To tide over the latest fuel crunch to have hit the country, the government has authorized yet another tranche of loans to the beleaguered Nepal Oil Corporation. According to the new agreement, NOC will get around Rs 1.6 billion in loans from the Citizens Investment Trust and Employees Provident Fund; the Finance Ministry will release another Rs 1.4 billion. NOC officials say the new loans will be enough to import petro products for another month. The Indian Oil Corporation, the sole supplier of petro products in Nepal, had cut its supply by 70 percent after NOC’s debt exceeded Rs. 3.2 billion. The news will come as a huge relief to those who have had to line up for hours in the scorching sun to procure their quota of three liters of petrol.
It is hard to argue against the fact that heavy subsidization of petro products and mounting NOC losses (in the current fiscal, it has already corralled up a loss of Rs 9 billion) are unsustainable. With the latest installment of loans, NOC’s total loans now stand at a whopping Rs 26.6 billion; and its total loss at an eye-watering Rs 29 billion. We believe the state has its strategy on oil badly wrong. The arrangement with IOC was put in place in 1970, at a time the country had a very small economy; it makes no sense to stick to the single-supplier agreement when fuel needs of the national economy have increased many times. We believe the private sector has an important role to play in easing the supply and distribution of petro-products in Nepal. If the government is not sure about the capability of the private players, it can start a pilot project to test the feasibility. Second, as we have emphasized many times before, the unjustified subsides must go: how is subsidizing LPG consumed mostly by middle and upper class justifiable? Third, it is equally important to make the opaque NOC bureaucracy (which contributes to public skepticism on price adjustments) more transparent. So long as the nexus between the political class and the oil bureaucracy is not broken such suspicions will remain. Although the only thing Nepalis can do about this year’s soaring temperatures is gripe and grumble, with a little more political will, a lot can still be done to shipshape the country’s shabby oil machinery.
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