‘Stabilising domestic fuel price amid global surge is not possible’

• The price of petroleum products has been surging notably in the domestic market since the past few months. Continuous increment in fuel price will not only add financial burden on consumers, but will also affect the entire economy of the country as fuel price is directly related to transportation cost and cost of goods in the market. Sujan Dhungana of The Himalayan Times spoke to Birendra Goit, spokesperson for NOC, to know about the rising fuel price and other issues related to the fuel industry. Excerpts:

Interview with Birendra Goit, Director of Nepal Oil Corporation at Babaharmahal in Kathmandu on Monday, October 15, 2018. PHOTO: BALKRISHNA THAPA CHHETRI

Fuel price has been rising significantly in the domestic market in recent months. What do you have to say on this?

We all know that the price of petroleum products in Nepal is directly related to the fluctuation in the price of crude oil in the international market. As the international crude oil price is getting dearer every day, petroleum products are getting dearer not only in the Nepali market but globally. Currently, crude oil is traded at $77 per barrel on an average. Similarly, the constant devaluation of the Indian currency vis-a-vis the US dollar has been affecting the price determination in Nepali market, as Nepal Oil Corporation (NOC) has to pay the Indian Oil Corporation (IOC) in Indian currency. Thus, the constant rise in the price of crude oil and value of US dollar against Indian currency has been adding pressure on the price of petroleum products. As per our calculation, NOC has to bear an additional loss of Rs 150 million in one single day even if the US dollar appreciates by one rupee. These factors have also added financial pressure on NOC in recent months. As per the price list forwarded by IOC for the first half of October, NOC has been incurring monthly loss of almost Rs 1.3 billion and our loss is bound to increase further in the coming months with crude oil price and value of US dollar showing no signs of depreciating. In this scenario, NOC does not have any option other than to adjust fuel price in line with the international price trend. As suggested by the government, we did not adjust fuel price before Dashain, as it would have had a negative impact on festive market and consumers. However, NOC will have to adjust fuel price every fortnight based on the IOC’s fuel rate. If the price of petroleum products is not adjusted accordingly, it will result in shortage of cash with NOC, which might affect our supply-payment system. If the supply-payment system is affected, it might affect the supply situation of fuel. We do not have any pending dues with IOC so far and we are issuing payments to IOC every eighth and 23rd day of the English month.

However, NOC faces criticism for every increment in fuel price. Does it mean the public is unaware about all these facts behind the fuel price revision?

The first thing we need to understand is that Nepal is fully dependent on imports for petroleum products. However, I believe that the public today is more aware about the reasons behind the recent adjustments in fuel price as compared to the past. We have been disseminating facts behind fuel price revision and other concerns and status of NOC via our own media centre and the media. All revisions in fuel price are transparent. I do not think there is any space for the public and other stakeholders to protest against fuel price adjustment, as they are scientific. Let me mention that NOC has revised fuel price around 37 times since the auto pricing mechanism was implemented towards the end of 2014. Of the total revisions, we have reduced fuel price almost 20 times. Similarly, we should also not forget that petrol price had reached Rs 140 per litre in Kathmandu Valley four years back, while the price of diesel had also stood at Rs 109 a litre. Thus, price adjustment should not be made a big issue. NOC’s prime concern is to ensure smooth supply of fuel in the market and we are committed towards it. Meanwhile, NOC is also ensuring that there will not be any interruption in fuel supply during Dashain and other upcoming festivals. We have already instructed all our depots to supply fuel as per necessity.

Don’t we have any option to stabilise fuel price despite the global surge in price of petroleum products?

We all know that Nepal does not produce fuel. As we are completely dependent on IOC and the international market for fuel, we are bound to follow the international price trend. We import fuel from India and the volume of fuel that it supplies to Nepal is almost two per cent of India’s total consumption. So, Nepal’s fuel market does not really have much effect on India’s fuel industry. Thus, India’s priority will be to its own fuel market. However, any decision that the Indian government makes targeting its market will directly affect the market in Nepal. One measure that Nepal can adopt to be less affected by the global surge in fuel price is increasing the consumption of renewable energy over fossil fuels. This will reduce import of petroleum products. However, the consumption rate of renewable energy is very low in Nepal. Another measure to stabilise the fuel price could be mobilising the price stabilisation fund (PSF). However, the size of the PSF is very small, as it has only Rs four billion money in deposit while NOC is incurring monthly losses in billions. We have sought approval from the government to mobilise the PSF to stabilise fuel price for a certain time. However, PSF cannot help NOC to control fuel price in the long run. In fact, we did not revise fuel price before Dashain with plans to recover the losses that NOC incurred in the first half of October through the PSF.

Consumers have been paying higher price also because the government has levied different taxes, like infrastructure and
pollution tax, on fuel. However, the government has not been able to use the amount collected under such headings for the set objectives.

Don’t you feel such taxes should be scrapped?

It is true that various taxes are being levied on fuel price. But it has to be noted that all such taxes are levied through the budget speech by the government and NOC does not have any authority regarding any tax. Thus, if the government feels the necessity to revise taxes on fuel, it will have to come through the budget speech.

Meanwhile, it has been reported that NOC is planning daily adjustment of fuel price. How feasible is this plan?

Daily adjustment of fuel price is necessary. However, its implementation is challenging as fuel trading in Nepal is still carried out manually. Our fuel stations are not fully automated and payment system is also manual. However, NOC is preparing groundwork to implement daily price adjustment in fuel price. We are trying to transform all fuel stations to digital system. Though it might take a few years to realise this plan, daily adjustment in fuel price is necessary and will have to be implemented in the long run.

What about the progress of the Motihari-Amlekhgunj oil pipeline?

The project is going on smoothly so far. Almost 70 per cent of the pipe laying process has been completed on Nepal side, while construction works on Indian side are smoother. Though initial pact that Nepal and India inked states that the project should be completed within 30 months, we have made significant achievement in last six months. However, a few encroachments along the project route are yet to be cleared. NOC has learnt that Ministry of Forest and Environment is set to give a nod to final draft of environment impact assessment (EIA) of the pipeline. Once EIA is approved by government, construction of the project will be expedited further.

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