Senior government officials have started discussions for signing a government-to-government (G2G) deal with China to import petroleum products from the northern neighbour after talks between the oil entities of the two countries failed to make any headway.

The Nepal Oil Corporation and PetroChina Company Limited, the listed arm of state-owned China National Petroleum Corporation which is China’s biggest oil producer, had signed a memorandum of understanding (MoU) on October 28 to import petroleum products from the northern neighbour, following which China had provided 1,333 kilolitres of petrol to Nepal in grant.

Encouraged by the MoU between the NOC and PetroChina, the government then planned to sign a commercial deal with China to import at least one third of Nepal’s total petroleum demand from China, as the country continued to reel under acute crisis of fuel in the wake of protests in the Tarai and blockade from India. In the fiscal year 2014-15, Nepal imported fuel worth Rs110 billion, according to Nepal Rastra Bank.

A government technical team comprising NOC officials visited China in the third week of November in a bid to negotiate a business-to-business (B2B) deal with PetroChina. However, the process could not move forward in view of a host of issues, including tax related matters.

Officials said the B2B agreement between NOC and PetroChina could not move forward after the Chinese side sought “political commitment at the highest level”. “This means we need to sign a deal at the highest level,” said the government officials who were privy to the development and meetings between the Ministry of Foreign Affairs (MoFA) and Ministry of Commerce and Supplies (MoCS) on Tuesday and Wednesday.

“The B2B pact signed with China earlier will automatically convert into G2G after signing the new [commercial] deal,” said an official, adding that it will ensure ownership of the two governments.

Deputy Prime Minister and Minister for Foreign Affairs Kamal Thapa is expected to travel to Beijing, most probably at the end of this month, to sign the deal. The G2G pact, according to MoFA officials, will stand as political commitment from Nepal, assuring the Chinese side that the government “is serious about importing fuel from the northern neighbour”.

Nepal for the last four decades has been relying on Indian Oil Corporation to meet its fuel demand. The MoU in October-end was seen as the prelude to ending the four-decade monopoly of the IOC to supply fuel to Nepal, but only a commercial deal can ensure that Nepal can commercially import petroleum products from China.