Oil diplomacy is in full swing between India and Nepal, with the countries seeking to jointly set up product pipelines, LPG bottling plants and a mini-refinery in the Himalayan kingdom.

A 35 km-pipeline to transport petroleum products from the Raxaul terminal of the Indian Oil Corporation (IOC) to Amalekhganj tops Nepal's energy agenda. From Amalekhganj, oil products can be distributed in Nepal using tankers.

Nepal is concerned over the rampant pilferage and adulteration during the transportation of oil products by tankers from the Raxaul terminal, which supplies more than 60 per cent of the kingdom's requirement.

It is of the view that the pipeline will not only put an end to both pilferage and adulteration but also cut down on transportation time.

"Although a memorandum of understanding for the construction of the pipeline was signed more than nine years ago, the project had not been able to take off because of some inexplicable reasons. However, we intend to pursue it vigorously now," S P Upadhyay, executive chairman of Nepal Oil Corporation (NOC), said.

For IOC, the Raxaul-Amalekhganj pipeline will be a natural extension of its plan to link its refinery at Barauni with the Raxaul terminal. The Indo-Nepal pipeline can be laid either before or simultaneously with the Barauni-Raxaul link, expected to be in place by 2007.

NOC is also in discussion with its Indian counterpart for setting up at least two bottling plants in Nepal to end occasional cooking gas shortages.

Although Nepal has been asking IOC to set up a mini-refinery, preferably near Kathmandu, so that the kingdom can refine its own requirement of  oil products, economists say because of the limited quantity of products required by it, a small refinery may not be economical.

Nepal is gradually deregulating its oil market and needs about 0.7 million tonnes of oil products, including 60,000 tonnes of cooking gas a year.

While the annual rate of cooking gas consumption is rising at 15-16 per cent, diesel sales is growing at 6 per cent and gasoline 10 per cent.

Till now, IOC has been meeting Nepal's entire oil products demand after the two governments renegotiated an earlier arrangement. Under this deal, India merely allowed Kathmandu transit facilities for imports, a costly proposition.

In Nepal, the pipeline and the cooking gas plants are proposed to be put up by joint ventures between the flagship companies of the two countries.

Simultaneously, IOC may also provide the know-how to operate and maintain pipelines and storage terminals.

Oil diplomacy

• A 35 km-pipeline to transport petroleum products from the Raxaul terminal of the Indian Oil Corporation to Amalekhganj is in the offing.
• Nepal is concerned over the rampant pilferage and adulteration during the transportation of oil products by tankers from the Raxaul terminal.
• For IOC, the Raxaul-Amalekhganj pipeline will be a natural extension of its plan to link its refinery at Barauni with the Raxaul terminal.