The difference in the level of income and the quality of living of Tamang and her landlord clearly needs no elaboration. [break]So, when Nepal Oil Corporation (NOC) hiked the price of kerosene by Rs 2.50 per liter last week, it only widened the hole in her monthly budget.
This, she says, she will have to patch up by cutting other spending.
On the contrary, the cost of cooking fuel remained unchanged for her landlord because the government thought that LPG users were poorer these days, and raising LPG prices would do injustice to them in the current double-digit inflation.
Result: her landlord can still enjoy gas Rs 15 cheaper than what Tamang pays for kerosene.
“This is gross social injustice and the government must correct it.” This is how consumer rights activists like Jyoti Baniya of Consumer Rights Protection Forum responded to the decision.
But Commerce Minister Rajendra Mahato argued he had done justice because by making the kerosene consumers pay more, he had prevented adulteration of diesel, and also enabled NOC retail make up the loss worth Rs 130 it accrues per cylinder on 14.2 kgs (about 25 liters).
Unjust subsidy, unregulated market
Energy experts and knowledgeable officials, however, say that pledging subsidy worth Rs 140 million every month to gas consumers is a waste of scarce state resources.
“After all, gas is largely consumed by better-off urban families, big hoteliers, restaurant and gas-run automobile operators. They are neither the target beneficiary nor in need of state subsidy,” said Umesh Dahal, recently retired deputy managing director of NOC.
Another bad aspect of this subsidy to affordable consumers is that it has come with additional costs to low-end consumers of kerosene and has made petrol consumers pay unjustifiably high. Experts argue that this cost distribution is an unsustainable, unscientific and unfair way of managing oil loss.
And worse, this subsidy has come at a huge social cost. For instance, with Rs 140 million that government spends to subsidize cooking gas, it can effectively construct 56 primary schools accommodating 250 students at each or establish 140 sub-health posts or extend roads in the hills by an additional 3.5 kilometers or in the Terai by 4.6 km every month.
“This has even distorted the market and pledged undue favors to gas companies,” said Dahal.
Thanks to squeezed pricing, consumption of LPG in Nepal has jumped to as much as 15,000 tons a month from 9,000 two years ago. The number of gas companies licensed to bottle and market LPG has doubled to 50 from 25 one year ago.
“We believe this open licensing policy will spur competition, enabling consumers to enjoy better services,” says Commerce Secretary Purushottam Ojha.
Contrary to his claims, though, consumers continue to suffer from shortage as soon as minor transportation hiccups occur along the main import routes. They still complain of high quantity theft, whereby companies cheat them by refilling less quantity of gas in cylinders.
In the absence of proper monitoring of the quality of rapidly growing cylinder circulation, the incidents of cylinder explosion and other accidents have soared, causing the death toll to jump to four over the last couple of months in the Kathmandu Valley.
And the worse part is, neither the market regulators nor the Ministry of Commerce and Supplies issued a statement or took steps to probe those incidents.
“Such irresponsive governance by the Ministry has only emboldened the wrongdoers, leaving consumers exposed to more threats in future,” states Baniya.
Liberalization is the only way out
As consumers rights activists push for stronger regulation of the market even while allowing it to expand to instigate fair competition and uphold consumers’ rights, experts urge the government to end the current policy of discrepancy on pricing, something which has cost the poor dearly.
“Correcting faulty LPG subsidy policy doesn’t appear to be a big deal because even if the government deregulated its prices, it will cost Rs 57 per liter, which is still cheaper than kerosene,” says Mukunda Dhungel, NOC spokesperson.
Experts, however, note that this ad hoc pricing and unfair distribution of price load among different petroleum products will not end without reviving the petroleum sector liberalization.
In this connection, they mainly urge the government to develop well-structured petroleum policy incorporating immediate, medium and longer-term plans and programs for petroleum sector liberalization.
The policy must clearly identify products in which the state can or will pledge subsidy. In case cross-subsidizing is to be done, it must state clear-cut guidelines while doing so, so as to prevent unjust distribution price load among different fuel consumers.
“Unless that can be ensured, ad hocism will continue to rule the petroleum sector, and people like Tamang will continue to face injustice,” said Baniya.
Apart from these immediate-term guidelines, experts also say that the government must clearly lay down a concrete plan for gradual elimination of petroleum subsidy, price deregulation through introduction of automatic pricing mechanism (APM), and enactment of a separate petroleum law to govern the market.
“The plans for ending NOC’s monopoly and opening the sector to credible private sector players must as well be well documented, so that one particular individual coannot derail the whole reform process,” said Dahal.
NOC Chief Jha and Commerce Secretary Ojha agree no less.
But affairs at the Ministry of Commerce and Supplies show that officials who talk of liberalizing the petroleum sector during this high oil price era have continued to send the liberalization issue to the back burner once ad hoc price adjustments are made.
In the past, energy experts like Amrit Nakarmi of the Center for Energy Studies and various high-level commissions had suggested to the government to set up a high-level Petroleum Authority to oversee the sector, monitor the anomalies in the market, introduce APM, open imports to the private sector, and regulate and monitor anomalies in the market.
They had even developed a pricing formula incorporating price bands, under which minimum and maximum prices of fuel could be set for multiple oil marketing companies to operate in the post-liberalization era.
Based on those suggestions, the Ministry of Commerce and Supplies drafted the Petroleum Transactions Bill. But this Bill, approved by the Cabinet in October 2006, has recently returned to the Ministry for revision after gathering dust in the Parliament for over three years.
The Catch-22 scenario continues!
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