The decision of the Nepal Oil Corporation (NOC) to increase the prices of petrol, diesel and kerosene, for the second time in a fortnight, raises questions about its ‘automatic price adjustment’ mechanism. Questions are being raised because the oil monopoly is quick to increase prices whenever there is a concomitant increase in oil price in international markets. But then, when the international market prices go down, the prices here are not reduced proportionately. Even though the NOC is legally forbidden from making profit, it is doing precisely that as it keeps increasing fuel prices. With the latest hikes, it will earn a profit of Rs 2.67 in a liter of petrol while it makes Rs 15.27 in a liter of kerosene it sells. Also rather inexplicably, it is losing Rs 1.74 in a liter of diesel. Why does diesel, which is the most polluting fuel, being subsidized? In any case, the profits it makes on petrol, LPG, kerosene and aviation fuel more than makes up for the loss in diesel. In fact, the profits are far in excess of what the NOC needs to break even. The only way to make sense of these big profits is to assume that they will be distributed as fat bonuses to their staff.
The oil monopoly has long been among the most corrupt state institutions in the country, precisely because there is so much money to be made through illicit oil trade. Whenever a coalition government is formed, there is a pitched battle to control the Ministry of Supplies which runs the NOC. Perhaps this is why people have so little faith in it. All its decisions are opaque. Its chief openly boasts that he imports fuel illegally. No wonder many eyebrows go up whenever it announces increase in fuel prices. What happened to its price adjustment mechanism? Is it still functioning? If it is, how does it justify the recent disproportionate increase in fuel price? A country adopts automatic price adjustment mechanism so that there is transparency in the fixing of fuel prices, and so that the prices are not left to be decided according to the whims and fancies of a few select individuals. But what good is a price-fixing mechanism that no one trusts? It also raises a question about where all the (illegal) profits that the NOC is making are actually going.
There is an easy fix: inclusion of a few members of the civil society in the price-fixing mechanism. This is important because these committee members will not be beholden to any interest group and always look to work in public interest. The hush-hush manner in which the NOC has gone about it in recent times leaves a lot to be desired, fueling doubts. There can be no better opportunity to reform NOC—and make it more open and accountable—than the start of the country’s federal road. For people to start trusting it again its incompetent leadership must be expunged and its price adjustment mechanism thoroughly reformed.