NOC losses, strong dollar, carteling to dilute benefits

The sharp fall in the price of crude oil in the international market has started yielding positive results for Europe and non-oil producing countries, and similar results are expected in Nepal as the price of commodities, including those that need to be imported, should go down due to the lower cost of transportation.

International crude oil prices tumbled by about 50 percent since June, and Nepal Oil Corporation has slashed its prices by 11 percent for diesel and 13 percent for petrol, clearly indicating that transport costs will go down and commodities can be expected to become cheaper. Crude dropped to less than US$ 60 per barrel this week from US$ 115 in June.

“The fall in the petrol price must have an impact on commodities in this import-based market and should have brought a sigh of relief to consumers who are used to ever-soaring prices,” said Basudev Sharma, undersecretary at the Ministry of Finance.

The effect would have been apparent in consumer goods ranging from daily items like rice, lentils and vegetables to imported articles.

The fuel factor has a weightage of 35 percent in transport cost. But cartelling, syndication and unionism in the transport sector are huge challenges for Nepal´s market economy and consumers are always at the receiving end.

Transport entrepreneurs easily get their way when it comes to increasing transport fares, but they are dillydallying over reducing transport fares. In this, they are backed by their syndicates in what amounts to an illegal practice.

The government has failed to control and regulate the cartels and syndicates in the transport sector although the Supreme Court has ordered it at different times to do just that.
Meanwhile, the government reduced public transport fare by a token 1 percent this past week, citing the fall in international oil prices.

Market economy researcher Chittaranjan Pandey is very pessimistic about customers seeing any real lowering in the price of consumer goods. “Nepal´s economy is in the vice-like grip of syndication and cartelling and as such Nepalis won´t benefit from the softening of prices in the oil economy,” added Pandey.

Member of National Planning Commission (NPC) Chandramani Adhikari conceded that the available implementation mechanism cannot bring any dividends to consumers from the fall in oil prices.

“At the same time a drop in oil prices would not be as beneficial here as in other countries as Nepal has to purchase oil in US dollars, which is appreciating vis-a-vis the Nepali rupee,” added Adhikari. It is expected that the energy factor will help reduce the price of imported goods. But Adhikari said it depends on whether the US dollar keeps appreciating.

Meanwhile, NOC has cited accumulated losses amounting to Rs 34 billion and a net loss over LPG as major constraints to adjusting the price of petroleum products here to the international market.

NOC´s loss figure is Rs 290 on each cylinder of LPG, according to the price adjusted last week. NOC purchases refined oil from Indian Oil Corporation as it does not have its own refinery.

The government´s regular spending on fuel for vehicles is likely to see a significant decline while the lower price of petroleum products Nepal imports from India will also pull down the soaring expenditure on imports.

The country imported petroleum products worth Rs 134.4 billion last fiscal year alone, an increase of 21 percent compared to the previous year.

The fall in the price of oil even on a small scale will send a positive message to industries operating on diesel-fed generators. It can also help make Nepal´s products more competitive.

Source: Myrepublica