Gasoline station owner Mukesh Kumar of Adapur in the Indian state of Bihar said he was being undercut by cheap contraband fuel from Nepal, with his daily petrol sales plunging from 1,300 to 200 litres.

According to Indian media reports, many motorists, particularly in Bihar, are filling up at roadside vendors who get their supply from border-hopping locals who smuggle petrol and diesel in jerry cans from Nepal because of the huge price differential.

Residents owning a motorcycle or car are engaged in the lucrative trade, the report said, dashing back and forth across the border throughout the day.

Fuel prices in India are currently the highest in South Asia. Petrol costs upwards of IRs100 (Rs160 Nepali currency) per litre in India while it is available in the Nepali border town of Birgunj for Rs112.50 per litre.

Diesel costs IRs86.57 (Rs138.51) in India and Rs97 per litre in Kathmandu.

The Post’s calculation, based on Friday’s price lists in Nepal and India, shows that petrol is cheaper by Rs46 per litre in Nepal than in India. Likewise, diesel costs Rs41 less in the Nepali market.

According to The Times of India, petrol pump owners in Raxaul, Adapur, Chauradano, Ghorasahan and Kundwa-Chainpur in Bihar are claiming heavy losses due to smuggling of petroleum products from Nepal.

Smugglers are particularly active in two dozen Indian border villages—like Bhiritarwa, Basantpur, Semarwari, Bhaluwahiya and Bhagha in Uttar Pradesh—where there is no checking.

According to reports, in Ghorasahan and Chauradano villages alone, there are more than three dozen boys acting as couriers, each earning IRs1,000 daily. They buy petrol at Rs113 per litre in Nepal, and sell it for Rs145 per litre across the border in India.

There is rampant gasoline smuggling from Nepal, but Nepal Oil Corporation says they have recorded 'no huge' sales trends at petrol pumps on the southern border.

Nepal and India share an 1,800-km open border with more than three dozen motorable crossing points.

Surendra Poudel, executive director of the state-owned oil monopoly, denied there was widespread smuggling of petroleum products.

“We have compared the data. We don’t see vast differences in sales compared to last year at the southern border points,” he told the Post. “If there was rampant smuggling, it would be reflected in the sales figures.”

Poudel said that smuggling was not happening in an organised way, but said owners of two- and four-wheelers were engaged in gasoline peddling.

Consumer rights activists said smuggling could create a fuel shortage in the Nepali market. They said that if the illegal trade was not checked immediately, the corporation's losses could balloon as it would need to purchase more oil which it has been selling at subsidised prices.

Madhav Timalsina, president of the Consumer Rights Investigation Forum, said that smuggling could create an artificial fuel shortage in Nepal, and it should be controlled by the local administration.

As Nepal is going through a fluid political situation, a short supply in the domestic market could create another problem, he said. “The smuggling needs to be controlled immediately.”

The state-owned oil supplier has already hiked fuel prices thrice in one month, based on the tariff sent by its sole supplier India Oil Corporation.

On January 18, Nepal Oil raised the price of diesel by Rs2 per litre to Rs93 per litre. In February, the price was raised twice—Rs2 per litre each time on February 10 and February 17. Diesel now costs Rs97 per litre.

Similarly, the price of petrol has been increased from Rs108 per litre to Rs114 per liter in one month.

While Nepal imports all petroleum products from India, based on five-yearly supply agreements between the two neighbours, why are they so expensive in India compared to Nepal?

Rising international crude oil prices is one factor. Crude oil crossed $60 per barrel for the first time this year. Another reason is India’s heavy taxation policy, particularly after the Covid-19 pandemic.

According to Indian media reports, taxes on petrol and diesel are higher than 61 and 56 percent respectively.

Indian Union Oil Minister Dharmendra Pradhan explained that the central and state governments rely heavily on collections from taxes on crude oil 'for meeting their developmental and welfare priorities'.

"They need some resources... (and) this (taxing petrol and diesel) has been a proven and substantial route by all the governments, whether state governments or the central government," he said. "Both the states and the central government are raising taxes according to their developmental needs."

According to Poudel, the tax structure is very high in India. In Nepal, petrol and diesel are taxed at the rate of 48 and 39 percent respectively.

Nepal Oil Corporation estimates that its fortnightly losses on the sale of petroleum products amount to Rs867.8 million. That means, the subsidies on petrol and diesel come to Rs5.82 and Rs4.13 per litre respectively.

In a bid to stop the illegal flow of fuel to India, the government enterprise issued a work plan on February 19 and circulated it to all its regional offices in Biratnagar, Amlekhgunj, Thankot, Bhairahawa, Surkhet and Dhangadhi; fuel depots in Nepalgunj and Janakpur; and branch offices in Birgunj and Charali.

As per the work plan, each regional office has to conduct sales inspections of petrol pumps located up to 5 km north of the Nepal-India border. Company officials are required to inspect at least five petrol pumps in the border areas.

Further, its depots are barred from selling fuel exceeding their capacity; and if they do so, they need to obtain permission from the head office in Kathmandu.

The work plan also says that petrol and diesel should not be sold in drums, jerry cans or other fuel containers in the border areas.

Gasoline stations located on the Nepal-India border can refill an automobile's fuel tank only, and sales to large Indian vehicles have been capped at 100 litres. Petrol pumps violating the rules will face action under the Petroleum Product Bylaw 2018.

Consumer rights activists and even Nepal Oil Corporation officials say that despite these measures, the lucrative oil smuggling business has not stopped.