Government hikes price of cooking gas, promising limited subsidy without proper mechanism

Without proper mechanism for subsidy and misuse of dual colour cylinder, the Nepal Oil Corporation (NOC) today hiked Rs 630 on a cylinder of cooking gas making it Rs 2,100 from Rs 1,470. The corporation has though decided to implement dual colour LPG cylinder – red for domestic and blue for industrial use – most of the cooking gas bottling plants are yet to separate the colours of the cylinders that are red only currently.
Despite the largest hike ever, the NOC claimed that it will still incur loss in a cylinder of cooking gas, though the buying price of a cylinder from Indian Oil Corporation (IOC) stands at Rs 1,561 and after adding VAT, customs and transportation cost, the price stands at around Rs 2,057. The NOC had been incurring a loss of Rs 587 per cylinder Liquefied Petroleum Gas (LPG), it said, adding that per month loss in LPG stands at Rs 763.1 million.

The decision will neither benefit consumers nor to the loss making NOC. It will only benefit gas bottling plants and dealers, who had donated around Rs 10 million to the UCPN- Maoist for its seventh national convention held in Hetauda on February 2-8.
The move by UCPN-Maoist led government of Dr Baburam Bhattarai, who is also minister for commerce and supplies, will benefit gas bottling plants and dealers of around Rs 250 million.

The state oil monopoly has also decided to provide Rs 550 cash subsidy on 12 cylinder of cooking gas for a family and four cylinders for a student per year.
But they have to buy a cylinders for Rs 2,100 and claim cash subsidy of Rs 550 through Bank of Kathmandu branches with cooking gas purchase receipt – that no dealers have been providing till date – and consumer cards, which the consumers have yet to get from their dealers.
Nepal Oil Corporation has verified only 110,000 consumer cards, out of approximately 1,200,000 consumers so far. The consumers have to pay the price of NOC's incompetency as it has still to verify 90 per cent consumer cards.
Consumer card distribution process that had started last April was halted in a month due to dispute among LPG entrepreneurs, NOC and the ministry.
After the dispute, the Office of the Prime Minister twice directed NOC and the ministry to introduce dual colour gas cylinder to end black marketing. The PMO and the ministry last July had also directed NOC to rebrand LPG into a single ‘NOC’ brand for smooth supply. But in August 2012, LPG entrepreneurs protested for the hike in commission rate.

Due to delay in implementation of its directives, the PMO redirected to implement dual colour cylinder in a week for the third time last November.

However, from today, the state oil monopoly unilaterally decided to implement the decision without proper mechanism of subsidy and reforms in the petroleum business that has made the NOC technically insolvent.

For the subsidy the Finance Ministry needs to arrange Rs 800 million, which could be possible only in the next fiscal year's budget. 
Earlier, the NOC had raised the price of cooking gas on September 2, 2012 to Rs 1,470 from January 26, 2012’s price of Rs 1,415.

According to the NOC, the market consumes 18,000 metric tonnes of LPG including industrial purpose. “Some 35 to 40 per cent of the LPG is used for industrial purpose,” according to NOC figures.
According to National Life Style Survey (NLSS III) 2011 of Central Bureau of Statistics (CBS), some 10,01000 families use cooking gas. But the gas industries claimed that some two million families use cooking gas and 4.5 million red gas cylinders are in the market, currently.