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Wednesday, 31 July 2013

Bhutan says India fuel subsidies to restore next month

Bhutan says India fuel subsidies to restore next month

Subsidies on cooking gas and kerosene will be restored first week of August. This official confirmation came from the prime minister’s office Monday evening.
This means Bhutanese consumers will be able to buy these products at prices that existed before July 1 when the subsidy was lifted.
An LPG would cost Nu 504 and not Nu 1,196.
Prime Minister Tshering Tobgay and Indian Ambassador VP Haran discussed the issue of subsidy withdrawal by the Indian external ministry in July.
A news release from the prime minister’s office stated that following his request, Ambassador VP Haran informed him that the Indian government would restore all subsidies starting first week of August.
Trade department officials claim they were, however, not informed of this confirmation.
Earlier this month, Indian media reported that India’s foreign secretary Ranjan Mathai had instructed the petroleum ministry officials to reinstate the subsidy on both fuels from August.
When the subsidy was lifted, which led to a significant jump in the prices of these products, words around town was that the move was politically driven as it came a fortnight before Bhutan went to the polls.
Before the election, the Indian external ministry had asked the Indian Oil Corporation (IOC), which supplies the fuel to Bhutan to lift the subsidy as it would be unable to reimburse the subsidy to IOC.
India’s stand on the move was that there existed discrepancies in terms of how much Bhutan reported as imports and how much India recorded as exports to Bhutan.
There was also a huge jump in the level of subsidy for these two products.
For example, the subsidy bill for cooking gas and kerosene imported by Bhutan had increased from Nu 330M in 2011 to Nu 550M in 2012, which was a 66 percent increase.
This meant Bhutan was misusing by way of deflecting the subsidised goods back to the Indian market.
After the elections however, Ambassador VP Haran clarified that the sudden increase in the subsidy had nothing to do with deflection and it was rather because of increase in global oil prices.
The subsidy level increase is at par with the increase in these fuel prices in the global market, which the government buys but sells it to its people at a subsidised rate.
The difference in prices is the loss the government bears.
Meanwhile, gas depots in the capital city are preparing for a loss, which they will be bound to incur during the time the subsidies are restored.
Tashi Commercial Corporation’s gas depot manager in Motithang, Karma Thinley explained that the company has to keep its stock so that the supply is not constrained.
When the prices drop, we would even have to sell the old stocks, which had been bought at the existing rates at the new ones, meaning the difference in the price will have to be borne by the company.
For example if today 100 cylinders were bought at the existing rate of Nu 1,196 and if prices dropped suddenly to Nu 504 a cylinder, the company will have to bear at least an additional Nu 69,200 for the 100 cylinders.
Karma Thinley estimates at least 300 cylinders would be bought at the existing rates and stockpiled. Should the new prices be effective from August 1, the losses would be around Nu 270,000.
Soon after the July rush for LPG, the depot had been informed by the trade department to control the supply of cylinders and maintain limited stocks to avoid losses.
“Earlier, we used to keep as many as 1,000 cylinders in stock,” he said. “But in July we realised we would only run into losses should there be any price changes.”
The sale of LPG had dropped significantly after July 1. Before, the depot sold around 400 cylinders a day, after July 1, the sale dropped to an average 160 cylinders a day.
This could mean consumers are waiting for the prices to drop.
“Our manual works have been reduced greatly because not many people are coming to buy cylinders today,” Karma Thinley said. “But with people who come to buy cylinders, we spend a great deal of time arguing and explaining the increase in prices.”
A corporate employee said while she waited for the prices of cylinders to drop, she was using electric cookers as an interim measure and going sparingly on the gas.
“It was worth the wait after all,” she said.