The brainwave is a result of the recent crossholding deal between Indian Oil Corporation and Oil and Natural Gas Corporation which would pave the way for a strong integrated oil company. However, the apprehension in ministry circles is that the relatively small Oil India could suffer as a result.

"ONGC, in any case, is the leader in exploration and production and now IOC will emerge as a strong alternative after the crossholding arrangement," sources said. This could render Oil India's role relatively insignificant and, hence, the need to think of an alliance with a strong refining company.

HPCL has been shortlisted as a probable candidate for the purpose of synergy as it has only recently announced its intention to get into exploration through a new holding company, Prize Petroleum.In the opinion of experts, the alliance with EIL and Oil India could also include a multinational oil company, possibly Exxon which is HPCL's partner for the Punjab refinery.

"The eventual objective is to ensure that there is a strong presence in the northeast which is rich in reserves and needs to be carefully nurtured," sources said. It is more than likely that the government would consider make the new company's headquarters in this region. The present thinking is to kick off a strategic alliance which could possibly lead to an equity swap in the future.

Both EIL and Oil India are over 95 per cent owned by the government of India. EIL is a leading engineering and consultancy company which has been serving the process industry including refineries, petrochemicals, oil & gas processing projects, pipelines, offshore platforms etc. There is, therefore, perfect synergy having the PSU in this alliance, experts reckon.

It may be recalled that the petroleum ministry has set up a committee headed by NitishSengupta of the Oil Coordination Committee to suggest a suitable restructuring proposal for the downstream sector. The exercise was largely meant to help out IBP, the stand-alone marketing company, as also the three sole refiners -- Madras Refineries (MRL), Cochin Refineries (CRL) and Bongaigaon Refinery and Petrochemicals (BRPL) -- in a deregulated scenario.

Thus far, the indications are that the panel has been focusing on tieups of these companies with either IOC or Bharat Petroleum Corporation (BPCL). It is also, reportedly, of the view that HPCL is well off in its present structure of three refineries (Mumbai, Vizag and Mangalore) with another scheduled to be commissioned in Punjab and over 4,000 retail outlets. The centre, however, thinks that both Oil India and EIL should go to HPCL so that there is a sense of fairness and equality.

"The current thinking in the petroleum ministry is that MRL and BRPL should go to IOC while CRL and IBP are better off with BPCL," sources said. The anxiety on thefuture of Oil India is a more recent development following the new coming together of IOC and ONGC, they add.

It may be recalled that the Bijor Barua committee was set up by the ministry nearly two years ago to look into a possible merger between Oil India and BRPL as part of a restructuring effort in the northeast. The findings seemed to indicate that this was not a feasible option and the proposal died a quiet death.

Bharat Petroleum a better match: Sengupta panel

There is a twist to the Oil India saga with the Nitish Sengupta committee, reportedly, of the view that BPCL would be a better choice for the upstream PSU. The reasoning is that both companies have similar cultural backgrounds (Burmah Shell and Burmah Oil Company) which would help them work well together.

The other factor in BPCL's favour is that it is the main promoter of the three-million-tonne Numaligarh refinery being shortly commissioned in Assam where the crude supply will be catered to by Oil India. However, if the centredecides to persist with HPCL, there is every likelihood of the Numaligarh project being part of the alliance being conceived which would include EIL, Oil India and a multinational oil company. In this case, BPCL would certainly seek an exit option from the Numaligarh refinery in which it has a 32 per cent stake and focus on the south with possibly CRL and MRL.