Monday, January 30, 2012

RE: [NNSD] Tax on fuels: The cause of high inflation and energy crisis?

January 28, 2012
Dilli jee

Thank you so much for coming up with an important perspective. Whether handled by public sector or private sector, Nepal cannot be immune from the impact of increasing prices, compounded by appreciating hard currency. On top of this we also shouldn’t forget that use of fossil fuel entails pollution; indoor pollution by LPG (even a number of deaths have been reported due to LPG water heater ascribed to carbon monoxide emitted by it) and outdoor pollution by tail pipe emission which causes respiratory and other diseases (we cannot forget its global warming potential too).

Therefore, the ideal course for Nepal is to liberate itself from fossil fuel dependency by using electricity to displace it as much as is possible for example by electrifying transportation. The government has put so called fast track to Terai at top of its list. However, if electric train is built instead, by one estimate, Nepal’s dependency could be reduced by 120,000 kilo liter/year which is bound to increase every year. This will not only help reduce NOC’s loss, but also reduce balance of trade deficit and balance of payment deficit significantly.

To sum up, we are suffering due to inherent contradictions. On the one hand failing to see beyond the collective noses, the planners think/pretend that we don’t have electricity market and plan to export power from even most cost effective project (like upper Karnali, the only other country to possess this kind of nature’s gift is Columbia) while perpetuating and even increasing our dependency on fossil fuel by building roads even where a train could be feasible.

The tragic contradiction lies in government talking about trains from Kodari to Kathmandu, Kathmandu to Pokhara, Pokhara to Lumbini, in east-west highway, north south highways, et al. But it has left out the sector where the train system would have been most feasible: Kathmandu to Nijagarh.

An important economics that needs to be remembered in this respect is: energy cost of carrying one ton of freight a distance of one kilometer averages 337 kJ for water, 221 kJ for rail and 2,000 kJ for trucks ( This means even a country with abundant fossil fuel should opt for train with diesel engine rather than trucks and buses. For a country like Nepal electric train is the best. To oversimplify the economics, if the fuel cost of a travel by bus is Rs 2,000, it will be only Rs 221 by diesel train. As it costs about Rs 30 to generate a unit of electricity by diesel, while only around Rs 7 for hydropower, the fuel cost of electric train will be only about Rs 60. The salubrious impact of this on inflation (rather reduction in transportation cost and its consequential impact on cost of living) should impel us to go for electrification of transportation. But the government is refusing to hear this logic and mindlessly tearing apart the hills (inviting many more Das Dhungas and Krishna Bhirs, etc. and also destroying/wrecking the ecology/environment more than necessary) in the name of opening track (electric train will need only about 11 meters) to perpetuate and increase our dependency on fossil fuel even more.

With best regards,


Ratna Sansar Shrestha, FCA
Senior Water Resource Analyst

From: [] On Behalf Of Dilli Ghimire
Sent: Friday, January 27, 2012 4:49
Subject: Re: [NNSD] Tax on fuels: The cause of high inflation and energy crisis?

Dear Arjunjee

Thank you for your calculation . It is very nice and based on actual sitation. But the sutions seem for short period . Petroleum is not our product and we cannot control the international price . Why we do not think to cut demand by increasing the supply of electricity. We talk at the time of supply crisis and stop thinking again. The private sector is also not so sincere in our context. Can we count any price cut dicision of private entity except mobile and certain electronic items.

After all I appreciate your collection of facts that was also published some year before. Let us hope the development of electricity and supply of Malamchi water will bring solution in far future not near.

With regards

Dilli Ghimire

--- On We, 25/1/12, Arjun Dhakal wrote:

From: Arjun Dhakal
Subject: [NNSD] Tax on fuels: The cause of high inflation and energy crisis?
To: "NNSD"
Date: Wednesday, 25 January, 2012, 5:57 AM
Dear all,

We are facing serious energy crisis and high inflation rate. Nights are dark and chilled, and days are unproductive and expensive. One of the major issues is—fuel crisis. Nepal Oil Corporation always argues the regular financial loss and lack of capital for purchase due to the under pricing of fuel. But, interestingly, government has been generation heavy revenue since long time (see the facts list below).

Is there any justification or reason to keep continuing taxing on fuel to create this "emergency situation"? This debate opens space for a sustained and argumentative dialogue to systematically but incrementally improving Nepal’s energy market in coming days. I would highly appreciate your observations and comments in this regard.

Please find below some facts, analysis and potential options for the discussion.



Current fuel crisis: some facts, analysis and potential options


1. 1. Interesting facts and figures (based on NOC data of January 2012)

• Total Government revenue/year: NRs 21 Billion (6.7 billion from Petrol, 11.1 billion from Diesel , 3 billion from LPG and 1.2 billion from other)

• Loss of NOC/year = NRs 10.5 Billion

• Average government tax on fuel= 20 %

• Total payment to IOC by NOC/year= NRs 101 billion [(-)Balance of Payment]

• Without government tax, NOC can sell Petrol (NRs 77.20/L), Diesel (NRs 82.63/L), Kerosene (NRs 80.44/L) and LPG (NRs 1545.74/C) including transportation, management, technical costs and commission to the dealer except interest payment and government tax.

• LPG is still highly subsidized

2. 2.Theoretically, taxes on goods (Indirect tax) are designed on the basis of 3E (equity, efficiency and environment friendly) particularly in luxuries and pollutant goods. However, fossil fuels have become basic goods for all economic groups now and facing serious crisis to fulfill the demand of the population. In the other side, there is no any alternative source available to replace its demand now. Might be, it was a luxury goods and major sources of revenue few decade ago but not now.

3. 3. Impacts of fuel price on other market

•Accelerating the price of necessary food items like rice, vegetable, dal etc. In which, poor and vulnerable households are highly affected due to the increased share of their expenditure in basic goods comparing with high income group people. Simple market observation- if fuel price hikes by 10 percent, market price of necessary goods like rice or vegetable's price go up by 20-25 percent in the name of fuel price increased —it always gives golden opportunity for broker/trader –not the producer and consumer.

•Low impact in price of luxuries goods –motor/car, flat TV, imported whisky, ornaments etc

•Excuse/promotion of black market

4. 4. Potential Measures

• Immediate treatment: Considering fuel as necessary goods, tax/VAT should be removed which creates smooth supply system first  control market price and support economic development

• Short term strategies: Open to private sector in fuel supply to develop competition (no more "Gupta" will be born )

• Long term strategies:

o Maximum production and use of locally produce sustainable energy like hydro

o Change in consumption pattern: Use energy efficient equipments, promote public transportation, low energy consumption house designing etc

o When there will be sufficient alternative energy supply in the market then tax in fossil fuel can be resumed again to control the market and pollution by price

5. 5. Current Actual Price and Market Price in January 2012 (Source: NOC )

Petrol NRs/L Diesel NRs/L Kerosene NRs/L Aviation (Dom) Aviation (international) LPG NRs/C

Actual Buying Price in India in January 69.95 76.86 74.38 69.32 69.32 1301.37

NOC cost* 7.25 5.77 6.06 3.16 3.09 244.37

Possible Selling Price in Jan 2012 77.20 82.63 80.44 72.48 72.41 1545.74

Government Tax/VAT 32.97 14.32 2.04 14.50 0.33 215.29

Actually Selling Price in Kathmandu with profit/loss 115.00 85.00 85.00 105.00 99.63 1500

Gap 37.80 2.37 4.37 32.52 27.22 -45.74

Government Revenue in yearly basis 6.7 billion 11.1 billion 150 million 500 million 275 million 3 billion

* included Transportation, management, technical cost and commission but reduced additional charges for interest payment and government tax.


Arjun Dhakal
Environment and Development Economist
Bhaisepati, Lalitpur, Nepal
Telephone: +977-1-5592949 (R)
Mobile: 9841209328


sarobar said...

it was nice to know about this project . i would like to know if the amount that a person can donate to yhis project is it only Rs100 or we can donate more .And i would like to know about the money people donate .Does it converts into share or other


sarobar prasain

Nichole said...

Conditions are more difficult than at any time in recent years. While we are cognizant of the uncertainties that the world economy holds, we are not intimidated by them. Good thing we are thriving and freight broker training could be a way.