Many short-term solutions have been proposed but a permanent long-term solution is yet to be found

Kathmandu

Fuel scarcity is a reality Nepalis are all too familiar with. In 2015, Nepal faced fuel scarcity like never before, which left the country crippled for weeks. The country still reels under pressure to maintain smooth supply of petroleum products and the government is yet to find a concrete solution to this threatening problem. Many short-term solutions have been proposed but a permanent long-term solution is yet to be found.

India-China pact

About two years ago, ‘importing Chinese petroleum’ was the hot topic in Nepal as the import of fuel from India was discontinued due to the economic blockade. However, this issue consequently lost priority after fuel supply became normal.

In an official visit of then Prime Minister K P Sharma Oli to China (from March 20 to 27, 2016), both countries had signed a 15-point agreement. A joint press statement between Nepal and China, published on March 23, 2016 states, “Both sides agreed to conclude a commercial deal on the supply of petroleum products from China to Nepal. In this context, they encouraged companies to speed up negotiations and concerned agencies to study supporting policies on issues of pricing, taxation, transportation, quality control and customs and frontier formalities.”

On October 28 2016, Chinese enterprise — China SINOMACH Heavy Industry Corporation — sent a proposal for trade of petroleum products between Nepal-China based on the 15-point agreement. This proposal, the enterprise stated, was to be presented on Chinese President Xi Jinping’s visit to Nepal on October 2016. However, the visit was cancelled for reasons unknown and the proposal never saw the light of the day.

A source from the Ministry of Supply (MoS) claimed that with the change in the government, the issue of importing fuel through China has lost priority. They said, “The current government has not done their homework as far as the 15-point agreement goes.” Currently, as in the past, Indian Oil Corporation (IOC) is the only supplier of fuel to Nepal.

Petroleum pipeline

On September 2015, Nepal and India signed a bilateral agreement to lay pipes from Rakshaul in India to Amlekhgunj in Nepal to import petroleum products through the pipeline from India to Nepal. This would also reduce the cost of transportation and ease fuel shortage in Nepal. However, the pipeline project is yet to take off because the Ministry of Forest has not given the permission to cut down trees of a forest in Amlekhgunj.

Currently, Nepal is importing petroleum products through tankers and bullets from India. If the pipeline from Rakshaul to Amlekhgunj, covering a distance of 41-km horizontally, (39-km in Nepal and 2-km in India), sees completion then the process of import of petroleum products is expected to be smoother. The estimated cost of this project is about Rs 4.40 billion. As per the agreement, India will spend Rs 1.20 billion on the project and Nepal will spend Rs 2.20 billion. Once this agreement is signed, Nepal will be able to import petroleum products only from IOC for the next 15 years.

However, given the hitch in Rakshaul-Amlekhgunj project, Former Supply Minister, Dipak Bohara proposed to expand the pipeline to Bharatpur, Chitwan, during his visit to India for the renewal of the fuel agreement on March 29, 2017. Acting Deputy Managing Director of Nepal Oil Corporation (NOC), Sushil Bhattarai, said that India is in agreement to this new proposal too.

Alternative way

In order to have more than one player supplying petroleum products to Nepal, a solid storage capacity for petroleum products, which Nepal currently lacks, is required. Low storage capacity is the major reason for the scarcity of fuel in the country in case of unforeseen disruption in supply from IOC. The expansion of the country’s fuel storage capacity would be helpful to reduce the occasional fuel crisis in the market.

In 2016, NOC introduced a programme to develop petroleum reservoir stations with a storage capacity for 90 days of fuel supply in seven provinces.

The programme was to build storage reservoirs in seven provinces with storage capacity of 55,000 kilolitres of petroleum products and 5,000 tonnes of LPG in each province.

This programme came at a cost NOC could not afford. The government then turned to China to help Nepal cover the costs of building of petroleum reservoirs and gas stations in Nepal.

The 15-point agreement between Nepal and China, states, “The Chinese side agreed to build oil storage facilities for Nepal, and will send experts to Nepal to carry out feasibility study on oil and gas resources research.”

On May 6, 2017, a Chinese technical team came to Nepal to study the probable locations at Dhading, Tanahu and Kathmandu Valley. Spokesperson of MoS, Surya Prasad Shrestha informed THT Perspectives, “The Chinese technical team has been observing the sites for appropriate locations to build storage reservoirs.” He said that the Chinese team came to Nepal as a follow-up study to the previous agreement to build oil storage facilities in Nepal for petroleum products.

NOC informed that the cost of building storage facilities for petrol and diesel is estimated at about Rs 50 billion and storage for 90,000 tons of LPG the cost stands at about Rs 20 billion.

Identifying land for reservoirs

Bhattarai informed that NOC has identified lands in Chitwan and Sarlahi for building petroleum storage reservoirs. He said, “About 20 bigah (1 bigah = 6,772 sq mt apprx) area of land is required for the project. NOC is trying to identify suitable areas in seven provinces. We have recently identified two places and this is where we will start; the design and modality of these reservoirs are currently being discussed.”

Public-private partnership model

NOC has proposed to undertake the project in public-private partnership model. However, according to the officials at NOC, these possibilities are still under discussion.

“After constructing the storage reservoir, private sector may run the project for 15 years and the reservoir would be owned by the government. If the government doesn’t agree to this then the Ministry of Finance (MoF) should provide the required amount of money for this project.”

                                  Prem kumar Rai

                                 Secretary of MoS

Prem Kumar Rai, Secretary of MoS said, “After constructing the storage reservoirs, private sector may run the project for 15 years and the reservoirs would be owned by the government. If the government doesn’t agree to this then the Ministry of Finance (MoF) should provide the full amount of money required for this project.”

Clearing kerosene depots

NOC is also planning to utilise kerosene reservoirs at Thankot depot for storage of petroleum products. Spokesperson of NOC, Sitaram Pokharel, said that because kerosene is hardly used for daily purposes in the Valley, NOC is planning to use these kerosene reservoirs to increase the storage capacity of petroleum products. He said that three kerosene reservoirs in Thankot can hold 21,000 kilolitres of petrol.

“About 20 bigah (1 bigah = 6,772 sq mt apprx) area of land is required for the project. NOC is trying to identify suitable areas in seven provinces. We have recently identified two places and this is where we will start; the design and modality of these reservoirs are currently being discussed.”

                            Sushil Bhattarai

      Acting Deputy Managing Director, NOC

Currently, Nepal has the storage capacity of only six days of supply of petroleum products. The fuel storage capacity of NOC currently stands at 71,000 kilolitres, which is said to be sufficient to meet the domestic demand for only two weeks.

Private sectors have only LPG storage facilities. According to LPG Gas Dealers Association, private companies have 6,000 tons of gas storage capacity counting 55 LPG gas companies along with bottler plants.