Nepal and India are scheduled to sign a landmark agreement on a cross-border petroleum pipeline on August 24 which is expected to ease transportation of fuel and eliminate the country’s dependence on oil tankers.

According to the Ministry of Commerce and Supply, Indian Petroleum Minister Dharmendra Pradhan will be arriving in Nepal on August 23. The framework agreement for the proposed 41-km Amlekhgunj-Raxaul pipeline is planned to be signed the next day. 

A meeting of the Indian cabinet chaired by Prime Minister Narendra Modi had recently approved the signing of a memorandum of understanding (MoU) for the construction of the pipeline. 

Under the first phase of the project, a pipeline will be laid from Raxaul to Amlekhgunj, and under the second phase, it will be extended to Kathmandu. Re-engineering of the Amlekhgunj depot and allied facilities are among the packages of the project.

After the framework agreement is signed, two separate agreements, business-to-business and modus operandi (operation modality), will be signed between state-owned oil monopoly Nepal Oil Corporation (NOC) and its sole supplier Indian Oil Corporation (IOC). 

“We are all prepared for the signing of the much-awaited project,” said Jib Raj Koirala, joint secretary at the ministry. 

India plans to invest Rs4.4 billion in the project while Nepal will contribute Rs1.2 billion. The project is expected to be completed within 30 months from its commencement. Nepal’s contribution will be spent on upgrading NOC’s Amlekhgunj depot and allied facilities.

IOC had proposed building a cross-border pipeline in 1995 and signed an MoU with NOC at the junior executive level a year later. In 2004, the sides reached an agreement at the chief executive level.

However, the project failed to make headway as Nepal had been indecisive on the project due to various legal and technical issues. After much delay, the project was revived after Indian Prime Minister Modi promised to construct the pipeline during his visit to Nepal on August 3 last year. Subsequently, NOC and IOC conducted a joint pipeline survey.

The planned agreement on laying an oil pipeline again hit a snag following differences over the period of the supply contract. 

IOC wanted a Nepali pledge to buy petroleum products from it for 15 years, but NOC insisted on continuing the existing five-yearly pact. The two countries review the supply agreement every five years.

The two sides renewed the supply pact on April 27, 2012, naming IOC as the sole supplier of petroleum products to Nepal for the next five years.

According to NOC spokesperson Sitaram Pokhrel, Nepal will have to buy petroleum products from IOC for the next 15 years. 

The government had planned to buy fuel from IOC for five years, and the term would be extended for the next 10 years or two five-year terms, depending on its supply terms and conditions. 

“We will have to make arrangements for land acquisition for the project,” Pokhrel said, adding that the construction of the petroleum pipeline would ease oil imports. “Strikes and bandas won’t have an impact on petroleum imports once India starts pumping fuel through the pipeline.”