The serpentine queues of vehicles around the main city thoroughfares are a routine sight for Kathmandu residents. The sole state-owned oil trading company in the country has been facing several challenges in maintaining normal supply of fuel to its consumers. On one side, there is inadequate supply of products from the source, often attributable to underpayment of Nepal Oil Corporation (NOC) to the Indian Oil Corporation and at other times, to the shutdown of some units of Indian Oil refineries.
Add to this the cartels and syndicating by the transporters and distributers of petroleum products, whose irresponsible behavior often causes obstructions to regular supply, thereby adding to the difficulties of consumers. Black marketing, hoarding and cheating in the weight and measurement are still prevalent due to short-supply of petro-products.
Several investigation committees and commissions have been set up in order to quell the country’s bourgeoning oil crisis. To address the problem, the government prefers to constitute such bodies which among others things focus on administrative efficiency and cost cutting measures of the oil importing company. The common understanding is that increasing efficiency of NOC would resolve the problem and eliminate the need to increase petroleum product prices. But this understanding merely seeks to find a scapegoat for all evils in Nepal’s oil machinery. Unquestionably, there is a need to improve overall operation of NOC, but holding it as the main culprit without considering other important factors behind the shortage would not do NOC justice either.
Single source procurement has been a much-debated issue owing to the import parity method in use, which includes some elements of taxes and duties in pricing. Direct import from third countries is difficult for Nepal since it requires development of necessary infrastructures during transit. First, the procurement from a third country calls for adequate funding for upfront payment of the imported products, hiring vessels for ocean transportation on a regular basis, discharge and storage facility at gateway port, availability of railway wagons or the use of pipeline belonging to IOC for onward transportation and discharge and storage facility at Nepali dry ports. This involves a careful planning of the supply chain and necessary arrangements with the government of India for facilitation of transit movement.
Disturbances in supply of petroleum products result in a multitude of problems, particularly in view of the acute power shortage. Hospitals, hotels, restaurants and industrial establishments are using substantial quantity of fuel to offset the shortage of electricity. Oxygen supply for the terminally-ill patient, running of operation theatres and ambulance services are badly affected due to short supply of diesel. The normal passenger traffic is heavily dependent on the availability of this fuel. Besides, increased price of diesel will affect the price of other essential goods and foodstuffs thereby adding to the difficulties of common people.
Price adjustment of petroleum products in line with the international prices is a hard choice for the government as each price hike provokes agitations from common consumers and students. The few government attempts at price increase have been foiled due to commotion and agitation of such groups. In such a situation, maintaining regular supply is a herculean task for NOC. Here are some tips for addressing the issue of irregular supply.
It is obvious that the rising price of fuel in the international market is out of the hand of the government. It can do nothing to control the international price. The only thing it can do is mitigate the impact of such adjustments on the domestic front. Towards this goal, first, there is a need of a plan to mitigate the impact on common consumers through division of cost among consumers and the government. The consumers should partially bear the price burden on diesel, kerosene and LPG and be willing to pay slightly more for petrol and aviation turbine fuel. This is important if there is to be a cross subsidization for diesel, kerosene and LPG.
Second, the government should work out a formula whereby the government can provide direct subsidy by to NOC in order to cover for the losses on sales of fuel. Third, there should be a limited relief package for poor households on the basis of income. However, the distribution of relief package is a very complicated issue in view of the difficulties attached to identification of appropriate target groups and administration of the distribution system. A carefully worked out plan and necessary administrative support is a prerequisite to avoid any misuse of such relief programs. The government should consider issuing bio-metric identification cards to the targeted groups and provide direct cash (LPG/kerosene subsidy), much like old-age and widow allowances.
Pricing structures in sourcing the petroleum products have been questioned by several commissions in the past, thereby raising the issue of transparency and suggesting elimination or reduction in some pricing elements. This need to be considered at a higher level, probably at the government level, and not be left for NOC alone to deal with. As we have adopted a single source procurement method, there should be defined parameters as to what constitutes the pricing at the source. Such parameters may be made public to avoid any confusions or misgivings. Besides, there should be a contingency plan to for any unexpected increase in the international price. This will help avoid obstruction to regular fuel supply.
Moreover, the improvement in the work environment and efficiency of NOC should be a continuing process. There should be inducement to run the company in a free and fair manner without unnecessary political interferences. The management should be made accountable. Cutting down the amount of losses and pilferages, proper maintenance and augmentation of storage facilities, rationalization of number of staffs, adequate incentives for the employees, proper system of reward and punishments can be some further measures to improve the operation of the company.
Consumption of petroleum products has increased fourfold within the span of a decade. This is mainly due to increased economic activities, more construction and industrial activity in the country. The shortages of electricity and load-shedding imposed therein have compelled hotels, industries and households to switch over to individual diesel plants, thereby substantially increasing the demand of fuel. Now, the country desperately needs a comprehensive energy plan to meet the growing fuel need for the national economy. Ideally, this should be done through a mix of various energy sources like hydro-power, fossil fuel, solar and wind energy, bio-gas, bio-mass, ethanol and bio-diesel. In view of sustaining the supply of energy, the focus should be on optimal utilization of available resources within the country rather simply running after fossil fuel from outside.
The writer is Secretary at the Ministry of Commerce and Supplies. The views are strictly personal