Privatization of Fuel?
Constituting the diesel and petrol on 2012-13, 2013-14 and 2014-15, Nepal imports 73%, 73.7% and 74.2% of total import by Nepal Oil Corporation Limited which is increasing by 10% annually.
Privatization of Fuel means a private company should be allowed to import fuel from any country and to sell them from their own private stations.
- Protest & monopoly: Due to ongoing and frequent protest in Terai, due to monopoly of Indian Oil Corporation (IOC) as a sole supplier, the country undergoes huge crisis for the fuel. Just a day of crisis, price gets double for everything. The Nepal Oil Corporation is not keeping enough reserve to meet the demand in case of such crisis. As a result, the black market emerges and public are bound to pay double or triple of the actual price.
- Cost Reduction: As one of the major import it has played the huge role in the fiscal deficit. Assigning this to private sector, the profit-seeking behavior of private sector managers will undoubtedly lead to greater attention to customer satisfaction and cost cutting as they have their share on profit which keeps them motivated.
- Reduction in the size of the government: The fewer in government worker will demand the skilled one which will increase the efficiency of government and due to lower no. of worker will reduce the expense of government.
- Inflation: Also being a land locked country, we are fully dependent on trading through road transport. The 40% of total expense of any logistics company constitutes fuel expense. If the fuel price gets down the total transportation cost will reduce which may help in cost reduction of FMCG goods eventually help to control inflation.
As a lots of debate & discussions are already going on in this matter but it’s not in effect so far. The Nepal Oil Corporation (NOC) and the Indian Oil Corporation (IOC) have renewed the supply agreement for 5 years effecting from 1st April, 2017 so we can say there is no privatization coming for next 5 years.
For the decades before 1980s, in all over world the government took entirely every activity by themselves but later on after 1980s many developing countries adopted privatization. Throughout the world, privatization took control of everything.
The private companies should be allowed to purchase and import the fuel from any country. They can use the transporter to bring fuel inside the country and sell through their stations. As example: The east African countries have adopted the same system. All the east African countries like Rwanda, Burundi, Congo, Malawi, Zambia import fuel from Tanzania. The supplier considers the requirement of all the company and order a vessel of fuel mainly from the gulf countries. Once the vessel arrives at Tanzania, the transporter of each company uplifts the fuel from Tanzania and offloads at depot in their country.
As per demand, they load their fuel from depot and sell through stations or directly to other customer. The government has set the maximum retail selling price of fuel for ultimate consumer who wants to buy from stations and no companies are allowed to sell above that price.
Let the Nepal Oil Corporation (NOC) take the regulatory role and channelize, monitor and control the market letting private sector to import and trade. The general public & industries should not be affected just by not having fuel. At very beginning NOC can help by making some of the fundamentals like
- License system: Putting some criteria for private company to import the fuel.
- Construction of depots or let private sector construct their own where they can keep their fuel as reservoir.
- Making agreements with the countries from where the fuels can be imported.
- Giving exemptions, subsidy, tax holidays, grants to the company initiating the same.
- The quality control measures as we have started with Euro IV standard petroleum product.
To avoid crisis of fuel due to any political or natural or supplier reasons, the government can set the minimum stock level as reserve for each depot which the company should not be allowed to uplift so that these reserved liters can be used in crisis. Depending on consumption, the government can reserve for say three month or more or less. This way we can enter into new era of privatization and solve crisis for forever.
Conclusion: Nepal Oil Corporation should take the regulatory role and monitor the market letting private sector to import and trade.