CROSS BORDER PETROLEUM PIPELINE: Cabinet approves project for third time
KATHMANDU, JAN 06 -
The Cabinet on Thursday agreed in principle for the construction of the much-delayed Nepal-India cross-border petroleum pipeline project.
This is the third decision to this effect made by the Cabinet in four years. The decision, however, does not ensure the commencement of the 41-km pipeline project’s construction, with legal and technical complexities still persisting.
Even the line ministry, Ministry of Commerce and Supplies (MoCS), is expressing doubts. Officials at MoCS and Nepal Oil Corporation (NOC) say the Cabinet’s endorsement in principle is not enough to kick start the project as there are many legal complexities to resolve. “The Indian Oil Corporation (IOC) is positive on investing in the project, but legal complexities still persist,” said an NOC official.
Since the government has to abide by the Public Procurement Act which provisions invitation of a global bid for such projects, the government cannot directly award the project to IOC. This was why the earlier plan of setting up a joint-venture between NOC and IOC for the pipeline failed.
On the other hand, if a global bid is invited, it will be difficult for the selected contractor/developer to acquire the land use permit in the Indian territory, according to the officials.
However, NOC officials say the government can award the project to IOC through a Cabinet decision. IOC has already pledged investment in the project and Nepal has to repay the amount on installment basis, they said. “The pipeline , if developed, will save NOC’s Rs 300-350 million in annual transportation costs,” said Suresh Kumar Agrawal, officiating managing director of NOC.
At present, NOC has to spend around Rs 500 million annually for transporting petroleum form Raxaul of India to Amalekhgunj. But the annual operation cost of the proposed pipeline is estimated at Rs 120 million.
The length of the pipeline from the India-Nepal border to Amlekhgunj would be 39 km, while its length from the border point to Raxaul, where an IOC refinery is located, would be 2 km.
The project has been estimated to cost Rs 1.60 billion (excluding the land acquisition costs). A pre-feasibility study in 2004 and a technical study in 2006 had declared the project economically viable, provided the pipeline is operated unhindered for 20 years. The project, which was first proposed by IOC in 1995, is intended to reduce the transportation cost of fuel by more than 50 percent.
The project is envisaged to reduce leakage and make the supply cleaner and cheaper. It could also provide relief to Nepali consumers from frequent shortages caused by strikes bandas. A report of the High-Level Petroleum Reform Committee had also suggested immediate construction of the pipeline .
When the government had approved the project in February 2010, a joint-venture model with equity participation of NOC and IOC was planned. But in March 2011, Nepal and India dropped the JV model and agreed a new modality, whereby Nepal and India would construct the pipeline separately on their respective territories, and it would then be linked after signing a bilateral pipeline treaty.
Source: The Kathmandu Post
