Inside Nepal’s fuel pricing drama: How a Rs 416 LPG hike proposal triggered panic—and a last-minute policy retreat

KATHMANDU: A dramatic behind-the-scenes policy struggle unfolded in Nepal’s energy sector after a proposal to increase liquefied petroleum (LPG) gas prices by as much as Rs 416 per cylinder triggered alarm within the government, exposing tensions between economic realities and political risk management.

At the center of the episode was mounting financial pressure on the state-owned Nepal Oil Corporation, which had been absorbing massive losses following a sharp rise in global crude oil prices. According to internal projections, the corporation’s losses had exceeded Rs 10 billion within just 15 days, largely driven by pricing adjustments from Indian Oil Corporation, Nepal’s primary fuel supplier.

The Trigger: Unsustainable Losses

Faced with a deteriorating financial position, Nepal Oil Corporation submitted a proposal to the Ministry of Industry, Commerce and Supplies on Chaitra 25, recommending a moderate price adjustment to stabilize supply and prevent disruption.

The proposal was backed by detailed financial data, even after factoring in adjustments to customs duties and infrastructure taxes. The corporation reported per-unit losses of Rs 16.65 per liter on petrol, Rs 109.50 per liter on diesel, and a staggering Rs 416.37 per LPG cylinder.

Officials warned that continued losses at this scale could disrupt payments to Indian Oil Corporation, potentially jeopardizing fuel supply across the country—a scenario with serious economic and political implications.

The Shock Directive

The proposal eventually reached the secretariat of Prime Minister Balen Shah, who was also directly overseeing the ministry at the time after delays in appointing a dedicated minister.

According to sources, the Prime Minister’s secretariat responded with a directive to proceed with price adjustments in line with the actual loss figures—effectively signaling approval for a steep hike, including the full Rs 416 increase per LPG cylinder.

This instruction sent shockwaves through the ministry.

Senior bureaucrats, including Secretary Krishna Bahadur Raut, found themselves in a difficult position. Implementing such a steep increase risked triggering widespread public outrage, potential protests, and political instability. At the same time, ignoring the financial reality of the corporation could deepen the crisis.

“The numbers were alarming, but the political cost of passing the full burden to consumers was even more concerning,” a ministry source said.

Bureaucratic Gridlock and Rising Pressure

As the implications of the directive became clear, ministry officials entered a state of urgency. The dilemma was stark: protect fiscal discipline and supply stability, or avoid a public backlash that could destabilize the government.

Complicating matters further was limited direct access to the Prime Minister. Officials could neither easily escalate their concerns nor confidently negotiate a revision of the directive.

This led to internal consultations and a search for a “middle path”—a pricing strategy that could partially address losses while minimizing public resistance.

The Political Intervention

In a crucial turn of events, attention shifted to Sushant Vaidik, a lawmaker informally overseeing the ministry’s affairs at the time.

Officials approached Vaidik with the data and the potential consequences of implementing the full price hike. They argued that a Rs 416 increase in LPG prices would likely trigger immediate public anger, protests, and broader socio-political fallout.

Convincing him, however, was not straightforward.

“It took nearly half an hour to fully brief and convince him about the ground realities,” a source revealed. “Once he understood the risks, he agreed that a moderate increase would be more appropriate.”

Vaidik subsequently engaged with the Prime Minister’s secretariat, advocating for a scaled-down adjustment.

The Compromise Decision

Following these discussions, the government opted for a significantly moderated price revision on the night of Chaitra 26.

Under the revised decision:

• Petrol prices were increased by Rs 17 per liter
• Diesel and kerosene by Rs 25 per liter
• Aviation fuel by Rs 6 per liter
• LPG by Rs 100 per cylinder

This compromise reflected a balancing act between financial sustainability and political sensitivity.

A Structural Policy Challenge

The episode highlights a recurring structural issue in Nepal’s fuel pricing mechanism—where global market volatility directly impacts domestic pricing, but political considerations often delay or dilute necessary adjustments.

Nepal Oil Corporation’s pricing model remains heavily influenced by international benchmarks, particularly those set by Indian Oil Corporation. However, the government frequently intervenes to cushion consumers, leading to accumulated losses.

Experts argue that without a transparent and automatic pricing mechanism, such crises will continue to recur, placing strain on public finances and institutional credibility.

Broader Implications

The incident underscores the fragility of Nepal’s energy governance framework, where bureaucratic caution, political calculation, and economic necessity often collide.

While the immediate crisis was managed through compromise, the underlying tensions remain unresolved. Rising global energy prices, coupled with domestic political sensitivities, continue to pose a complex challenge for policymakers.

As Nepal navigates its broader economic reform agenda, the need for depoliticized, data-driven decision-making in critical sectors like energy is becoming increasingly urgent.