NOC introduces dual pricing system for liquefied petroleum gas

The Nepalese government, on February 12, increased the price of LPG by US$7.11 to US$23.69 per cylinder for commercial users, and by 90 cents to US$17.49 per cylinder for household users after introducing a dual pricing system in the liquefied petroleum gas (LPG) business.
The approval of the new system by the Nepal Oil Corporation (NOC) board means there will now be two classes of LPG consumers: subsidized, or household; and non-subsidized, or commercial.
According to the government subsidy plan, household users will get one subsidized cylinder each month. Consumers have to pay US$23.69 for a cylinder initially, but they will get a reimbursement of US$6.20 if they request it within 60 days. “The household users will receive US$6.20 in subsidy on a cylinder from the banks recommended by the NOC upon producing their LPG consumer card and purchase bill,” said Suresh Kumar Agrawal, acting managing director of NOC.
NOC, which has only appointed the Bank of Kathmandu (BoK) at present, has assured consumers that the subsidy will soon be extended through other commercial banks.
The dual pricing system will enable debt-ridden NOC to earn profits, according to the official. NOC officials estimate that the latest price review will ease its monthly projected loss on LPG sales from US$7.898 million to US$3.385 million. At present, NOC’s total outstanding debt to the government and financial institutions stands at US$316 million.
The government has been working for two years to enforce automatic pricing mechanisms that will enable oil suppliers to offset ballooning losses and clear off its hefty loans.
Despite government efforts to enforce the dual pricing system, LPG bottlers are still not enthusiastic about bringing the color-coded cylinder system into operation.
After two unsuccessful attempts to get LPG dealers to circulate cylinders of two colors (red for household and blue for commercial users), the government gave them until February 12 of this year to comply.
“The NLPGIA is not sure about how many blue cylinders will be required,” said Shiva Prasad Ghimire, senior vice-president of the NLPGIA, the Nepal LP Gas Industry Association. “The government must first find out the actual number of commercial users.”
The NLPGIA also said that the government should fulfill some of their demands before implementing the system. Ghimire said that they had submitted a 16-point charter of demands that included increasing profit margins for bottlers, but the government had done nothing about it.
NOC has also remained silent over the cost of repainting cylinders. “The government decision to enforce the system is unilateral,” Ghimire argued. “We are not against the decision, and painting the cylinders will not take more than a week, but the government needs to address the demand of bottlers, too, so that it will be a win-win situation.” (February 13, 2013)