Nepal and India on Monday signed a memorandum of understanding for the construction of an Amlekhgunj-Raxaul oil pipeline.

The pipeline, 41 km long and 20 years in the planning, is expected to ensure regular fuel supplies in Nepal which are known to be disrupted by recurring road blocks and strikes.

Minister for Commerce and Supply Sunil Bahadur Thapa and and Dharmendra Pradhan, India’s Minister of State (with Independent charge) for Petroleum and Natural Gas, signed the agreement on behalf of their respective countries in Kathmandu.

The exact date when the construction will start is yet to be fixed. Before that, state-owned oil monopoly Nepal Oil Corporation will sign two separate agreements with its sole supplier India Oil Corporation (IOC).   

The Rs4.40-billion project is expected to be completed within 30 months after work begins. IOC will be injecting Rs3.20 billion into the project as a grant while NOC will invest the rest of the amount for the upgradation of its Amlekhgunj depot.

The pipeline will transport petrol, diesel and kerosene. Under the first phase of the project, a pipeline will be laid from Raxaul to Amlekhgunj. In the second phase, it will be extended to Kathmandu.

“Nepal’s plan to bring fuel through a pipeline has materialized after two decades,” said Thapa after signing the agreement. “We expect that the project construction will commence as soon as possible.”

The pipeline is expected to save around Rs700 million annually in transportation costs. Nepal’s petroleum import bill amounted to Rs110 billion in the fiscal year 2014-15, down from Rs130 billion in 2013-14.   

The pipeline is expected to ease transportation of fuel and eliminate the country’s dependence on oil tankers. Strikes and bandas won’t have an impact on petroleum imports once India starts pumping fuel through the pipeline.

Naindra Prasad Upadhyay,

secretary at the Commerce Ministry, said the pipeline project would remove hassles that have been occurring in Nepal and India’s bilateral trade. “Besides reducing costs, the pipeline will ensure the quality of petroleum products,” he said.

Fuel adulteration is a major problem in Nepal and it has been growing at an alarming rate. Last February, lab tests conducted by the Nepal Bureau of Standards and Metrology showed that the diesel sold in the valley was heavily adulterated. A number of reports have shown that most of the fuel adulteration cases occur on the Amlekhgunj-Raxaul route. Once the pipeline is completed, Nepal will receive petroleum products at the rate of 191 kilolitres per hour, or 3,000 kilolitres daily.  

Indian Petroleum State Minister Pradhan said that building a petroleum pipeline to Nepal was expected to benefit both the countries. “We have targeted completing the project within the stipulated time after the construction is started,” said Pradhan, adding that his ministry was ready to work with Nepal on other projects too.

According to NOC, Nepal has a capacity to store 71,620 kilolitres of petroleum products. The country’s oil requirement stands at 3,500 kilolitres daily.  

IOC had proposed constructing a cross-border pipeline in 1995 and signed an MoU with NOC at the junior executive level a year later. In 2004, the two sides upgraded the agreement to the chief executive level. However, due to a number of legal hurdles, the project failed to take off.

The plan received a shot in the arm after Indian Prime Minister Narendra Modi’s visit to Nepal on August 3, 2014 when he pledged to build the pipeline.

The timeline

-    An Amlekhgunj-Raxaul oil pipeline was first proposed by Indian Oil Corporation (IOC) in 1995.

-    Nepal Oil Corporation (NOC) and IOC sign an MoU at the junior executive level in 1996.

-    In 2004, the two sides reached an agreement at the chief executive level.

-    A pre-feasibility study was conducted in 2004 and a technical study in 2006.

-    In February 2010, the Cabinet approved NOC’s new action plan for the construction of the pipeline. As per the plan, Nepal and India would construct the pipeline separately in their respective territories. The pipeline would then be linked after signing a bilateral pipeline treaty.

-    When the government approved the project in February 2010, a joint-venture (JV) model with the equity participation of NOC and IOC was also planned.

-    In March 2011, Nepal and India dropped the JV model and agreed on a new modality under which they would construct the pipeline separately in their respective territories, and it would be linked after signing a bilateral pipeline treaty.

-    In January 2013, the Cabinet again gave the go-ahead for the construction of the much-delayed pipeline project. It was the third such decision in four years. However, due to many legal complexities involved in selecting the contractor and the developer and acquiring a land use permit in India, the project failed to take off.

-    On August 3, 2014, the project was revived after Indian Prime Minister Modi promised to construct the pipeline during his visit to Nepal. Subsequently, NOC and IOC conducted a joint pipeline survey. In September 2014, Nepal and India finalized a survey draft of the pipeline project.

-    In August 2015, a meeting of the Indian Cabinet chaired by Prime Minister Modi approved the signing of the MoU for the construction of the pipeline.