfired as those who were benefitting the most from these subsidies were rich industrialists and private-vehicle owners, rather than the poor and middle-class folks for whom it was supposedly intended. The subsidy regime also provided NOC management with the perverse incentive to continue with the status quo. Even though the oil monopoly was losing billions of rupees every year, its employees continued to get hefty bonuses. So reforms in this highly opaque sector were overdue.
But not everyone is convinced that there has been any meaningful reform. Some have noted how the NOC is quick to increase domestic prices when international market prices go up but seldom does it show the same urgency to decrease the prices when international prices dip. This is a valid concern, and one which can be adequately addressed only with greater transparency in our oil regime. For this we first need a petroleum act which governs the import and distribution of oil in Nepal. It is incredible that even as we spend over a billion dollars to import oil every year, by far the most we spend in import of any single commodity, there are no laws governing these imports. In their absence, the NOC bureaucracy and their political masters in the government have conveniently tweaked the rules to their advantage. The corporation as a result is ranked as one of the most corrupt public institutions in Nepal. Hence we need a petroleum act to clean up the mess in NOC and to start a long process of reform of our oil governance.
After we have the act, the next course of action should be to allow other players into oil import and distribution. Greater competition should ultimately lead to lower oil prices, but only if we have strong anti-competition laws and as strong enforcement mechanisms. Opening the oil market for private players without first putting in place safeguards to ensure fair competition would be disastrous, as was ruinously proven with the previous (KP Oli) government’s decision to allow a rent-seeking private importer into the business. A more systematic approach to oil import and price setting will be to everyone’s benefit. This is again not possible without an overarching act that governs our most valuable import.
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