By K. P. Sharma

In the wake of a worldwide hike in petroleum prices, and a raise expected in India with which Nepal shares a long open border, anytime soon, Nepal may have little option other than to follow suit. As a relief, however, Nepal Oil Corporation is willing to wait until after Dasain, the Hindus’ greatest festival that is celebrated in October. Hopefully, by then, oil prices will have lowered from the US $ 35 it now costs a barrel.

India is expected to raise fuel prices soon after its Premier Atal Behari Vajpayee returns from the United States where he is meeting President Clinton after attending the Millennium Summit of the United Nations in New York.

An oil price hike in India is inevitable as Indian Oil minister has already hinted at this. India, he says, is unable to bear US$ 14 billion in subsidy. India consumes nearly 100 million metric tons of petroleum products a year.

Nepal consumes about 800,000 metric tons of petroleum products a year — 350,000 kilo liters of kerosene, 350,000 kilo liters of diesel, 60,000 kilo liters of petrol, 65,000 kilo liters of aviation fuel, 30,000 kilo liters of furnace oil and 36,000 metric tons of cooking gas.

Only last November the NOC had increased the price of diesel and kerosene by 48 and 23 per cent respectively. And that had led to a 30 per cent increase in the fare of public transportation.

Still, Managing Director of Nepal Oil Corporation (NOC) Madan Raj Sharma says that NOC is subsidizing these products. “Kerosene is the costliest, but we must provide it at a very cheap price,” he says.

The paradox is that a litre of kerosene is sold at Rs. 13 in the country while it costs at least Rs. 20 at Kuwait port.

According to Sharma, the real price of a liter of kerosene works out to nearly Rs. 25.

The price of pol products has been increasing at an alarming rate since last year. Only last year, a ton of crude oil was available for US$ 180. It now costs US$ 350.

“Since there is nearly a cent per cent rise in the price, Nepal must face the crisis squarely,” Sharma says. The unanimous decision of the Organisation of Petrol Exporting Countries (OPEC) to raise prices has rocked the world market. It does not hurt their economy because they consume less of the product as they are not industrialized nations. OPEC countries meet about 40 per cent of the world requirement for petroleum products.

Meanwhile, US and other countries are putting pressure on OPEC, especially Saudi Arabia, to increase production of crude oil. World pressure to up oil output is expected to bring some relief soon.

The prices could stabilize if the production of crude oil is raised to 1.5 million barrels a day from the existing 800,000 barrels. The price of a barrel of oil will then stabilize at US$ 20-24.

Whether oil prices stabilize or not, NOC may in the near future have little option other than to raise its own prices. The subsidy it provides has been mounting year after year, and it is no more in a position to do so. It’s the social obligation that is hindering NOC from raising prices.

“If we sell kerosene in today’s price when international price of kerosene is 43 US $ per barrel in Singapore, we will lose 7 billion rupees a year,” Sharma says.

Meanwhile, responding to rumours regarding NOC’s plan to fix dual prices for cooking gas — one for tempo opeators and for for domestic consumtion — DG Sharma told Sunday Despatch that it has no immediate plans to do so. “We want to do it, but it is very difficult to monitor.”