In the race to build energy partnership with Nepal, India leaves China way behind

The move by Nepal Oil Corporation and Indian Oil Corporation to sign agreements for the construction of two new pipelines between India and Nepal marks a new landmark in energy partnership between the two countries, and at the same time makes efforts by China to enter into energy cooperation with Nepal redundant. As the Times of India has commented, “This move (by India) will raise entry barriers for China in the Himalayan country’s oil market.”

The B2B (Business to Business) agreement signed between Nepal Oil Corporation (NOC) and Indian Oil Corporation (IOC) last month for the construction of two new pipeline projects, one between Siliguri in India and Jhapa in Nepal and the other between Amlekgunj and Lothar of Chitwan in Nepal will mark “a key milestone” in energy partnership between India and Nepal, IOC has said. Under the agreement, two oil terminals will be set up to cater to the major demand centres in Nepal at Jhapa and Chitwan. IOC has promised timely execution of the project to foster a stronger bilateral relationship between the two countries.

India currently meets the fuel needs of the landlocked Himalayan country of Nepal, estimated at 1.5 million tonnes a year. IOC now supplies products to Amlekganj in Nepal through a pipeline from its Motihari depot in Bihar, from where fuel is transported to other places in Nepal in oil tankers. The extension of this pipeline to Lothar will reduce the cost of transporting fuel across Nepal and also the pollution from tankers. The pipeline from Siliguri will open a second supply route and improve the availability of fuel in eastern Nepal.

China had tried to fish in troubled water when there was a hiccup in the supply of fuel from India to Nepal because of an economic blockade in 2015. In 2019, a peeved Kathmandu signed a fuel supply pact with China, but to the chagrin of Beijing the logistics involved in carting fuel from China to Nepal crossing the high-altitude Himalayan passes did not work out.

The impasse over the Madheshi agitation in Nepal in 2015 had allowed China to play the anti-India card and make forays into Nepal in fields which had traditionally been controlled by Indian industry and trade. The supply of petroleum products was one such field.

China declared that it would supply Nepal with 1,000 tonnes of fuel by land route. The delivery that had taken place was only a token one. NOC had sent 12 oil tankers to bring back fuel from Gyirong (Kerung in Nepalese) as a symbolic gesture of the supply of fuel from China. Out of the 12 tankers, only four could reach Gyirong for the collection of fuel because of a snowfall there. The optimism among common Nepalese people that China would supply fuel was belied. In the meantime, IOC moved in and signed a contract to supply to Nepal 1.3 million tonnes of fuel annually.

The realities are too stark for Beijing. The length of the Siliguri – Jhapa pipeline will be only 50 km and the Amlekganj-Lothar pipeline will be 62-km long, passing through a moderate altitude. From Kolkata Port in India where petroleum products are unloaded, the distance of the Nepal border is less than 1,000 km. To supply Nepal, on the other hand, China will have to unload petroleum products at Guangzhou port which is over 3,500 km from Lhasa by train. The fuel will then have to move by road along the Tibetan plateau to Shigatse and to Gyirong, the port of entry between China and Nepal; a distance of over 500 km. Then there is the issue of carrying the fuel from Gyirong to Kathmandu.

In the race to forge energy partnership with Nepal, India has stolen a march over China in the area of power as well. Early this year, Nepal signed a long-term agreement for the export of 10,000 MW of power to India. Three cross-border transmission lines between India and Nepal were jointly inaugurated. A Memorandum of Understanding was signed for cooperation in developing renewable energy. India is also helping Nepal develop multiple hydro-electric projects.

The total power export of Nepal to India soared to 1,346GWh in 2022-23, compared to 493GWh in the previous year. On the other hand, China is yet to import electricity from Nepal due to the technological challenge of constructing transmission lines across the high-altitude Himalayan border. Besides, last year India secured 10 contracts to operate hydro-electric power plants in Nepal; as against only five contracts secured by China.

Nepal will also get the help of India to export surplus electricity to Bangladesh through Indian territories, eliminating the need for Kathmandu to depend on Beijing for the export of surplus hydro power generated in the Himalayan country. Under a tripartite agreement signed last October between Kathmandu, New Delhi and Dhaka, Nepal will export surplus electricity to Bangladesh from June 15 to November 15 every year. India will arrange to wheel the power from Nepal to Bangladesh. Initially, Nepal will export 40 MW of power and make an annual income of $9.2 million.

Beijing has been trying to assert its influence in Nepal through investments in infrastructure and hydro power, but has met with only limited success. On the other hand, India has stepped up hydro power imports from Nepal and investments there and in the process has countered the presence of China. The condition imposed by New Delhi that India will not purchase power from any dam in Nepal financed and constructed by the Chinese has put prospects of Chinese investments in the hydro power sector in Nepal in further jeopardy.

Since a policy shift in 2018, “India and its companies cannot buy hydropower produced by Chinese-funded or Chinese-built plants,” an irate Global Times, the mouthpiece of the Chinese Communist Party, reported in January 2023. “Since India’s power purchasing shift, Nepal has removed Chinese developers from six hydropower projects and given four hydro contracts to Indian companies.”

Experts believe now China will cancel construction projects in Nepal out of frustration and let India take lead in the hydro power sector in Nepal. Significantly, Chinese companies were absent from the Power Summit in Kathmandu in April 2023.