Gas Shortages Hit Kathmandu

Government involvement in certain markets always comes with consequences, no matter how well intentioned the desired effect. Currently in Nepal petrol prices are subsidized through a quasi government agency known as Nepal Oil Company. The problem with this of course is that Nepal doesn't produce any oil, so this is not just reducing the consumption price of one of its own natural resources, it is in fact reducing the cost of a commodity that has to be shipped in through India. This of course means that Nepal Oil Company not only operates at a loss, but with the rising cost of oil (or the diving value of paper money) it has to go begging to the government for a substantial sum of money to continue providing fuel at the reduced rates of around 100 Rs/Litre.

Over the last few days this has been a problem, and fuel seems to be in short supply. Heading down to the market at Moksh on Sunday my ride was dependent on whether any petrol would indeed be available. Apparently some could be had through the black market for the sum of 150 Rs/Litre, for those in the US that is roughly $7.60/Gallon. With no local production, no sea port access, and no pipelines from India (which isn't a major producer either) it's easy to see why prices here would be high without the subsidies. Nepal's lack of access to oil is compounded by the fact that its neighbor, India, has a monopoly at providing it allowing them to set the price as they wish. Further, with the energy crisis of no electricity for up to 14 hours out of every day the need for many businesses to run generators to provide power for everything from manufacturing to refrigeration creates an even larger demand. Many argue that higher fuel prices will compound what's left of Nepal's already struggling industry.

Yet subsidies that mainly benefit the urban class of the Kathmandu valley and a few regions in the Terrai are hardly the answer to Nepal's problems, and in some cases may be making things worse. The huge sum of government money going to pay for other people's fuel is not improving infrastructure and it is not working toward any solution of the energy crisis that this country faces. It's simply lessening the price of an unsustainable consumption of a resource that only the well off are purchasing. In short all of this money being spent to subsidize the use of petrol in the cities is not making life better for many people in the villages or countryside.  Further its distortion of the market by indicating that the value of petrol in lower than it actually is leads to wasteful use and mismanagement of that resource. All of this money would be far better spent creating a sustainable source of electricity, especially for Kathmandu, thus massively reducing the need for diesel due to its alleviation of the need for generators. 

The shortages that the subsidies create are also making life in Kathmandu difficult for those that need to drive. Yesterday, while walking to Bhat Bhetini, I passed the area near the petrol pump on Gairidhara and the line extended quite a ways down the road, half way to Sunrise Bank or roughly 300 meters. Similar lines have been spotted all over the valley.While NOC will no doubt have to further raise the price of petrol further to match the rising price of crude on international markets, the threat of protests and popular anger will almost certainly keep them from letting it hit a market rate. Still the continued subsidies are money thrown out the window, helping very few and creating neither a solution nor sustainable habits.