The reasons behind the increase in gasoline prices in Nepal

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The reasons behind the increase in gasoline prices in Nepal

Gas costs have been steadily rising. Petrol in the Kathmandu Valley has risen by Rs25 per liter in the last year, from Rs96 to Rs129 per liter. Diesel and kerosene are now priced at Rs104 per liter, up from Rs93 per liter a year earlier.

Nepal imported Rs. 164 billon worth of Perroleum products in the last fiscal year which ended in mid-july.

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Despite the higher money collected on each sale by Nepal Oil Corporation, the state-owned monopoly claims that its monthly anticipated loss remains at Rs1.4 billion.

In the fiscal year that concluded in mid-July, Nepal imported Rs164 billion worth of petroleum products. Consumers are dismayed by the constant rise in fuel costs, with many questioning what is causing the prices to soar so dramatically.

Here’s everything you need to know about Nepalese fuel prices.

Trends in gasoline prices.

In March 2014, Except for the spike in prices to stratospheric heights during the Indian trade blockade in 2015, Nepal Oil Corporation raised the price of petrol to Rs140 per litre and diesel to Rs109 per litre, the highest-ever price hike in Nepal.

This was due to a rise in crude oil prices and a weakening of the Nepali rupee against the US dollar.

In June 2008, the price of crude oil reached an all-time high, averaging $148.93 a barrel on a monthly basis.

The ripple effect of soaring oil costs swept over South Asia, with the Nepal government facing massive protests following a big increase in state-set fuel prices.

Nepal, which imports all of its gasoline from India, raised the price of petrol and diesel by 25% to Rs100 per liter and Rs70 per liter, respectively.

Nepal used to subsidize fuel expenses to keep market prices from blowing out of control. The oil monopoly would limit supplies whenever the price climbed to keep its expanding losses in check, resulting in huge lines in front of petrol stations.

As a result of the June 2008 oil volatility, Nepal’s annual inflation rate climbed to double-digit figures, reaching 12.62 percent in 2009, one of the highest inflation rates.

Load-shedding was beginning in Nepal at the time, and development operations had just recently begun to take up after the government reached a comprehensive peace agreement with the Maoists in 2006.

From then on, global crude oil prices began to plummet, resulting in one of the most precipitous declines in history. The Great Recession and the 2008 financial crisis triggered a bear market in oil and gas, with the price of a barrel of crude oil plummeting from roughly $148.93 to $35 in only a few months.

However, it began to rise up again and crossed the $100 per barrel barrier. Load-shedding hours were at an all-time high, hitting 84 hours per week in Nepal. The power outages resulted in a surge in oil consumption. There was also a lot of development going on.

In 2016, the worldwide average price of oil fell to $43.73 a barrel. Oil prices in Nepal have also dropped. Petrol was reduced to Rs99 per liter in January 2016, while diesel and kerosene were reduced to Rs75 per liter.

Why is the price of fuel rising again?

The primary cause for the increase in gasoline costs in Nepal, according to Binitmani Upadhyaya, is the increase in the price of crude oil on the international market, especially after many nations removed their lockdowns. For the first time in history, the price of crude oil became negative on April 20, 2020, plunging to – $37.63 per barrel. This implies that producers pay purchasers to transport their oil because they don’t have a place to keep it.

According to Bloomberg, the epidemic had brought the world economy to a halt, and there was so much wasted oil floating about that American energy corporations had run out of storage space. No one wants a crude contract that is about to expire if there is no place to put it. However, since January, crude oil prices have begun to rise. It had an influence on Nepal as well.

Will prices increase further?

“We have no control over the price,” Upadhyaya added. The price of crude oil has been steadily rising, and we have no idea how much higher it will go. However, given the present trend, petrol prices may reach Rs140 per liter in 2014. “In terms of subsidies, we cannot allow the business to operate at a loss as it has done over the previous decade. We’ll adjust rates to reflect the fact that we’ll require money to run the company.”

How does the price of fuel affect consumers?

The price of oil has certainly taken a toll on consumers’ wallets. The increase in gasoline costs will result in price increases in nearly all industries, including transportation, aircraft, automobiles, and textiles. Food and vegetable costs will rise in lockstep as transporters raise their freight charges. Fares on school and public buses will begin to rise. Increased fuel prices, in particular, are a major concern in Nepal, as they would increase transportation and irrigation expenses. The rise in what you spend on gasoline every month for your daily commute is a direct result of increased diesel and petrol costs.

Why is Nepal Oil Corporation still a monopoly?

Nepal Oil Corporation was once a chronic loss maker. When international petroleum prices began to rise in the fiscal year 2002-03, the corporation’s financial condition began to deteriorate.

In 2015-16, the company announced it had finally become debt-free after 14 years since it adopted the auto pricing mechanism. By January 2015, its indebtedness had ballooned to Rs36.87 billion. Because of dropping oil prices on the worldwide market and the new pricing system, the business was able to pay off all of the debts in just over a year and a half.

At a time when petroleum products were in short supply in the country, the government considered deregulating the market to enable the private sector to import and distribute them. The Commerce Ministry even introduced a new law in Parliament in 2010, but it was sent back for more research and comments. The law was never a priority because of the numerous changes in government.

A number of Indian companies have shown interest in selling petroleum products in Nepal on different occasions. In January 2013, India’s private petroleum giant Essar Oil, which is now Russian oil company Rosneft-owned Nayara Energy Limited, approached the Nepal government to supply petroleum products.

In January last year, the government balked at deregulating the petroleum sector with Nepal Oil Corporation awash in cash despite there being a long-standing pledge to break the monopoly of the state-owned company. Last January, Minister for Industry, Commerce, and Supplies Lekhraj Bhatta said that the government would not open up the oil trade to the private sector.

“Petroleum is a delicate topic in terms of national security. As a result, I believe we should not involve the private sector in the oil industry,” he added.

What is the auto-price mechanism?

In September 2014, the government implemented an auto pricing scheme for petroleum products—diesel, gasoline, and kerosene—in an effort to curb rising losses. When the price of gasoline began to rise, the vehicle pricing plan was enacted to remove governmental subsidies to consumers. Simultaneously, Nepal Oil Corporation used a cross-subsidy system, increasing the price of aviation fuel sold to foreign aircraft while using the extra funds to subsidize other fuel products. As a result, Nepal’s aviation fuel prices have risen to among the highest in the world.

The cross-subsidy mechanism continues to work. Nepal Oil Corporation is only authorized to modify local prices by 2% at a time, independent of worldwide price variations, according to the Petroleum Products Auto Pricing System Bylaw. The firm is not permitted to increase the price by more than 2% each year, which amounts to Rs2 per liter.

How is the price adjusted fortnightly?

Nepal’s single oil supplier, Indian Oil Corporation, delivers an updated list of oil prices—petrol, diesel, and kerosene—every two weeks, while the cost of aviation fuel and cooking gas is reviewed monthly.

Nepali Oil Corporation changes pricing based on current exchange rates. Since 1974, India has supplied all of Nepal’s petroleum requirements, demonstrating its desire to retain tight commercial relations with its neighbor in an area where regional competitor China has attempted to increase its influence.

Indian Oil Corporation delivers the pricing list of its goods based on the Brent crude oil price, to which it adds refining costs, as per the agreement between Nepal and India. A liter of fuel costs Rs60.55 at the moment, according to the current pricing. It is taxed at Rs55.86 per liter.

The shipping cost is Rs4.75 per liter, plus an oil dealer mark-up of Rs1.76 per liter and Rs1.81 for technical losses and insurance. On a liter of petrol, gasoline, kerosene, and other fuels, the corporation’s administrative costs are merely Rs 0.68.

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