Opportunity to Deregulate Energy Market

  3 min 31 sec to read
Opportunity to Deregulate Energy Market

Whether the prolonged Indian economic blockade against Nepal continues even beyond the Bihar elections and Nepal’s Tihar and Chhath festivals is still uncertain. However, this has given Nepal a unique opportunity to effectively implement the long overdue plan to deregulate the petroleum business and hand it over entirely to the private sector. But government bureaucracy still seems unwilling to loosen its grip on this lucrative business under the pretext of petroleum being a commodity of strategic importance for the government. 

Clearly this argument has been proven false repeatedly over the past several decades and more emphatically in this month. However, it is true that the government’s monopoly over petroleum has proved a matter of high strategic importance for India. And the Indian government made a very excellent strategic use of its almost 100 percent control over Nepal’s fuel market. Still the worst is yet to happen. India has similarly an almost 100 percent control over Nepal’s electricity market. If it decides to use this advantage too against Nepal and cuts off the supply of electricity, it will not take long for Nepal to crumble.  

No deep analysis is needed to conclude that it was the Nepal government that willingly handed over India this strategic handle. Now the government must correct this historic mistake.

The correction required is to deregulate not only the petroleum business but also the electricity business as the Indian control over Nepal’s electricity supply is equally dangerous for Nepal. Though there are already plans for both of these, and decisions to this effect have been taken several times in the past, now it is time that these decisions are actually implemented. 

There is no need for the government to be haunted by old fears about what would happen if these businesses were actually deregulated.  As soon as the supply from Nepal Oil Corporation (NOC) virtually dried up, a parallel petroleum market sprung up with enough players on both the supply and demand side. Yes, this is the black market, but it proves that Nepal does not need to depend solely on the Indian government controlled oil supplier. Nepal can benefit from the open border. It also proves that Nepalis are willing to pay a much higher price for petroleum and electricity-enough to encourage the private sector oil importers and electricity producers. Most importantly, the consumers are not complaining much abhout current hardships due to the associated feelings of patriotism. 

Meanwhile, Nepalis are speedily learning and adopting new technologies to use different types of fuel and to economise on energy use. A market for alternate sources of locally available fuel such as firewood, biogas and briquettes, as well as for energy-efficient stoves is fast emerging. The government should simply assist the people in these endeavours and it must not thwart them by taking unreasonable actions on the pretext of protecting the environment and punishing black marketers. 

But the government has already made a mistake. Though it was a smart move to turn to China for the oil when India cut its supply line, it would have been smarter if the Chinese oil business was entirely handed over to the private sector with the government remaining only as the facilitator through its relations with the Chinese government. However, it is still not too late. Though the Chinese oil received as grant is being handled by the NOC, the subsequent Chinese supply on commercial terms should be handled by a number of private sector operators to ensure competition. If the private sector is given this responsibility, it can arrange the supply also from India.  Some Indian private sector oil companies were reported to have expressed their interest to supply oil to Nepal when NOC sought proposals from parties within Nepal and abroad soon after the Indian Oil Corporation stopped filling NOC tanker trucks.   

To supplement these efforts, the government should also start implementing the already made decision to allow mixing ethanol with petrol and connecting the electricity produced through cogeneration from the sugar mills to the national electricity grid.

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