Gas trick Induced by The State

Nepal currently fills, or at least half-fills, its fuel hungry mouth from 4 refineries of India; namely, Barauni, Karnal, Mathura and Haldiya. Around 70% is transported from the Barauni refinery and the others make up the difference. An almost 45 days long repair and maintenance work at the Barauni refinery has left the country in a massive fuel lurch, with dealers reportedly hoarding in the limited supply of available gas cylinders and politicians taking it upon themselves to vandalize depots and give out cylinders for free.

Prem Lal Maharjan, a consumer activist, recently spoke to News 24 about how he, along with few others, had continually and indignantly pleaded to the government after having received notifications of the repair at Barauni, and reported to the Ministry of Commerce and Supplies beginning Kartik 12, 2071 itself, but the warning fell on deaf ears. It has come to light via the Nepal LP Gas Association, that the quota of fuel transported to Nepal from India, is still the one determined by the government in 1968, when there is a reported 13% increase in fuel consumption in the country every year. At a monthly demand of 30,000 metric tons a month, the NOC only managed to supply 18,400 metric tons in December 2014. It is downright idiocy to think that consumption will and does remain static. The government has done well this year to ensure infants and new mothers live safe and happy lives, but intends to leave them in houses without fuel. The irony!

The Nepal LP Gas Association in January 2015 publicly called for a press and politico conference, formally asking the NOC to increase the supply of gas from the present 22,000 metric tons a month to 30,000 metric tons, in order to ensure a smooth demand fulfillment. The NOC is seemingly on board with the idea and promises to do so beginning February. A revision of the demand and corresponding import rates is of course of prime importance and begs freer trade laws in order for larger quantities of fuel to come into country. Does this imply that people still have to withstand heat and rain in terribly long lines until then?

Everything the state deems a necessity, need not be controlled by it. Setting up quotas is always a temporary solution. The promise to increase quotas can only be understood as an increased dependency. The problem was not that the Barauni refinery had repairs to look after (a yearly affair!) but rather, that we lack options of primary suppliers.

One of the better solutions could be to let in private players into the field. Countries have been increasingly approaching free market reforms for the existing energy crisis. What began as the initial privatization of British Petroleum in 1979 under Thatcher’s rule, has now progressively resulted in the government’s most profitable venture. A World Bank report from December 1993 on Hungary’s privatization of power and natural gas talks of its accomplishments of having privatized 6 out of 8 generation enterprises. ‘Though not perfect, the privatization program in Hungary for power and gas was generally well planned, competitive, and transparent. The primary objective seemed to be to attract experienced foreign investors who could make the Hungarian firms efficient and profitable. Another objective was to obtain the highest purchase price. The primary criterion in selecting the winning bidder was the purchase price offered. This assured that the company was sold to the investor with the best plan for increasing efficiency and profitability and thus could offer the highest purchase price.’

The argument of course stands that privatizing a failing industry may not always translate into the best returns in light of the fact that Nepal imports most of its fuel needs from India. The beauty of the Hungarian model then also lies in the fact that Hungary too imports 80-85% of its gas needs from Russia. Private industries in Nepal could, and should, part take in import and transport duties and be much more responsive to demand as guided by market laws. Domestic and foreign investors both need to be lured in via necessary act and guidelines promulgation that would simplify the procedure to enter the gas industry in Nepal. It is unfortunate that the Nepal Petroleum Act 2040 is yet to be revised and still puts all veto power in the previous monarch; now possibly to be understood as the Government of Nepal’s hands. The government however, did implement a Regulation Act in 2013, allowing private sectors to open refineries and bottling plants, but with no provision for contract enforcement and dispute resolution mechanisms, hence reinforcing an air of uncertainty around investments. A revision thus, that addresses issues such as the mitigation of unforeseen disputes of interests and/or breach of contract need also be incorporated into implementable acts.

A little known fact may be that even though Nepal is thought to be almost completely absent in terms of oil and natural gas reserves, the Department of Mines and Geology (DMG) had designated 10 blocks as sites for oil and gas exploration out of which 7 blocks had been won by international oil giants Texana Resources Company of Houston, USA and Cairn Energy of the UK. After having spent millions of dollars on exploration, the companies packed up and left in 2012 citing a ‘force majeure’, which is to mean a state where parties are allowed to drop contractual obligations because of events outside their control, in this case, being excessive bureaucratic hurdles, political instability and lack of cooperation from the government.

It has become redundant to repeat that the state needs to drastically slash its bureaucratic red tape. The iconic Nepalese conversation starter ‘Khana khayo?’ might as well have been revived for the worse.

Labisha Uprety

Labisha Uprety is a Research and Communications Officer at Samriddhi. She enjoys debating and likes her tea black with a little sugar.

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