Oil Prices Skyward

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Feb. 14, 2012, 5:45 p.m. Published in Magazine Issue: Vol.: 05 No.-15 Feb. 10 -2012 (Magh 27,2068)<br>

The government decided to provide NRs 2 billion loan to Nepal Oil Corporation (NOC) on February 2. Minister for Commerce and Supplies Lekh Raj Bhatta said the supply of petroleum products will ease within a week. When NOC announced to pay NRs 1.60 billion to Indian Oil Corporation (IOC) on February 3, petroleum supply was expected to be normal for at least a month, but uncertainty looms.


Protests by 13 student unions forced the government to partially take back the hiked prices of petroleum products and provide an immediate relief package to the students, farmers and the poor, who will get 33 percent discounts on the LPG and kerosene.


With America and the European Union agreeing to slap an embargo on Iran´s oil exports, prices of petroleum products are predicted to sky rocket in the international market in the coming months. In such a scenario, the government is at a deadlock as it can neither increase the prices nor continue to subsidize petroleum products.


Prime Minister Dr. Baburam Bhattarai recently said that the country could not afford heavy subsidy in petroleum products without cutting the development budget. 


According to NOC, the total estimated loss for February will be more than NRs 1.2 billion. NOC is already facing a cumulative loss of well over NRs 20 billion.


Despite the government’s announcement to provide loan to NOC, the Citizen Investment Trust (CIT), from which the government decided to provide Rs.2 billion, is reluctant to give any loan to the loss ridden NOC.


“We haven’t received any loans from the government, and we have got no idea about the Rs. 2 billon loan either,” said Suresh Kumar Agrawal, acting managing director of NOC. “If we receive Rs. 2 billion now, the scarcity will end within a week,” he added.


But, CIT does not trust the NOC, although the government itself is staying as the guarantor of the loan. “We cannot give away loans whenever the government says, to provide the loan of such a huge amount we need to have a board meeting and take a formal decision. We haven’t yet received any formal requests from the government,” said CIT Chairman, Chandra Mani Adhikari.


With the adamancy of Indian Oil Corporation (IOC), which itself is bearing loses, to provide petroleum products only on the basis of volume of payment it receives from NOC, smooth supply of petroleum products seems far away.


For how long will the government be able to subsidize petroleum products which are used by only 20 percent of the population? It is clear from the Prime Minister’s statement that it’s impossible to subsidize petroleum products without cutting development budgets of the rest 80 percent of the population.


The price rise in petroleum products is imminent for the smooth supply as government cannot continue subsidizing forever.


By Debesh Adhikari

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