The Russia-Ukraine conflict has driven up global fuel prices. Petrol price in Nepal has reached Rs155 a liter while a liter of diesel costs Rs138. Looking at the current trend, with no sign of a letup in the war, oil prices are expected to further increase. Priyanjali Karn of ApEx talked to Chandan Sapkota, an economist, on Nepal’s oil dependence and the national economy’s future.
How does the hike in fuel prices increase overall inflation?
Twenty percent of our total import is petroleum products. So whenever fuel prices go up, it has a ripple effect throughout the market. Higher oil prices lead to higher transport costs. This, in turn, drives up the prices of goods and agricultural products, again because of high transport fares. And the same applies to airline and public vehicle fares.
Likewise, plants and factories rely on generators for production if they do not have adequate voltage to operate. They need fuel for this. Increase in petroleum prices, therefore, could also affect their production cost.
Fuel is connected to every industrial sector and to our everyday life, so the increase in its price directly contributes to inflation.
Nepal Oil Corporation has declared itself bankrupt. What is the government role here?
The corporation is a government-owned agency. So, whatever happens to it, the government has to bear the cost. This means that its losses will have to be covered by the taxpayers’ money.
Until 2014, the corporation was at a loss. Later, even when the fuel prices had decreased in the international market, it didn’t decrease the rates in Nepal, raking in additional profits. Still, it has continued to be at loss.
The rate at which the NOC sells petrol is much lower than the rate at which it buys. This has also resulted in an enormous debt. It is up to the government to rescue the state oil monopoly.
How is the Russia-Ukraine war affecting our oil prices?
Russia produces 12 percent of the world’s oil, and Ukraine 5.2 percent. No other countries can replace what these countries provide to the world. So the Russia-Ukraine war directly affects global petroleum prices.
How can Nepal reduce its dependence on fossil fuels?
The best solution is to opt for a green economic recovery. We have the resources for this too. This is also the right time to transition to a green economy.
To decrease our dependence on petroleum, the government should think of ways to make electricity cheaper. This can be done by improving supply chains and transmission lines, by reducing taxes, and by opening more charging stations.
This will not only be a better and cheaper alternative to petroleum products but also help our environment.
How do you envision our economy’s future?
Our economy is in a difficult position. Fuel links almost all sectors, and we have too many problems at the same time. And with the elections coming up, economic activities may further slow down.
Recovering from this loss is a long-term process and a lot needs to be taken into account. Tourism is slowly picking up, but not much compared to the pre-pandemic level. Our private sectors are also weak at the moment owing to high interests on loans. It is hard to have high expectations when it comes to economic prosperity.
But we have the right ingredients to fix the economy. We have the resources to replace petroleum products.