How scientific is fare determination mechanism?

How scientific is fare determination mechanism?

Four months ago, the government was under immense to increase public transportation fare. Entrepreneurs had pushed the government to increase fare by at least 10 percent citing increment in prices of both fuel and non-fuel components.

Bowing to pressure, the government had even decided to increase transportation fare by six percent. But the decision was postponed following pressure from all quarters to implement fare hike decision only after the Dashain festival.

Now, there is a new twist on the issue. Nepal Oil Corporation (NOC) started adjusting fuel prices every fortnight based on the prices sent by its sole supplier — Indian Oil Corporation (IOC) — from the last week of September. Coincidently, global oil prices started falling after NOC adopted automatic fuel pricing mechanism. Since then price of diesel and petrol has decreased by Rs 12.5 and Rs 18.5 per liter, respectively.

The government couldn´t raise the fare also because a sub-committee of Industry, Commerce and Consumers´ Interest Relations Committee of legislature-parliament directed the government not to raise public transportation fare. Following significant drop in fuel prices, the government slashed public transportation fare by a nominal 1 percent effective from Wednesday.

But the nominal reduction in public transportation fare despite heavy reduction in fuel prices have drawn criticism from all quarters.


Government officials say recent drop in public transportation fare is scientific. Stating that public transportation fare is calculated on the basis of different parameters, including fuel price, they say price movement in one parameter makes little impact in the fare fixation mechanism. “Many people have misconception that changes in fuel price makes significant impact on transportation fare,” Sarad Adhakari, director of Department of Transport Management (DoTM), said.

The Scientific Fare Determination Mechanism adopted by the government in 2009 looks into number of parameters while calculating public transportation fare. Stating that fuel factor holds less weightage and prices of other parameters have increased, Adhikari argued that the new adjustment in public transportation fare scientific and that there was no point in criticizing the government. “In fact it is a drop by 7 percent, as we were prepared to increase public transportation fare by 6 percent in September,” he added.

Mukti KC, spokesperson of DoTM, agreed with Adhikari. “Reduction or increment in fuel prices does not hold much significance in fare determination process. Transportation fare is adjusted on the basis of change in fuel and different non-fuel factors.”


The mechanism was adopted by the government in 2009. As per the mechanism, public transportation fare is increased every year based on prices of fuel and non-fuel factors. The non-fuel factors include inflation rate, bank rates, and prices of accessories and spare parts, among others. It also has the provision of calculating new fare on the basis of 35 percent contribution from fuel factors and 65 percent from non-fuel factors.

Adhikari, however, said the weightage given to fuel and non-fuel factors is only a base to calculate new fare. “In case there is significant change in prices of fuel and non-fuel factors, the given weightage can be changed accordingly,” added Adhakari.

As per the mechanism, the government should adjust public transportation fare if fuel prices increases or decreased by more than 5 percent.


Consumer activists say that government needs to change the Scientific Fare Determination Mechanism. “The mechanism was made anticipating that price of fuel would not change by more than Rs 10 in couple of years,” Jyoti Baniya, general secretary of Forum for Protection of Consumer´s Right (FPCR), said, adding, “Fuel price has come down by more than Rs 18 per liter now.” Likewise, Baniya also said the government should stop the practice of revising transportation fare coming into pressure from transport entrepreneurs.

He also said the government was dragging its feet on reduction in public transportation fare in line with drop in fuel prices. “If the government can raise transportation are when fuel prices increase, why can´t it reduce fare when fuel prices have down significantly?” questioned Baniya.


DoTM officials they need to stick to the Scientific Fare Determination Mechanism and that they cannot bypass it.

The department, however, has decided to reduce public transportation fare for local routes by at least Re 1 effective from Friday.