Energy | LPG | Price | Inflation | Reserves | Market | Long-term plan | Import dependency
Suman Sitaula runs New Hill Boys’ Hostel in Ghattekulo, Kathmandu. His monthly expenditure on liquified petroleum gas (LPG) has risen by at least Rs 1,000, excluding carrier charges. For one cylinder, he now pays Rs 1,895.
The consumption of LPG in the hostel, which accommodates at least 32 students, varies from four to five cylinders every month. While two cylinders are always plugged into a two-burner stove and a one-burner larger cooking stove, one cylinder suffices for not more than 17 days, says Ganesh Sutara, the chief cook at the hostel.
“It has become more difficult to manage the expenses for LPG unlike last year,” said Sitaula.
“We increased the monthly charges for students by Rs 500 a few months ago, but to avail not much relief given the fluctuating [LPG] prices,” he told the_farsight, adding: “Overall expenses are getting out of hand.”
Earlier he paid Rs 1,660 for one cylinder, excluding a carrier charge of Rs 100.
Bibek Karn, who works at a non-governmental organisation in Birgunj, buys a cylinder of LPG as a backup as soon as the cylinder-in-use runs out and the cylinder kept at his home as immediate backup is plugged into the stove. In his family of three, one cylinder lasts a month so he buys one cylinder every month.
“The price of LPG is soaring up while [my] salary remains stagnant. I now need to spend more on gas every month,” he told the_farsight. “It is becoming difficult for salaried people like me to run our kitchen.”
The inflation in LPG, along with other household requirements, has only reduced the purchasing power of consumers, Karn further added.
The government-owned Nepal Oil Corporation (NOC) exercises a sole monopoly over the import of petroleum products, including LPG. Effective September 1, NOC hiked the price of LPG — as per the automatic fuel price mechanism — by Rs 235 per cylinder. The new price of one cylinder of LPG is Rs 1,895.
Under the automatic fuel price mechanism, NOC revises prices based on the price it receives from its only supplier Indian Oil Corporation. The price of LPG is revised every month while petrol, diesel, and kerosene are revised every 15 days.
In interaction with various consumers in Kathmandu, the_farsight found that they spent as much as Rs 2,050 per cylinder, including a minimum additional Rs 100 charged per cylinder by retailers to carry the cylinder to their doorsteps, following the price hike.
The newly hiked price (Rs 1,895) is Rs 520 more than what was in September 2016, according to NOC data — which means consumers now spend 37.81% more on an LPG cylinder starting September 2023 than what they paid seven years ago.
Between September 2016 and November 2021, the price hiked by Rs 200 (14.54%). However, between November 2021 and September 2023, the price increased by Rs 320 — a spike of 20.32%. Meanwhile, this year, the price remained at Rs 1,660 until August.
Given the rise in international prices, NOC raised prices again by Rs 215 on September 30 making it Rs 2,110 effective from midnight, but the hike reverted the next day following the prime minister’s directives.
As much such an intervention in price was desirable with festivals at doors and prices reaching beyond affordability, NOC needs institutional reforms to sustain and cope with increasing domestic demand and fluctuating international prices.
Increasing dependency on LPG
Data shows that the use of LPG has doubled in the last 10 years. In 2011, about 22.03% of households used LPG which rose to 44.28% in 2021. This meant massive imports of LPG.
In a span of nine years from 2014/15 to 2022/23 (see chart below), LPG imports more than doubled — in quantity by 106% and in value by 162%.
NOC buys all the requirements from the Indian Oil Corporation, which imports largely from Middle Eastern countries — about 88% from Qatar, Saudi Arabia, and the UAE.
Along with international prices, taxes levied by the government on LPG such as customs duty, price stabilisation fund charge; NOC’s profit; transportation cost; and distributors’ commission constitute the final consumer price.
The following chart below represents the trend of LPG imports in quantity and value in the past nine fiscal years
The only years the imports dropped were during 2015/16, 2019/20, and 2022/23 — owing to the devastating 2015 earthquake, supply interruption from India, followed by an ‘unannounced’ economic blockade by India, and the pandemic, respectively.
In 2016/17, the import jumped to 313.94 million kilolitres, however, NOC spent just Rs 20.56 billion — about two billion rupees less than what the state monopoly spent in 2014/15 to buy 263.12 million kilolitres for Rs 22.19 billion — largely due to cheaper international prices at the time.
Prices have only risen since.
Notably, the quantity increased by 12.24% while the value sharply rose by 81.32% between 2020/21 and 2021/22. This happened due to spiking international prices by 207% — $236 per kilolitre in April 2020 to $725 per kilolitre in July 2022.
In the first month (mid-July to mid-August) of the current fiscal year (2023/24) meanwhile, NOC imported 45.63 million kilolitres and 88.27 kilolitres of LPG worth Rs 3.82 billion and Rs 7.32 billion, respectively. In the second month (mid-August to mid-September), the import rose to 88.27 million kilolitres at Rs 7.32 billion.
Just as the global economy was reviving from the pandemic, the Russia-Ukraine conflict that broke out in February 2022 resulted in global petroleum supply chain disruption, including that of LPG, making the cooking fuel more costlier.
As of September 4, the average international price stands at $700 per kilolitre.
How feasible is it to switch to electric cooking?
While the LPG prices are becoming unattainable, observers push for electric cooking — particularly induction stoves.
However, what seems to be a promising alternative to escape LPG price hikes for a country desperately searching for export markets for its surplus energy hasn’t been able to surpass its limitations on the ground. As a result, fully adopting the electric means seems a far-fetched idea.
Compared to the growth of the use of LPG, the use of electricity for cooking saw a miniscule growth in the last decade — from 0.08% in 2011 to 0.5% in 2021. In the meantime, Nepal’s installed capacity rose from over 700 megawatts to over 2,500 megawatts.
“Induction [stove] could have been an alternative had there been enough supply of voltage, and no frequent power outages every few days,” Karn from Birgunj told the_farsight regarding an alternative to LPG.
His locality faces such power supply disruptions with faults at the same point of the grid or low voltage. “We call the authority immediately when the power goes out. They come and repair at the point of fault,” he added, saying: “But to avail nothing. The uncertainties remain as it is.”
Amid uncertainties, partially or fully switching to induction can disrupt his office timing. He also said that the electric system of his home could be at risk when using an induction stove given the low voltage.
According to the Nepal Economic Forum, “a weak power distribution system, with overloaded conductors and transformers resulting in low voltages, and frequent breakdowns is the biggest barrier to promoting electric cooking in Nepal.”
Unlike Karn, hostel owner Sitaula does not face notable power supply disruption to refrain from cooking on an induction stove at home. However, he is concerned over the durability of induction stoves for a hostel where meals are cooked in big and heavy utensils.
“Induction [stove] cannot wear the load of heavy utensils as used in the hostel,” he told the_farsight regarding the induction stove as an alternative in the hostel. “Repairers suggest refraining from using induction for preparing meals in places like a hostel.”
Another reason is that the building where the hostel operates is rented. And the landlord charges Rs 2 to Rs 5 extra on every unit consumption of electricity.
Meanwhile, for household purposes, Sitaula uses an induction stove but only for light cooking. “We cook on induction [stove] if it’s light [food] or there’s no rush,” he added, saying: “Similarly when guests arrive home, we prefer cooking on LPG.”
However, data shows a massive increment in the use of electric stoves including induction and infrared.
According to the Department of Customs, the import has increased in the last four fiscal years from 10,435 units of induction stoves worth Rs 24.89 million in 2019/20 to 206,687 units of electric stoves worth Rs 432.6 million — including 130,745 induction (Rs 281.721 million) and 73,648 infrared (Rs 143.753 million) — in 2022/23.
This can mean that people choose to have an induction as a backup but don’t rely on it due to insufficient power generation and unreliable distribution, which unless improved, households will not fully commit to the electric option and the reliance on LPG continues.
Note that less than half of the households used LPG as of 2021, which means the demand for LPG will continue to rise in the coming few years as more populations begin using LPG although increasing prices may be a deterrent.
On the other hand, as of 2022/23, the per capita energy (electricity) consumption remained at 380 units, which the government plans to increase to 700 units by 2024. Similarly, the annual electricity demand stood at 9.32 billion units with an installed capacity of 2,684 megawatts.
Now all this also propels us to ponder upon the prospects of electric cooking for businesses such as hotels, restaurants, and khaja ghars, which form a big portion of LPG use.
For instance, LPG imports sharply dropped during 2019/20 due to the spread of Covid-19 followed by countrywide strict lockdowns that halted most economic activities while the household use of LPG continued. The massive difference (see chart above) can be construed as an indicator that LPG is more used for commercial purposes than household.
However, these businesses have limited capital for operation and require further investment to switch to electricity from LPG.
To improve the domestic energy market, the government must introduce effective demand-side energy policies, targeting not only households but businesses as well.
In sum, reliance on LPG is a major deterrent to growth, and lessening the reliance has become urgent. Nepal has no sway over its prices and supply. It drains the country’s precious reserves while the continuous rise in LPG prices is impacting inflation expectations, business confidence, and consumer demand.
On top of that, future supply disruption of LPG risks abound with increasing global uncertainties today. Nepal cannot afford another supply shock as experienced during the said Indian blockade.
While sufficient supply and reliable distribution are the key, experts say lesser import taxes or government subsidies and schemes on electric stoves, followed by effective advertising and awareness campaigns would increase the use of electric stoves and subsequently aid the plan to increase per capita energy consumption.
Finally, the government should also look to promote investment in domestic manufacturing or assembly plants of electric cooking appliances.
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