China will establish a petroleum products exploration centre in Nepal as per a 14-point agreement signed between the two countries on Thursday during Prime Minister KP Sharma Oli’s visit to Beijing.

In 2016, the China Geological Survey had carried out a feasibility study and expressed interest in conducting oil and gas exploration in Nepal. Two months ago, it sent a preliminary work plan to the Department of Mines confirming its interest in prospecting for oil. In May 2016, the government in association with China had conducted feasibility studies at 10 locations, including Dailekh, Nepalgunj, Chitwan, Mustang, Morang, Chatara and the Chure range in Palpa. Following the survey, Nepal and China signed a memorandum of understanding during the visit of Chinese Vice-Premier Wang Yang in August that year.

A framework agreement was signed with the northern neighbour to promote investment and economic cooperation and draw on Chinese private and public assistance to carry out oil and gas exploration. Since then, the department has been waiting for word from the northern neighbour to conduct further studies.

Director general of the Department of Mines Rajendra Khanal said they received an electronic copy of the preliminary work plan from the Chinese institution. “In the reply, they have expressed interest in starting exploration soon,” Khanal said. According to him, the China Geological Survey has proposed to drill at six to seven locations to determine the quantity and test the quality of the oil deposit in the first phase. “The locations could be any of the 10 areas where feasibility studies were carried out two years ago.” The government has divided the Tarai and Siwalik hills into 10 exploration blocks, each of which is spread over 5,000 square kilometres. The department has estimated that exploration costs will come to Rs3.5 billion per block. Last year, Nepal opened 15 of its copper, iron, limestone and zinc mines for mining by amending the Petroleum Regulation 1985 for the fifth time. Nepal embarked on petroleum exploration in the late 1990s following which a number of foreign companies had expressed interest in conducting studies and were issued exploration permits. However, citing the slow work of the foreign companies that received licences from the department, the government cancelled the licences of all of them. Texana Resources Company and BBB Champion of the US, Cairn Energy PLC of the UK and Emirates Associated Business Group (EABG) of Dubai were among the companies that lost their working licences.