October 28th, 2015 will remain a historic day in Nepal-China cooperation for exploring possibility of extending economic relations to fuel trade. A memorandum of understanding (MoU) was signed on this day between China National United Oil Corporation (PetroChina) and Nepal Oil Corporation (NOC) in Beijing to supply one third of Nepal’s petroleum needs from China. Following the deal, the Chinese company supplied 1.3 million litres of petrol in grants when Nepal was facing acute fuel crisis due to Indian economic blockade.
The agreement has been hailed as a major breakthrough in Nepal for breaking, for the first time, Nepal’s dependence on India on fuel import. However, this historic framework agreement has not materialized into commercial agreement yet. The government officials point to pending taxation and logistical issues, yet to be resolved at the political level, as responsible for no progress towards commercial agreement.
During the visit of Deputy Prime Minister and Foreign Minister Kamal Thapa to Beijing in December 2015, two sides had agreed to sign a long-term petroleum agreement to import fuel from China. “The commercial agreement is likely to be signed during the visit of Prime Minister KP Sharma Oli to China,” said Jhapindra Aryal, Joint secretary, Ministry of Foreign Affairs. Supply Secretary Bishnu Lamsal claims the government has been making necessary preparation for signing of the commercial agreement for commercially importing fuel from China. But there does not seem to be plain sailing toward this direction.
The issue of concern
Blockade in Nepal’s southern border crossing has been lifted after four and half months, paving way for official visit of Prime Minister Oli to India amid strained relations following the blockade. He has been given ‘guard of honor’ in India. Fuel supply to Nepal from India is also becoming more regular and normal day by day. In this context, questions are being raised about whether Nepal will really import fuel from China at the cost of disappointing India. There is ground for skepticism.
However, officials engaged in making framework agreement say Nepal should learn from future repercussion of being dependent on one single country for importing essential goods like fuel.
“Demand for fuel is increasing in Nepal. It’s not good to take all fuel from one single country,” Hari Bashyal, Nepal’s former Consular General in Lhasa, told APD. “We need to build necessary infrastructure to bring fuel from China.” Former Permanent Representative of Nepal to the United Nations Jaya Raj Acharya said, “China will naturally ask a few practical questions: Will it be feasible and economically viable to import fuel from China to Nepal? Nepal should import fuel from China if its economically viable for both Nepal and China.”
Prime Minister himself has admitted how the country faced hardships in the recent times due to its dependence on a single country for oil import. In his televised address to the nation on November 15, 2015, PM Oli said, “This should open our eyes and learn lesson.” He had also promised to take initiatives to import fuel and other essentials goods from China. Will this promise be kept?
Taxation and logistics
Nepali officials say the issue is over whether China will impose tax on fuel to be imported to Nepal. NOC and PetroChina are yet to sort this issue out. NOC has called for settling it through government to government level talks. India does not impose its tax on fuel to be exported to Nepal. “Nepal has been seeking similar treatment from China,” said Sushil Bhattarai, acting deputy managing director of NOC. “The Chinese side has informed us that they are waiting for their government’s decision on this issue.” Government officials say taxation issue is no hurdle when one country is ready to sell and other country ready to buy. “They [China] have said that they are ready to reconsider taxation issue,” said Bashyal. Problem, it seems, is more with logistics that taxation. China has its fuel depot in Shigatse, some 575 kilometers away from Nepal-China border. According to Bhattarai, PetroChina has not yet confirmed whether they will be able to provide fuel from this depot. Apart from this, road network on Nepal side of the border has been damaged by earthquakes.
“The high altitude of Tibet, language barrier and driving method could prove to be other hindrance for Nepal to import fuel from Shigatse, even if the decision to that effect is reached,” said Bashyal. “If Nepalese tanker driver does not understand what is being instructed by the Chinese authorities, they may face trouble. It may be difficult for them to adjust in high altitude of Tibet as well,” he added.
NOC officials also fear that logistical problem will be harder to overcome. “It is impossible to import fuel from China immediately due to logistical problem,” said NOC’s Bhattarai. The Nepali team had asked the Chinese side to continue providing fuel under tanker to tanker system like in the case of grant fuel. “They declined to adopt tanker to tanker system due to safety concerns,” said Bhattarai. According to him, Chinese side had informed Nepali officials that they had to suspend a law to enable Nepal to get fuel under grant.
NOC itself is concerned about one after another decision of the government to grant permanent petroleum import license to private firms. One private company has already obtained a license for the purpose, while three others have applied for similar permits. Arrival of the private firms in oil, NOC fears, could pose another challenge for NOC. Buying fuel from China will be more expensive for NOC than doing so from India due to transport costs. “If we have to purchase high priced fuel from China and private firms can purchase low priced fuel from India and sell, it will be a big disadvantage for us,” said Bhattarai.
(This article was originally appeared in Asia Pacific Daily, Kathmandu issue in February 2016)