Nepal Updates

Faulty LPG subsidy hits poor

The government last week pledged Rs 800 million to Nepal Oil Corporation (NOC) to finance the import of liquefied petroleum gas (LPG).

Instead of plugging the loss coming from LPG by revising its price, NOC adopted tricky tactics of covering LPG induced loss by raising prices of diesel, petrol and kerosene, a move that threatens to exert pressure on fiscal balance. But a million dollar question is who gains from state´s subsidy on gas?


“Clearly, it is the relatively better off urban families, big hoteliers, restaurant, gas-run automobile operators and tourists who benefit from such subsidy regime,” said Umesh Dahal, recently retired deputy managing director of NOC.

Consider the following facts: State subsidizes Rs 130 on every gas cylinder presently sold at Rs 1,250. Eighty percent of cooking gas is consumed in the Kathmandu Valley and 40 percent of gas distributed throughout the country is consumed for commercial purpose. These sectors rake up a monthly subsidy of about Rs 56 million.

Nepal LP Gas Industries Association (NLPGIA) confirms that of the 15,000 tons (1.05 million cylinders of 14.2 kg) of gas imported in the country, 12,000 tons (845070 cylinders) is consumed in the Valley every month.

Some 6,000 tons (more than 422,500 cylinders) out of total imports are consumed by hotels, restaurants, factories and other commercial ventures. Most big hotels use the subsidized gas to run their mammoth boilers and traders use it to run generators.

With Rs 800 million that the government pledges to subsidize LPG, it could have built 320 primary schools accommodating 250 students or 800 sub-health posts or 20 km road in hills and 26.5 km road in Tarai. What should be its priority -- such crucial service infrastructure or subsidy to relatively better off urban families and commercial entities?
Interestingly, the well-off local consumers of restaurants and hotels and the tourists are neither the targeted beneficiaries nor in need of the state subsidy.

Among the commercial consumers too, more than 1,000 tons of gas is consumed by vehicles running on gas alone, according to Mukunda Dhungel, NOC spokesperson. This means the state subsidy going to the automotive sector totals to around Rs 10 million.

Owing to subsidy, gas-run three and four wheelers are getting fuel at Rs 50 per liter, which is Rs 15 cheaper than diesel. Because of better fuel efficiency, they are also enjoying higher mileage than diesel-run vehicles.

But as the operators charge fare no less than diesel-run vehicles, subsidy in automotive sector is going as profit in the pocket of vehicles operators, and hence, is a waste.

The subsidy provided to cooking gas alone is more than two-thirds of the total petroleum subsidy bill. “And the grave social injustice is, the government is forcing lowest-income group, who rely on kerosene to cook food, to cover the loss incurred while selling gas to better income groups,” said Dahal.

Compared to LPG, which is retailed at Rs 50 per liter, Ministry of Commerce and Supplies has made poor people pay Rs 65 per liter of kerosene. NOC reaps Rs 8.50 per liter as profit from kerosene sale.

“We use this profit to cross-subsidize LPG,” said Commerce Secretary and Chairman of NOC Purushottam Ojha.

Consumers rights activists like Jyoti Baniya of Consumers´ Rights Protection Forum strongly condemn such policy discrepancy. Saroj Pandey, petroleum dealer and former president of NLPGIA, too demanded the government to end the trend of loading the financial burden of unfair subsidy on kerosene and petrol.

Even if the government deregulated gas prices, it will cost just Rs 57 per liter, which is still cheaper than kerosene. “Only fools argue that present day gas consumers cannot afford paying that much,” said an NOC official, requesting anonymity.

LPG bottlers too admit that there is no point of squeezing LPG gas price. If the government cannot end it immediately, they suggest the government to at least demarcate consumers and introduce differential pricing for household and commercial consumers.

This will at least help the state narrow down the subsidy bill, which currently stands at Rs 140 million a month.

Most importantly, this subsidy to the relatively rich comes at a huge social cost. The subsidy on cooking gas can build 56 primary schools accommodating 250 students or establish 140 sub-health posts or extend roads in hills by an additional 3.5 kilometers or in Tarai by 4.6 km every month.

The government must get its priorities right. Who does it want to help?

Source: Republica

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