India and Nepal decline to share copy of agreement whereby Nepal gets cheaper fuel than Bhutan

As of April 2022 Bhutan is paying Nu 12.23 more per liter for petrol and Nu 11.48 more per liter for diesel than Nepal from the same Indian PSU Oil companies and even from the same geographical locations.

Unlike Bhutan, Nepal has a bilateral agreement between the two countries on the sale of fuel which was renewed in March 2022 between Indian Oil Corporation (IOC) and Nepal Oil Corporation (NOC) in the presence of India’s Petroleum Minister Dharmendra Pradhan and Nepal’s Minister for Supplies Deepak Bohra.

Recently, Bhutanese officials approached both the Indian and Nepalese sides officially and unofficially for a copy of the agreement to get an idea of why Nepal is paying lesser than Bhutan and also if a similar agreement can be drawn up for Bhutan.

However, the Indian side in Delhi declined to share a copy saying it was ‘confidential’ and when Nepalese officials in their Foreign Ministry were approached they had the same line.

This has deepened the mystery for Bhutanese officials who are yet to get a proper break up of the fuel prices charged to Bhutan by Indian PSU Oil companies despite months of request.

To add to this issue when the issue was raised with senior Indian officials in Delhi, the reply from one of them was to say that India would not ‘cheat’ Bhutan.

A danger here is that what is a technical and financial issue that can be solved with some discussions and deft diplomacy from both sides could snowball into an issue of trust, emotion and suspicion as some in the Indian side refuses to see the genuine Bhutanese case, and as the public outrage in Bhutan only grows over such unequal pricing.

Unofficially, the IOC and some other Indian officials have suggested that a possible solution could be for Bhutan to ask for a similar agreement like Nepal at the bilateral level so that it can get prices similar to Nepal.

However, to put up a proposal like that, what the Bhutanese side needs is a transparent break up of the oil prices to Bhutan to understand why it is paying more than Nepal. This has not been forthcoming.

The Department of Trade (DoT) officials for around four months tried to get this break up from IOC, but with no success. A request was put up through the Bhutanese Embassy in Delhi to the IOC and what the DoT got was a very basic and unsatisfactory break up that still did not explain the pricing components and why Bhutan is paying more than Nepal.

While IOC officials have been unwilling to put pen to paper to explain the components or price differences they have unofficially tried to justify the higher prices to Bhutan.

One explanation is that Nepal buys its fuel from Bihar and Uttar Pradesh (UP) which are closer to Nepal with a Railway freight system nearby and hence the cheaper prices. On the other hand, the cost of getting the fuel to Oil Depots in Siliguri is higher from the oil refineries and hence the higher price for Bhutan.

IOC officials unofficially also said that Nepal has an oil pipeline from India and that too brings down costs.

The reasons above have not been given officially or in writing.

However, a closer look will show that both the reasons given by the IOC officials are not only patently false but also out of context.

The NOC spokesperson Binitmani Upadhyaya in an earlier interview to this paper said that while Western and Central Nepal buy their fuel from Bihar and UP, Eastern Nepal which includes cities like Pokhara buys their fuel from the same places like Bhutan, which is Siliguri.

So if Eastern Nepal can buy Petrol and Diesel cheap from the same IOC Depots in Siliguri then it beggars belief that Bhutan has to pay more for the same fuel, from the same depot and from the same company.

The transportation charge between Siliguri and Phuentsholing is already paid for by Bhutan which comes to around Nu 1.5 per liter.

Siliguri is also well connected with the rail system and in fact the closest rail link to Bhutan is at Hashimara which is barely 18 km from Phuentsholing.

The IOC side also hinted that the cost of Oil for Bhutan is higher as the Oil refineries are closer to Nepal.

This is again patently untrue as of the list of 23 major oil refineries in India there is only one in UP and one in Bihar. On the other hand, West Bengal has a major refinery of the IOC called the Haldia Refinery in Kolkata which is one of India’s biggest and equidistant from Eastern Nepal and Bhutan.

In addition to that there are four major oil refineries in Assam of which three at Digboi, Bongaigaon and Guwahati are owned by the IOC and are all much closer to Bhutan than Nepal.  Add to that, Assam produces oil that is sent to mainland India unlike UP and Bihar.

So, if distance and location of refineries is the issue than Bhutan should be getting Oil much cheaper than even Nepal.

On the oil pipeline this paper earlier already reported that in September 2019, India and Nepal started a 63 km oil pipeline from Motihari, Bihar to Amlekgunj, Nepal.

However, this pipeline is only for diesel for the central and western region of Nepal and only brought down the fuel price by INR 2 per liter due to saved transportation cost, and even today a large portion of Nepal’s fuel is still imported by fuel trucks due to storage capacity issues in Nepal.

The differences in prices makes even lesser sense as IOC sells oil to both Nepal and Bhutan using the same formula based on the international commodity prices which is the moving average prices of petrol and diesel in the last fourteen days.

Moving away from the Nu 11 and 12 difference with Nepal a bigger question is why India is selling oil to Bhutan based on the average of international price for petrol and diesel instead of the cost plus model.

The cost plus model would ensure that the costs of IOC or other PSU companies would be covered with some decent profit.

Under this model Bhutan could be charged the price of crude, the price of refining it, transportation, other handling charges and then a profit margin on that and there would still be huge savings for Bhutan.

For example, the Indian Oil Company’s website shows that as of  April the base price of diesel in Delhi inclusive of crude, refining cost, freight, profit etc is INR 55.09 per liter. This is before central and state government taxes in India which Bhutan does not have to pay.

However, Diesel reaches Bhutan at INR 86.9 at the border which is Nu 30 more than the above price.

Even in petrol, the base price in Delhi with freight is as of April is INR 53.54 while Bhutan is currently charged INR 79.72 per liter which is a difference of Nu 26.18.

The oil price issue did not figure in the talks between India’s Minister for External Affairs Dr S Jaishankar and the Foreign Minister Dr Tandi Dorji given the 30-minute limited meeting time, other broad agendas and the launching of around 4 to 5 projects in that meeting. The meeting time with the Prime Minister was even shorter.

This tendency to not raise key issues at this level may show how this problem came to be in the first place, and also how timidity at this level from the Bhutanese side will only ensure that such problems will fester and create much bigger problems in the future than some additional time and honest talking behind closed doors.

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