Scant chance of Nepalis benefiting from global oil price plunge

Published On: March 15, 2020 07:21 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, March 15: Nepali consumers continue to pay  high prices for  petroleum products as the authorities are  reluctant to factor in the plunge in   the international price. The country’s petroleum products monopoly is likely to cite various types of taxes or the possibility of smuggling to India for keeping the price structure largely unchanged. 

Prices of petroleum products have been in free-fall in the global market. According to international media, crude prices are down 50% from their January peak, and at the lowest level since early 2016. 

“Crude  has been down to US$ 32 per barrel from US$ 64 over the period,” reports NDTV. 
The steep decline  has been attributed to heavy fall in demand after a number of countries went into lockdown against the new coronavirus outbreak. There is also a price war between producers Saudi Arabia and Russia. 

Despite the heavy decline in the price graph , Nepal Oil Corporation has revised the price downwards only nominally over the period. The state-owned oil supplier, which is supposed to adjust  prices as per an automatic adjustment mechanism, clipped a  mere Rs 2 per liter petrol off the price of a month ago. Based on the recent price list, NOC earns a profit of more than Rs 500 million per month. 

 NOC has been implementing the auto pricing mechanism since September 2014. Under this arrangement it  revises fuel prices  every fortnight based on the price list sent by the Indian Oil Corporation, its sole supplier of fossil fuel . NOC should be revising the price on Sunday. However, it is unlikely to reduce the price by a significant amount this time either.

According to  NOC officials, they could this time adjust the  price against an infrastructure tax that   the government revised  two weeks ago. While the government has been claiming that the increase in infrastructure tax would not push up  oil  prices, the NOC officials said that  tax hike was   also meant to address  price differences across the border. 

“Apart from collecting tax revenue for the specific purpose, the main objective of imposing the tax is also to reduce the difference in prices in the two markets,” said an  NOC official on condition of anonymity. As per the source,  fuel in India is Rs 16 per liter  more  expensive than in the Nepali market. 

Under the Petroleum Products Auto Pricing System bylaw,  NOC is allowed to adjust domestic prices by only 2% at a time regardless of the degree of  fluctuation in global prices. Anything in excess of this limit should go into a price stabilizing fund. 

An NOC source said that the impact of the recent  fall in crude prices may not show in the price quotations to be sent by the Indian oil supplier. 

“We might  have to wait another 15 days for the price of petrol and cooking gas to fall,” the source said. 


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