Fuel price hike triggers protest in Nepal capital

(Adds transport fare hike)

By Gopal Sharma

KATHMANDU, June 10 (Reuters) - Student activists burned tyres on roads and blocked traffic in Kathmandu on Tuesday to protest against a hefty increase in fuel prices, but many Nepalis hope the unpopular hike will at least mean smoother supplies.

Nepal Oil Corporation (NOC) on Monday increased petrol and diesel prices by about a 25 percent to stem losses at the state-run oil company and help overcome a domestic fuel shortage.

Fuel prices are a test for Nepal's political parties, now squabbling to form a new government likely to be led by the Maoist former rebels.

Many ordinary Nepalis, fed up with long queues at petrol pumps, think some hike was unavoidable but say the increase was too big.

Some, like Kathmandu taxi driver Bill Shrestha, said even though expensive they would rather have a steady supply of more expensive fuel than not have at all.

"If petrol is available in the market after the increase it is okay. I don't mind," the 25-year-old Shrestha said.

On Tuesday, transport operators announced a 30 percent hike in fares for long distance buses and 35 percent for taxis and buses operating on shorter routes with immediate effect.

NOC said fuel supplies should return to normal within a few days -- for the first time in at least six months. The cost of subsidising the retail price had left NOC short of funds to buy sufficient quantities of fuel from India.

But student protesters say the government should have arranged for relief to students as well as to poor people and looked for alternative energy sources to tide over the shortage before rushing with the price hike.

"The government is not sensitive to the difficulties of the people," said Thakur Gaire, chief of the All Nepal Free Students Union that organised the protests. The union is the student arm of the Communist UML party, Nepal's third largest group.

"The government must withdraw the decision immediately," Gaire said.

In January, a similar increase in oil prices was withdrawn after nationwide anti-government protests crippled life for two days, but this time such a possibility looks remote.

Consumer groups said the 25 percent increase was unprecedented and would hit ordinary people.

"Cost of public transport as well as food items will increase now," said Jyoti Baniya, chief of the Forum for the Protection of Consumers' Interest. "In the name of price adjustment the state is out for loot."

Nepal imports about 800,000 tonnes of oil annually. (Editing by Bappa Majumdar and David Fox)