Prices of petrol and diesel in the domestic market have increased by 9.7 per cent and 12 per cent through the five revisions in the last three months (from April 2 to June 2) to Rs 113 per litre and Rs 95 per litre, respectively. Price of aviation turbine fuel was also increased during the recent revision.

The government has been allowing Nepal Oil Corporation — the state-owned petroleum giant — to revise fuel prices almost every fortnight based on the international market trend. However, the fuel price hike will have an adverse impact on the economy.

“The hike in diesel price subsequently affects the livelihood of people, along with the increase in public transportation cost, as transportation cost affects the price of all commodities, including daily consumable groceries and vegetables,” said Nara Bahadur Thapa, executive director at Research Department of Nepal Rastra Bank.

“To put it in simple words, the cost of living will be high.”

Based on the volume of sales, NOC has been claiming that the loss on diesel cannot be cross-subsidised from the profit of other commodities as the volume of sale of petrol, kerosene and ATF is low. Moreover, NOC has also been facing the loss on sale of liquefied petroleum gas.

The domestic airline companies have also planned to revise their fuel surcharge, along with the latest revision in price of ATF. Public
transporters will also revise transport fares as the price of diesel has increased substantially.

While fixing the public transportation fare, fuel price has weightage of 35 per cent, according to transport entrepreneurs.

NOC has been making adjustments in fuel prices almost every fortnight in accordance with the automatic pricing mechanism that
allows it to review prices of petroleum products every fortnight by up to two per cent against the prices of finished petroleum products supplied by Indian Oil Corporation.

However, the automatic pricing mechanism was almost defunct when the fuel price was rampantly falling in the international market.

In the beginning, the government allowed NOC to keep the fuel price high to clear its outstanding debt burden. Even after having cleared the dues NOC did not revise fuel prices as per the international market and generated billions of rupees in profit.

NOC has been collecting Re 0.50 on the sale of each litre of petrol and diesel for price stabilisation fund and the government is levying five rupees on sales of each litre of petrol, diesel and ATF to develop the Budhigandaki hydel project.

Apart from this, in the past when the fuel price was falling, NOC had collected a substantial amount from consumers to develop its infrastructure, such as the expansion of petroleum depots. NOC has so far collected around five billion rupees in the price stabilisation fund, which was established to safeguard consumers from the sudden rise in fuel price in the international market.

On the other hand, despite a substantial increase in the sale of petroleum products NOC has been collecting Re 0.60 on the sale of each litre of petroleum products and Rs 8.52 on the sale of each cylinder of cooking gas for administrative charges, which should have been revised along with the rise in the volume of sales.