Nepal Fuel Shock Triggers Calls to Rethink Ties With India

  • Nepal relies on India for almost all of its oil imports
  • China transport routes blocked since devastating earthquake

Vehicles line up in front of a petrol station in Kathmandu.

Photographer: Anadolu Agency/Getty Images

Growing anger in Nepal’s capital over a crippling fuel shortage is prompting the nation’s leaders to reassess their energy strategy -- and ties with southern neighbor India.

Taxis and buses are lining up for miles at empty petrol stations in Kathmandu, with passengers riding on the roofs of overcrowded buses to get around. Airlines have been forced to reroute flights to ensure they have adequate fuel, throwing Nepal’s tourism-dependent economy into turmoil just months after the country’s worst earthquake in eight decades.

“It really forces us to rethink our economic and strategic policies," Madhukar S.J.B. Rana, a former Nepalese finance minister residing in Kathmandu, said by phone. “We are a landlocked country. This can happen to us anytime."

The crisis began two weeks ago, when Nepal promulgated a new constitution that caused disturbances in the southern plains among groups with close ethnic ties to India that feel under-represented. Nepalese newspapers have accused main trading partner India of conducting an unofficial blockade in response, while India says protesters in Nepal are blocking roads and preventing fuel from reaching the capital.

“If this blockage continues, there’ll be a humanitarian crisis very soon," Finance Minister Ram Sharan Mahat said in a telephone interview on Tuesday. "Gasoline, cooking gas, medical supplies -- there is a shortage of essential goods. You can imagine the turmoil."

Nepal decided to bar private cars including trucks and construction vehicles from refueling to ensure a steady supply for buses, ambulances and taxis, the Kathmandu Post reported on Wednesday, citing Nepal Oil Corporation spokesman Dipak Baral.

“There is no blockade by India, either official or unofficial,” Indian Ministry of External Affairs spokesman Vikas Swarup said in an e-mail.

The Himalayan nation relies on India for 60 percent of its imports, including almost all of its oil, prompting a discussion in Nepal about how to ensure the country’s energy security. Nepal’s limited road links to China through the Himalayas have been blocked since the earthquake in April, which caused an estimated $10 billion of damage in the $19.6 billion economy.

"Nepal is not just landlocked -- we are virtually India-locked," Mahat said, adding that northern routes will take months to restore and handle only about 10 percent of the country’s freight.

"This crisis has taught us there should be more diversification," he said. "But this takes time. It cannot happen overnight."

Historically, Nepal has had far closer political and economic ties with India than China. Recently China has made inroads, and last year it overtook India as Nepal’s biggest foreign investor with plans to fund a $1.6 billion hydropower project -- one of biggest outside investments ever in the country.

17 Days

"This disruption of fuel supplies has been an additional burden for an economy that has been devastated this year," said Rajiv Biswas, Asia-Pacific chief economist for IHS Inc. "Although Nepal needs to import oil and gas supplies, it has abundant hydropower potential if sufficient investment can be mobilized."

Nepal’s mountain-fed rivers have the capacity to generate more than 80 gigawatts of hydroelectricity -- enough for its own needs as well as for about a third of India.

Right now, though, the country is in a desperate state: Chronic blackouts force businesses and homes to rely on diesel-powered generators for electricity. Nepal has petroleum stocks for about 17 days, compared with 270 days in Israel, 240 days in South Korea and 137 days in the U.S., according to the Kathmandu Post.

"If you had reliable power from the grid, a lot of the diesel fuel consumption used to generate power would be available for transportation," said Thomas Richardson, the International Monetary Fund’s country representative for Nepal and India. 

Flights Re-routed

The April temblor had already caused economic growth to slow to 3.4 percent in the fiscal year ended in July, down from 5.5 percent the previous year, the IMF said in a new estimate released last week. It’s still too soon to say if the current disruptions will further affect that outlook, Richardson said.

Dozens of flights to Kathmandu have been affected in recent weeks. Korean Air Lines Co.’s flights from Seoul are stopping in Bangkok to refuel, Malaysia Airlines’ flights from Kuala Lumpur are refueling in Dhaka, Bangladesh, and SilkAir’s flight from Singapore is refueling in Kolkata. China Southern Airlines Co. halted ticketing through Oct. 10 and China Eastern Airlines Corp. is offering free rescheduling or cancellations through Oct. 24, according to a company statement and media reports.

At least 40 people have died in over a month of clashes between protesters and Nepal’s police. India is "deeply concerned" about the violence and has "consistently argued that all sections of Nepal must reach a consensus on the political challenges confronting them," India said in a Sept. 21 statement.

‘Very, Very Angry’

People living in Nepal’s southern plains say the new constitution gives an unfair advantage to those residing in higher elevations. Constituencies in Nepal’s hills and mountains would get 100 seats in the 165-member parliament, with the rest going to the low-lying Terai region that holds the majority of Nepal’s 28 million people, according to the Institute for Defence Studies and Analyses, a New Delhi-based think tank.

Mahat, Nepal’s finance chief, said India hasn’t formally made any demands related to the constitution. But, he added, “they are expecting us to have a dialogue with these dissatisfied groups and to resolve the problem."

“Trade cannot be mixed with an internal political problem," Mahat said, adding that Nepal guaranteed the security of all cargo entering the country.

In Kathmandu, Rana said, many residents are blaming Indian Prime Minister Narendra Modi, who had pledged to improve ties with the region when he took office in May 2014.

“People expected a more enlightened Indian leadership but it hasn’t turned out that way," Rana said. “People are very, very angry."

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