Nepal has chosen an alternative supply source as India did not show any flexibility over its blockade of the past one and a half months and the resulting fuel shortage has crippled life across the country. Nepal has looked to the northern neighbor for the essential supply after failing to make any headway in diplomatic efforts to reopen the supply from India. The Indians have been blaming the security situation in Nepal for the supply situation.
A Memorandum of Understanding (MoU) was signed between Nepal Oil Corporation (NOC) and China National United Oil Corporation (PetroChina) in Beijing Wednesday, according to Nepali embassy in Beijing.
The MOU was signed between NOC Managing Director Gopal Bahadur Khadka and Vice-President of PetroChina, Zhang Tong. "The agreement provides the framework for the import of petrol, diesel, and other petroleum products from China to Nepal," said a press release. Nepal's Ambassador to China, Mahesh Maskey, termed the agreement a policy departure. "The agreement opens the way for importing petroleum products, including cooking gas," Maskey told Republica over the phone from Beijing.
Under the agreement, China will supply one-third of Nepal's total demand for petroleum products. The decision will diversify Nepal's trade and reduce its single-country dependence on India. Nepal's fuel import from India has been above Rs 122 billion per year on average over the last three years.
It may take a few more weeks to bring in the petroleum due to difficulties in transportation over rugged terrain, and the petroleum products will be a bit expensive. During the talks, Nepal requested China to provide the petroleum products at the same price as in Nepal.
Maskey also informed that the amount of fuel, prices and transport routes will be decided following a visit soon by a delegation from PetroChina to Kathmandu.
Maskey, who is also team leader of the Nepali delegation visiting Beijing to discuss the fuel supply to Nepal, said that the agreement is a commitment to long-term import and export of petroleum products between the two countries.
The deal is seen as a bold strategic move on the part of the government of Nepal, and experts believe the decision provides Nepal more bargaining power with India.
NOC started importing from India since its establishment in 1970.
Former commerce secretary Purushottam Ojha said that NOC's commercial agreement with IOC does not restrict imports from a third country.
"It has become a compulsion for Nepal to look to a third country as India has breached the agreement by restricting fuel supply and it is also important for Nepal to diversify its trade away from single-country dependence," added Ojha.
Ojha also suggested long-term planning for self-reliance in energy as Nepal can produce abundant electricity from its rivers.
"The agreement can be good from an economic perspective as Nepal now has an alternative fuel supply," said Posh Raj Pandey, a trade expert who however advises caution over bilateral political relations between Nepal and India.
China has already agreed to provide 1,000 tons of petroleum products as a grant assistance to Nepal and that aid is on its way to Rasuwagadhi. Preparations are underway to bring the petroleum products to the capital.
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