Nepal's deal with China could impact South Asia's first trans-national petroleum pipeline

Official says if there is significant volume reduction, feasibility of the project will have to be re-looked

Nepal’s decision to source petroleum products from China will not only end India’s monopoly in supplying fuel to Nepal but will also impact Indian Oil Corp (IOC) revenue. With the development likely to pull down petroleum export volumes, the fate of the two planned cross-border products pipelines also hangs in balance.

This includes the 41-km Raxaul-Amlekhganj pipeline announced by the oil ministry as south Asia’s first trans-national petroleum pipeline. “The situation has come as a setback. In case there is significant reduction in volume for India, the techno-economic feasibility of the pipelines would have to be re-looked,” said a senior IOC executive who did not wish to be identified. “The trade volumes are fluctuating on a daily basis as the truckers are reluctant to deliver on their contracts due to the agitation,” he added.

Nepal Oil Corporation (NOC) and IOC had signed a deal in August to construct a pipeline from IOC’s depot in Raxaul in Bihar to NOC’s depot in Amlekhganj. The detailed feasibility report, or DFR, of the pipeline has been prepared and the modalities for construction and investment are under discussion between the two companies.

The scope of laying a liquefied petroleum gas pipeline across the border had also come up for discussion between the firms. Now, the fate of the two projects depends on how much trade India will lose to China.

Initial estimates suggest China will claw a third of the 1.3 million tonne of India’s petroleum exports to Nepal worth around Rs 9,000 crore.

The 41-km long pipeline is to be constructed by IOC at a cost of Rs 200 crore. IOC was also supposed to carry out re-engineering of the Amlekhgunj petroleum depot to make it compatible for receiving petroleum products. According to the project proposal, IOC had to complete the project within 30 months after receiving the statutory approvals from the Nepalese government and NOC will invest Rs 75 crore to develop additional facilities in the Amlekhgunj depot.

In an address to the Constituent Assembly on August 4 2014, Prime Minister Narendra Modi had announced the building of the pipeline that is to serve to improve regional connectivity among the South Asian Association for Regional Cooperation nations. The Union Cabinet had recently approved the project. Modi’s Nepal visit was followed by a delegation of officials from IOC visiting the neighbouring country and holding technical and administrative discussions with NOC. The petroleum ministry had highlighted the laying of pipelines as one of the initiatives taken by it during the first 100 days of the Modi government.
 

Nepal Commerce Minister Sunil Bahadur Thapa had discussed the issue of laying the pipeline during his meeting with Petroleum Minister Dharmendra Pradhan in the national capital last year. A pipeline project on the same route had been proposed in 2006 and both NOC and IOC had decided to split the cost of the project equally. However, the proposal could not be finalised.