At present oil prices have already dropped to about 45 dollars a barrel, which is about one-third of what was recorded five months ago. Yet Nepal is not finding a switch to liberalization an easy task.
Outstanding dues of about Rs 16 billion of Nepal Oil Corporation (NOC) now stands on the way, said sources, who informed myrepublica.com that the state-owned petroleum import monopoly that strongly pushed for opening prices while it incurred loss of as much as Rs 1.50 billion a month is now against the same.
NOC´s argument is that this Rs 16 billion is the amount it took in loans to finance imports over the past four years, when the government did not adjust domestic fuel in line with the international trend.
"Since the liability emanated from the government´s faulty policy, it is now government´s duty to ensure enough returns to NOC to clear the dues," argued Digambhar Jha, chief of NOC.
Amid soaring import prices and apathy of the government to adjust domestic prices, the state had lost some Rs 22 billion during the period. In the absence of direct subsidy provision, NOC was forced to shoulder all the losses, which eventually strapped it off with cash and turned it technically bankrupt.
Given the situation, even senior officials at Ministry of Commerce and Supplies that pushed for reforms presently support NOC´s stance. "Until we work out how to get rid of past debts -- the ghost of high-price era -- it is very difficult to open prices and invite private players," Commerce Secretary, Purushottam Ojha told myrepublica.com.
What this clearly means is; much-pushed reforms of the country´s import-dependent petroleum sector will not happen anytime soon.
If the government opened prices and inducted private players now, it will not enable technically-bankrupt NOC to generate enough funds to settle the dues. "This will be unfair; after all, how will debt-ridden NOC compete with healthy private players?" questioned NOC officials.
Unfortunate for Nepal is that if the government did not open the sector now, it might miss the opportunity completely because the oil prices that dropped in the wake of global economic slowdown -- an impact of ongoing financial crisis -- will not remain at the present level for long.
Even with Rs 500 million as monthly profit, which the government has allowed NOC to reap at present by not lowering major oil prices, the corporation has said it would take about 32 months to be free from dues.
"Sadly, oil prices might not remain low till then. And given the situation, chances are high that Nepal will miss the opportunity yet again," said a knowledgeable source.
Chances of reforms going off track also emanates from the fact that opening the domestic oil prices contravene the revenue interest of Ministry of Finance as well.
When the import price was high, petroleum trade had fetched the government Rs 12 billion in revenue in the last fiscal year. With the import rate going down, revenue from oil trade has already dipped to about Rs 800 million a month and MoF is already seeing revenue plunge by some Rs 2 billion.
“If the rates are cut, collection of VAT and overall revenue contribution of oil trade will lower further,” said a senior MoF official. This goes contrary to what the MoF can afford, especially as the government in the current fiscal year has projected to mobilize revenue exceeding 33 percent of what it collected in the last fiscal year.
Thus, petroleum sector reform, which was derailed due to strong resistance from the public in the past, now faces similar fate, and this time the actors -- the NOC and the government -- who pushed its reforms are not in its favor.
Experts, however, are of the view that the government must find a solution of this problem if it wishes to stave off future problems.
"There is no option for Nepal apart from laying down a concrete action plan with specified timeline for formulating necessary legislative framework and implementing them if it wishes to avoid oil-related problems in the future," said a former NOC chief.
They accept that the choice for government is limited and decision will be difficult. But they argue the government must work out a breakthrough now.
milan@myrepublica.com
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