Rationality of Petroleum Pipelines for Nepal

Published On: November 22, 2022 05:19 PM NPT By: Sindhuj Thapa

Sindhuj Thapa

Sindhuj Thapa

research assistant at Samriddhi Foundation

Even though the on-going petroleum pipeline project is a notable investment, it is certainly a sensible one.

The Nepal government recently disclosed the initiative of building two different petroleum pipelines which have been heavily criticized by environmentalists. While sustainable living is an admirable thought, can we afford it yet?

Nepal consumes 90 percent more fuel today than it did five years ago. Considering the growing requirement, the government has planned to extend the existing Motihari-Amlekhgunj petroleum pipeline to Chitwan and ultimately to the capital, at the same time also building another pipeline extending from Siliguri to Jhapa. A joint technical study group of Nepal Oil Corporation (NOC) and its supplier Indian Oil Corporation (IOC) prepared the feasibility study of this project with an estimated cost  of Rs 14 billion including petroleum storage plants and other infrastructure. However, environmentalists have not been supporting this project as it hampers the green pledge proposed by the Oli-led government to completely replace fuel-run vehicles with electric vehicles (EVs)  by 2031. They also claim that it is a waste of money, a glaring example of fractured and unstable politics and a major cause of environmental hazard.

Yes, Rs 14 billion is a significant investment, but can we call it a waste? Nepal’s petroleum demand has been increasing by 10 percent annually. The government imported 736,276 Kiloliters of petrol and 117,571 Kiloliters of diesel by road in fiscal year 2078-2079. According to the annual report of NOC, Rs 5 billion was spent on transporting the aforementioned amount of petroleum products. According to sources, the average cost of transportation of 20,000 liters of petroleum products in different parts of the country is Rs 45,000. With this information, we understand that the total cost of transporting 736,276 Kiloliters of petrol and 117,571 Kiloliters of diesel is about Rs 4 billion. This is assuming that transport trucks are used till optimal utility and no technical hazards, leakage, or corruption are involved which is still an extremely high cost. Hence, this Rs 14 billion project that aims to cut down massive freight charges, inefficiency and ultimately reduce the cost of petroleum products for the consumers is rather an investment than a cost, it is claimed.

Another claim is that it hampers the green pledge to completely replace fuel-run vehicles with electric vehicles by 2031 and at the same time causes major environmental hazards. Over 70% of global greenhouse gas emissions can be sourced from just 100 different companies. The contribution by Nepal to greenhouse emission is minimal. On top of that, 50.1% of GreenHouse Gas (GHG)  emissions in Nepal comes from the agriculture sector. Despite that, working class people from countries like ours are bound to be affected the most by environmental hazards. The working class people in developing countries like ours do not have the luxury to afford environmentally-conscious products, especially when a solution isn’t offered to them. Like when our leaders make pledges like completely switching fuel-run vehicles to electric, for some people even if they are environmentally-conscious they might not have the resources to and for some people they might not find any incentive to switch. Nonetheless, EVs  are the future. Even though they have a high upfront cost, in the long run, they are much cheaper. However, Nepal being a developing country, needs massive preparation, infrastructural development, budget for switching cost and awareness before switching from fuel-run to electric vehicles. Until then the pledge of 100% replacement to electric vehicles is only a far fledged dream.

The 2020-21 budget unveiled by the then Prime Minister, KP Sharma Oli’s administration contained a strategic plan to lower oil imports in support of switching from petrol-powered automobiles to electric vehicles by 2031. While it is an uptight exemplary plan, it is a far-fledged over-ambitious dream that might not be realistic as in nine years it is difficult to build infrastructure for electric vehicles all over the country, let alone replace entire fuel-run vehicles with EVs. There are several other executional issues to be tackled in these nine years such as the government doesn’t have the budget to bear the high switching costs and Kathmandu alone is not a representation of Nepal. Thus there are remote places in the country where electricity has not reached yet. In places like those, assuming that it will be possible to replace fuel-run vehicles with electric ones is implausible. Yes,  Nepal’s gasoline consumption almost doubled in the last five years, leading to environmental consequences but we have not developed efficient technology for EVs yet. We still have underlining battery management issues, huge switching costs, and infrastructural development for EVs that we have to figure out. At least until then, the consumption of petroleum products will prevail and the government will have to keep fulfilling the demand.

Even if the government plans to take both the projects hand in hand and be able to completely replace fuel-run vehicles with EVs by 2031, we have nine years in hand. Assuming that completion of this project will shape up in two years, almost the same as the construction of the 69 km  Motihari-Amlekhgunj pipeline, we have seven years in hand which brings the cost to Rs 2 billion per year which is significantly lower as compared to the Rs 5 billion spent by the NOC each year in transportation cost. The NOC also claims that the operational Motihari-Amlekhgunj pipeline which has been transporting diesel saved Rs 2 billion in the last fiscal year. This brings us to the conclusion that even though the on-going pipeline project is a notable investment, it is certainly a sensible one.

Another claim against this project is based on the political instability in Nepal. We cannot argue that Nepal has not undergone drastic political instability in the past few decades. The uncertainty associated with an unstable political environment reduces investment, the speed of economic development and halts projects carried out by the earlier government. For projects like this to be successful, a country like Nepal should introduce mechanisms to overcome such incompetencies. The completion of initiated development projects regardless of the change in government for a speedy economic growth of the country is imperative.

The demand for EVs is steadily rising, creating an urgency for our government and entrepreneurs to develop infrastructures to support EVs. However, until then, with a rise in demand for petroleum products alongside, the construction of petroleum pipelines that cut down the freight cost for it and ultimately reduce the price of petroleum products for the customers is a rational decision that should be in operation as soon as possible.

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