Diesel subsidy costing Nu 3 to 5 million a day

2026-03-30 - 13:11

NFPSF to enable collection of buffer fund once oil prices come down The government, on 21st March 2026, announced the creation of the National Fuel Price Smoothening Framework (NFPSF), which provides a subsidy of Nu 16 per liter of diesel, bringing down the price from Nu 108 per liter to Nu 92 per liter in Thimphu. An official from the Ministry of Finance (MoF) said that the subsidy has so far been costing the government Nu 3 to 5 million (mn) a day, with Nu 1 billion (bn) kept aside for the subsidy until the end of the financial year on 30th June 2026. When asked how the government would recover this Nu 1 bn, the official said that the NFPSF is designed in a similar way to other countries like India, Nepal, etc., whereby once international oil prices go down, the price in Bhutan would be reduced, but a margin would be kept to ensure a buffer is filled to prepare for future oil price shocks. For example, in the past, retail prices of diesel were around Nu 66 per liter and petrol at around Nu 60 per liter, and so if international prices fall again, the NFPSF would ensure a little higher price so that the difference can used to fill the buffer fund. The official said the NFPSF has created a ceiling price above which subsidy would kick in, and a floor price where prices would be kept slightly above it to enable collection of funds for the buffer. Though it is still a work in progress, the NFPSF’s ceiling price is the recent price of diesel at Nu 108 minus the subsidy of Nu 16 which comes to Nu 92 per diesel. If the price of petrol also threatens to cross this ceiling mark in a major way, then the subsidy would be looked at. The floor price is based on a certain average price of fuel in the past few years. The official said that the government moved quickly on diesel prices because it is the main fuel used for transporting essential and other goods, which can drive up prices across the board. There is also concern that, based on past experience, once prices rise, they do not come down even when fuel prices fall. The official said the duration of the subsidy will depend on international oil prices and how long the Iran War drags on. The subsidy amount is settled on a daily basis with the fuel companies. In the past, the fuel price was directly passed on by the Department of Trade (DoT) when it changed at the beginning and middle of every month based on prices sent by the Oil Marketing Companies (OMCs) from India like BP, HPCL and IOCL. In the future, the NFPSF will be an additional layer where the MoF will work together with the DoT to decide the prices based on the ceiling and floor price. The subsidy fund, for now, will cover diesel and petrol (if needed), and will not be extended to LPG, as alternatives such as electric cookers are available. The NFPSF will look prices in North Bengal in India for comparison. The official said that NFPSF is still a work in progress as a rudimentary mechanism, and it will be refined more in the future. When asked whether there was a possibility that the NFPSF buffer could be used as government revenue for other purposes, as seen in India, the official said that rules would be introduced to ensure it is used strictly as a buffer fund. The official said that Bhutan only imports small amount of oil compared to other larger countries, and so it does not make sense to generate revenue from it, apart from the buffer fund for future oil shocks. An additional benefit is that the floor price, and NFPSF may help prevent the stark differences in oil prices between Bhutan and India leading to some border areas like Phuentsholing witnessing Indian vehicles coming into fuel. The hope from the government is that the war does not prolong for too long. The government said that rising fuel prices place immediate and widespread pressure on citizens, driving up transport costs, food prices, and the overall cost of living. It added that it has taken a deliberate decision to prioritise public welfare and shield both households and the broader economy from escalating inflationary pressures. As the backbone of Bhutan’s productive sectors, diesel powers agriculture, construction, manufacturing, logistics, and public transport. Lower diesel prices will therefore significantly reduce secondary inflationary pressures on essential goods and services. The government called for a shared sense of national responsibility and urged all citizens and businesses to adopt prudent energy consumption practices. Fuel prices have shot up due to the Iran War, and especially so for diesel, for which there is an international shortage. Diesel prices in India are lower as the Indian government is subsiding the true cost with government owned Indian OMCs taking huge losses per liter for both petrol and diesel. In 2022, The Bhutanese, in a series of investigative reports, found that Bhutan had been overcharged for fuel compared to Nepal for decades, which led to interventions in early 2023 to secure fuel for Bhutan at rates similar to those in Nepal. This time, however, both Bhutan and Nepal are purchasing fuel at the same prices from Indian OMCs, and the increase is therefore due to international factors. In the meantime, the Indian government on 27th March 2026 announced an additional export tax of INR 21.5 per liter for diesel and INR 29.5 per liter for aviation jet fuel. This paper confirmed with a reliable source that this would not be applicable to Bhutan.