Japan looks to Nepal

Japan looks to Nepal
Saisan Co., a distributor of liquefied petroleum gas from Japan has struck a landmark agreement with Nepal to provide LPG to the landlocked nation..

Saisan Co., a distributor of liquefied petroleum gas from Japan has struck a landmark agreement with Nepal to provide LPG to the landlocked nation. Previously, India was the only foreign partner in providing Nepal with its energy fuel needs.

Background

Nepal traces its roots back to ancient civilization. A landlocked country in the Himalayas, the tiny nation shares a border with both India and China. An ancient culture, the nation was closed off from the rest of the world till 1950. Before that the Shah Dynasty had established the Kingdom of Nepal. It also formed an alliance with the British Empire, under its Rana dynasty of premiers. After it ended its isolation with the outside world, Nepal instituted Parliamentary democracy in 1951. In 2008, the Hindu monarchy came to an end after the Nepalese Civil War. Thus, it became a Republic. At the time, it was the oldest Hindu monarchy in the world.

Diplomatic relations between the two countries were established in 1956. Japan has an embassy in Kathmandu and Nepal has an embassy in Tokyo. Japan remains one of the largest aid donors to Nepal. Foreign aid accounts for two-thirds of the development budget in the kingdom. On 2004, Japan revealed that it was writing off a loan of about $200m to Nepal, which was used to fund development projects. The embassy noted that this money could now be diverted towards development projects rather than repaying the debt to Japan.

India still remains one of Nepal’s most important allies. However, the ties between the two nations significantly strained since 2015. In September that year, the Nepali government accused India of imposing an undeclared blockade, preventing vital resources including fuel from entering the land-locked country. This caused an economic and a humanitarian crisis in Nepal. India denied that it had intentionally initiated the blockade. Nepal has since strengthened its ties with China. In 2018, Nepal and India have tried to repair the once-strong relationship between the two nations when Nepal’s Prime Minister KP Oli visited India.

Analysis

India is one of the main suppliers of energy fuel to Nepal. However, fuel supplies from India witnessed temporary disruption in 2015 when protestors blocked the main transit point on the border. Nepal also signed a fuel purchase deal with China, but the route between the nations presents logistic challenges. In 2017, India and Nepal agreed to deepen energy ties by renewing India’s fuel sale deal with the Himalayan country by another five years.

Saisan Co., a distributor of liquefied petroleum gas from Japan has struck an agreement with Nepal to provide LPG. The vendor has now become the first foreign participant outside of players from India to have struck a deal with the landlocked nation.

Nepal is considered a growing market for the energy market. The nation has still not completely recovered from the devastating earthquake that occurred three years ago. For Japan, this is a chance to tap into Nepal’s growing needs and also to expand its businesses across Asia.  In Nepal, firewood remains the main fuel resource. The city gas network is highly negligent and there are only 58 firms that are presently providing LPG to the nation.

Satoki Koike, 53, who headed Saisan’s overseas business division, assumed the post of president at the joint venture in January of this year. He said that in the next few years, Nepal’s demand for LPG could grown up to 500,000 tonnes and thus presents a lot of potential for investors from foreign nations.

Assessment

Our assessment is that it is clear that Nepal is seeking to diversify its geopolitical options and become less reliant on India as its core partner. It has already sought to strengthen ties with Nepal and now it is seeking similarly friendlier ties with Japan. For Japan, this deal represents a new market that is also growing significantly.

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