The chaotic situation perpetuated by a temporary scarcity of petroleum products in Kathmandu valley has not yet been normalized. Newspaper headlines bear witness to this fact. The queues for refilling the gas cylinder are becoming longer with each passing day. Some people are unsure about the extent of this scarcity and are thus, endlessly trying to store these products by paying large sums. Though the government increased the fuel price, it failed to ensure the supply of even the minimum requirement, far from the total demand. This situation has created a ‘Giffen good effect’: an anomalous nature of price and demand relationship. Thus, the demand for petroleum products is increasing despite rising prices, contrary to common the economic rule of the inverse relationship between demand and prices. This situation is not restricted to Nepal but has been noticed in some other countries as well, most recently in Nigeria.
Nepal, that has no option but to import petroleum products, has to adjust the price of petroleum products with the price changes in the international market. A small maladjustment in the demand-supply mechanism results in the creation of an abnormal situation in major cities like Kathmandu and Pokhara. The disturbance in supply becomes normal after the government gives a large subsidy to NOC to pay its dues to its Indian counterpart. In between these, the government increases the price, Kathmandu and other cities experience periodic strikes and the streets witness anti-government slogans. But in the midst of all this, the government ignores some basic underlying issues.
While the domestic fuel crisis is affecting domestic politics, the international scenario has become more serious. The discourse on fuel politics in the international arena has occupied most of the newspaper space. The oil embargo on Iran put by the US and almost ratified by Eurozone has come under serious scrutiny after India decided to continue to purchase oil from Iran. Since China and Russia are already against any severe action against Iran, global power seems to seek an alternative balance.
The recent price hike in most of the consumable goods has been a result of the rise in prices petroleum products. The intertwined relationship between the price of consumable goods and petroleum products cannot be overlooked. Since the issue of the price of the petroleum products is directly interlinked with people’s lives, the government has to devise immediate as well as long-term mitigating measures. Providing subsidy, an unscientific but immediate form of relief, to Nepal Oil Corporation (NOC) has failed to neutralize the situation.
We have to understand two things. First, it is clear that Nepal cannot store large quantities of petroleum products and hence, regularity of supply has to be assured. Second, the government has to immediately execute projects that reduce the use of petroleum products. Hydro-energy and alternative energy like wind energy, solar energy etc can help reduce dependency on petroleum products. Since the heavy trade deficit between Nepal and India relies more on import of petroleum products, export of hydro-energy in future to India can help reduce this deficit as well. Yet, this seems like an ambitious plan because to begin with, Nepal has to produce enough hydroelectricity to meet the domestic demand. According to official data, total export of goods from Nepal alone equals he total import of petroleum products from India, excluding the unofficial import-export at the cross border areas, which is far more in India’s favor.
The anomalous nature of the demand-price relation occurs when the economic situation of the country goes out of the regular track. The gross increase in the price of petroleum products has invited harsh criticism. Despite its efforts, the government hasn’t provided any alternative mitigating measures for the existing problems.
The priorities of the government depend upon the need of the current milieu. In terms of the petroleum products, the monopoly of the NOC has to come to an end. If the price of petroleum products continues to grow in this manner, it will derail all economic activities of our country. Since the war between the West and Gulf isn’t likely to settle down very soon, the global oil market of will witness upheavals and crisis. Despite the continuous rise in the prices of the petroleum products, the demand will increase. And at home, while the government has put constitution drafting and political issues as its top priority, ignoring crucial economic issues cannot be acceptable.
There are some appropriate ways to give a discount on petroleum products to the common people. This will pose another problem to the government if it does not regulate the system because attempts to provide subsidies were hampered by fraudulent activities that are almost difficult to check.
In Nepal, business related to the petroleum products has become an attractive venture. This being a lucrative sector, corruption has emerged as the major cause. Though NOC has a monopoly in the petroleum products market, many gas dealers, petrol pumps and distribution centers have also enjoyed this privilege. They seem to seek for the intervention of the private sector, but in reality, the current market domination by NOC is more beneficial to them.
Despite all these worrying situations, it’s amazing that the demand for both new vehicles and petroleum products is increasing in Nepal. The trade deficit with India is likely to widen further. Nepal is endowed with rich sources of water and hydro-energy can be one of the best alternatives. The government has already identified the most important hydro-projects of Nepal. Now, it’s time to take collective effort to execute those projects.
The daily demand for petro products in Nepal is increasing despite rising prices, which is contrary to inverse relationship between demand and prices.
The rise in the demand of the petroleum products in the world against Iran’s threat to stop supply of petroleum products to Eurozone will certainly create an imbalance in the current supply. In this global context, Nepal will also suffer, being fully dependent on India for it supply. But despite the rise in prices, the demand of petroleum products in Nepal isn’t likely to reduce.
According to statistics, 20 percent people in Nepal directly use petroleum products, while rest use alternative sources of energy, particularly firewood, biogas, and solar power. The larger share of 80 percent consists of rural people who are also affected indirectly by rising prices of petroleum products, which consequently leads to an escalation in prices of other goods. We should recall the objectives behind the establishment of NOC in 1970, which clearly indicate that NOC has other mandates like conducting research to explore alternatives to produce energy, apart from re-selling petroleum products. But, NOC has turned into a re-seller and a trading company that neither makes profit nor serves customers. However, instead of criticizing the government or NOC, we need to devise measures to reduce the ever-increasing demand for petroleum products. There needs to be a clear strategy to identify alternative sources of energy. Let’s think big and act bigger.
Brabim Kumar is a youth activist and Upendra Ghimire is a Researcher and Lecturer of English literature