Petrol Prices in Nepal – Why They Are So High and On The Rise

Few weeks ago, the price of petrol in Nepal has reached Rs. 199 per litre with the increment in the price of petrol by Rs. 27 Rupees. It was the highest petrol price in the history of Nepal. Although it was reduced by the government itself after few days, the price of petrol is Nepal is still on average Rs.180 per litre. But this is not the first time, there is a huge hike in its price in Nepal. Petrol price in Nepal has been on the rise since 2014, and it’s only gone up since then.

Now, the price of petrol in Nepal has risen even upto Rs. 199 per liter, which may seem like an exorbitant amount to pay considering that it costs around Rs 40-60 to buy a liter of bottled water, depending on the brand and where you’re located.

But most people don’t know why petrol prices are so high in Nepal compared to neighboring countries, or what they can do about it if they are unhappy with the current state of affairs. The price of petrol in Nepal keep rising on weekly and monthly basis from last few years.

Petrol prices in Nepal are among the highest petrol price in the world, with an average price of Rs 180 per liter (around $1.5). There are several reasons why petrol costs so much in Nepal, including the remoteness of our borders and high import duties. But there’s also nothing stopping people from importing petrol into Nepal and selling it at lower prices!

In this post we’ll look at the reasons for high fuel prices in Nepal, the negative effects of these prices on citizens and businesses, and what you can do to lower your fuel costs as much as possible in Nepal.

How Has The Price Of Petrol Increased In The Last Few Years?

Before 2014, the price of petrol in Nepal used to be quite or less stable. It was because of price holding strategy followed by Nepal Oil Corporation (NOC). Therefore, even though the price of petrol used to increase globally, its price used to remain more or less stable in Nepal. NOC prices were previously administered by the government, with price adjustments often significantly lagging behind international trends. Due to this, NOC had to suffer huge loss, and this loss used to be covered by the Government of Nepal.

But on October 1st, 2014 the Nepal Oil Corporation adopted an automatic pricing mechanism for petrol, diesel, kerosene and aviation fuel that allows them to increase or decrease the price of fuels like petrol, diesel, kerosene, etc with their global prices. Since then, the prices of petrol in Nepal started depending on the prices of petrol on the global leval. After that if the price of petrol increases globally, it is also increased by NOC in Nepal. Even if it isn’t increases globally, NOC sometimes increases it.

In 2016, the price of gasoline (petrol) in Nepal was at the level of around $0.91 per litre, and today it is at level of around $1.4 per litre. It means the prices of petrol has increased more than 35% in between 2014 and 2022.

Graph of the increase of petrol price in Nepal between May and June in 2022

From this representation, you can see the massive changes in the petrol prices from the month of April to July in 2022.

A Brief History of Fuel Pricing

For a long time, international oil prices were stable. But more recently, they’ve been all over the place, leading to substantial price hikes. In September 2018, Brent crude oil—the benchmark used by oil companies in their daily pricing—reached $86 per barrel. This was only half of its peak value few years earlier (August 2014) but still high by historical standards.

The hike is partly due to increased demand from China and India, but it’s also because OPEC countries have decided not to cut production rates as much as anticipated. This has led many people to believe that we may be entering a new era of higher fuel prices worldwide.

A Comparison Of Fuel Pricing Around The World

Although, vehicles have higher price in Nepal, every year millions of Nepalese use diesel and petrol vehicles. The roads can be dangerous, however, due to unpredictable road conditions and other factors, people use their vehicles for their personal and professional uses.

With all these travellers relying on their vehicles to get around, it’s no surprise that fuel costs are a concern for Nepali residents. But just how does Nepal’s fuel pricing compare with other countries? And why is it rising? A quick look at international trends reveals some interesting insights—and helps us better understand what drives up gas (petrol and diesel) prices!

In Nepal, on the average the fuel cost Rs. 195 (USD 1.5) per litre (Rs. 199 petrol per litre and Rs. 192 diesel per litre) as of June 2022. That might seem relatively same compared to countries like India where petrol is available for ₹100 (USD 1.3) per litre or even neighbouring China which has an average price of $1.4 USD per litre. Currently, the most of the countries in the world is suffering from the crisis of petrol prices.

Why Petrol Prices Are High In Nepal?

There’s no question that petrol prices in Nepal are very high compared to most other countries, especially when you consider how little petrol costs to produce. A small country like Nepal should have a much lower gas price than major oil producing countries such as Saudi Arabia or the United States, but this isn’t the case here. If you think the government and fuel companies are gouging us on price, you’re right! Here are some reasons why petrol prices are so high in Nepal.

1. Global Market Factors

Petroleum, like gold and silver, is a global commodity that follows global market forces. When oil prices rise globally—such as they did recently in response to market tensions with other countries like Iran or Russia—the cost of petroleum also rises. For example, right after the COVID-19, the OPEC nations intentionally decrease the production of oil which leads the decrease in the supply of oil and the rise in their prices globally.

OPEC Countries [IMG Source: Wikipedia]

Before 2014, due to price holding strategy by NOC in Nepal, even though the price of petrol used to increase globally, it used to remain more or less stable within Nepal. But after 2014 when NOC adopted the automatic pricing mechanism that allows them to increase or decrease the price of fuels like petrol, diesel, kerosene, etc with their global prices. Due to this, the price of petrol in Nepal start directing depending on the global price of petrol. Ever since we can see the regular rise and fall in the price of petrol in Nepal.

2. Import Tariff

Global Market Factor isn’t the only reason behind the high price of petrol in Nepal. In fact, more than global factor, the Government of Nepal is more responsible for the high price of petrol in Nepal. We are saying this because NOC have to pay huge amount of TAX to the government of Nepal. Nepal imports all of its fuel products in refined form like petrol, diesel, kerosene, gasoline, etc from Indian Oil Corporation company of India. NOC buys petrol from Indian Oil Corportaion at about Rs.84 per litre, but it becomes quite a double of its price while selling it in Nepal. Tax impossed by the Government of Nepal while importing petrol from India is one of the major reasons behind its high price in Nepal. According to NOC, the government of Nepal collects about 33% tax per litre on petrol.

3. VAT/Sales Tax

Apart from the imported tax, the government of Nepal also collects a tax called Value Added Tax (VAT) or Sales Tax on top of fuel prices. In Nepal, Sales Tax Rate is a tax that is charged to customers based on the purchase price of goods and services. Therefore, 13% tax is more imposed on petrol prices in the name of VAT/Sales tax. So, there is no surprise on why Nepal government yearly collects billions Rupees from NOC.

4. Distribution Cost

In most countries, governments set price controls on fuel. In other words, they decide how much you’ll pay to fill up your tank. This also means that fuel companies have no control over what they can charge—taxes and fees determine prices. However, it’s not just taxes and fees that influence the cost of gas. Transportation costs play a role, too. Though Nepal don’t have to refine oils, the distribution of petrol all over the country isn’t cheap. To cover the distribution cost of petrol in Nepal, it’s obvious that NOC must have been adding this distribution cost to the petrol price.

5. Monopoly Of NOC

The Nepali state only has one company that imports and sells fuel—Nepal Oil Corporation. Because it doesn’t face any competitive pressure to cut costs, it keeps raising fuel prices to ensure larger profits and cover their loses. If there would have been few competition for them in the country, there would have been some stability in the price of petrol in Nepal.

How Has Liquefied Petroleum Gas Changed Things?

Even though much of western Asia has switched over to liquefied petroleum gas (LPG) as a fuel source, it’s only been recently that many of these countries have begun using it to power cars. Until very recently, LPG hasn’t been considered an efficient enough energy source for transportation; however, more people may start using LPG when they realize how inexpensive it is compared to gasoline. Gasoline prices are already high across most of Asia, but if you factor in taxes, licensing fees, and other costs associated with buying a car—not to mention maintenance—gasoline can be downright unaffordable. If you drive 10 miles per day at $4 per gallon, your annual gas bill will run about $1,500—and that doesn’t include insurance or maintenance!

Conclusion: Petrol Prices In Nepal

We hope now you must have understand why the prices of petrol keep rising in Nepal since 2014. Global Market factors, Monopoly of NOC and the taxes imposed by the government of Nepal while importing and distributing petrol are the major reasons behind the rise of petrol prices in Nepal. Even NOC increases the price of petrol in Nepal, they are in the loss most of the times. High price of petrol is one of the major problems in Nepal.

But it’s also not the problem that can’t be solved. Beside all those above-mentioned reasons, lack of good policies for petrol in Nepal is the reason for high price of petrol in the country. If the government of Nepal in the well co-ordination of Nepal Oil Corporation make and implify proper policy and laws for petroleum and other fuels in Nepal, it can surely be solved. We hope one day, this problem will be solved in Nepal.

This entire blog post is based on the different reports and articles on the internet and information available on the different official sources. There may be some exactly not accurate data as shown in this post. Therefore, if there is some misinformation in this blog post that you have found while reading it, let us know. And also, share you opinion with us about this, and let us know what do you think about this blog post. If you like reading it, please share it with others!!

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