KATHMANDU, March 20, 2014 : While everyone seems to agree that providing subsidy on fuel puts a big burden on the government, the question of whether to continue with it or of how to lessen the weight while not hurting the poor and the marginalized remains divisive.
In the last decade and half, this has set a trend. The government hikes petroleum prices triggering protests from the opposition parties who disrupt the parliament and then their respective student unions and youth wings hit the streets and burn and smash property.
Last Friday’s decision on the price hike has done the same. Students demonstrated, banda was called on Wednesday in the capital, and parliament disrupted by the opposition for a third consecutive day on Thursday before the government finally relented to mounting pressure for a roll back.
Protestors say that it will not only send public transportation fares up but also have a cascading effect on consumer products which will affect the lower strata of population as well as the lower middle class.
As usual, the government has a different take on it. Again, the government says it is costly to subsidize petroleum by cutting the development budget while the cost of imported fuel has increased due to increase in the price of crude oil in the international market and exchange-rate fluctuation.
According to Nepal Oil Corporation (NOC), its total monthly losses stand at Rs 1.22 billion because of subsidy in different products even after the price hike.
The monthly losses were Rs 1.69 billion prior to Friday’s hike. The country imports petroleum products worth Rs 107 billion annually, which is more than Nepal’s exports put together.
Speaking at an event on Saturday, Minister for Finance Ram Sharan Mahat said NOC should be free to decide the price of petroleum products in accordance to the changes in the international market.
BLANKET SUBSIDY
OR a TARGETED one
Petroleum products like Liquefied Petroleum Gas (LPG) and diesel have become essential commodities.
However, the government’s policies are yet to define essentials and non-essentials, therefore prices are increased without considering the effect on the lives of the common people.
Talking to Republica, former Commerce Secretary Purushottam Ojha said there must be a selective approach that targets for whom to subsidize and on which products.
“As many South Asian countries, including India, have subsidized basic fuel, Nepal too should subsidize LPG and diesel as they are essentials,” Ojha said.
Former Finance Secretary Rameshore Khanal, who is now a leader in Nepali Congress, has been strongly against subsidizing imported fuel. “Subsidy in petroleum only benefits the urban population but the government pays that by cutting the development budget meant for the rural population who can never hit the streets of the capital,”
Khanal says, adding that the idea of subsidizing imported products is not a wise move as it only benefits petroleum exporters. Khanal further says, “It would be wiser to provide free electricity to the people instead of subsidizing imported fuel as electricity is domestically produced.”
TAX ON PETROLEUM:
A PRESSING FACTOR IN PRICE HIKES
The government levies 13 percent VAT on all petroleum products except kerosene and nominal customs duty on all products. Revenue is also one of the major issues that put pressure for price increments. The amount of revenue collected from NOC increased to Rs 25 billion from Rs 8 billion in the last five years.
Former Commerce Secretary Ojha says that the government can specify the amount in revenue on petroleum instead of percentage to keep control on prices, which has shown an upward trend.
Himal Sharma, a student leader aligned to UCPN (Maoist), says the government should waive taxes on essential commodities like LPG and diesel. “LPG is already listed in essential goods, diesel should be made free from taxes as the price is directly related to transportation fares and indirectly to the price of all consumer goods,” Sharma adds.
However, former Finance Secretary Khanal says waiving revenue would be a suicidal approach as it would cut the budget for development works.
“A huge amount of tax must be levied on petroleum products for collecting money for hydropower development, which is the best option for us to wean away from our dependency on petroleum.”
CROSS-SUBSIDY
Since March 9, the government has implemented a dual-pricing system for LPG by ordering the use of separately colored cylinders for commercial and household use in a bid to subsidize LPG only for households.
However the process of making commercial entities pay full price for LPG is yet to be implemented. Subsidy for LPG is Rs 864 per cylinder. 1.5 million LPG cylinders are consumed monthly.
Ojha says that the cross-subsidy policy in LPG will be a strategic move to downsize the burden of subsidy.
SEVERAL STUDIES, BUT NO IMPLEMENTATION
As many as five high-level committees, led by Top Bahadur Rayamajhi, Shankar Sharma, Yubaraj Khatiwada, Bhanu Prasad Acharya and Bhim Acharya, have investigated the fuel economy of the country to find a way to solve the problem. However, the study reports are gathering dust at NOC.
The reports suggested bringing the private sector into the petroleum import business, taking measures to downsize the per-unit cost, and subsidizing kerosene and LPG only for a targeted poor section of the people.
Some steps were taken to implement these study reports, but without success.
A bill was tabled at the parliament for opening up the petroleum supply business to the private sector in 2008, but it could not make it through.
WAY FORWARD
Experts suggest that it is high time we expedited hydropower development, which can be the right move to downsize dependency on imported fossil fuel.
They say that an ample supply of electricity can at least cut down consumption of the LPG and diesel used by factories and other commercial entities to power up their electricity generators.
Data show that LPG and diesel used for generators add up to make about half of the total petroleum consumption in the country.
Besides, it is said that a better road infrastructure can save travel time and, more importantly, increase fuel efficiency.
Khanal suggests opting for alternative sources including expediting investment in hydropower. “We can generate hydropower of 5,000 MW within six years,” he says.
REPUBLICA
No comments:
Post a Comment