ONGC's stance goes hand-in-hand with the ongoing efforts of a task force to identify potential areas of cooperation which include exploration and production, refining, power and petrochemicals. Two holding companies are also planned which would individually oversee joint operations both here and abroad.

Top industry sources told The Financial Express that ONGC is wary of putting money in refineries especially at a time when returns are slow in coming. Further, both IOC's refineries planned during the ninth plan and thereafter are coastal-based (Paradip and Nagapattinam) which could leave them slightly vulnerable to the possibilities of product dumping.

This can become a real threat in an era ofmarket-determined pricing which is due to happen four years down the line. If refining margins are going to be affected consequently, the only way ONGC can make up for this is to get into the more lucrative area of marketing. Returns here, experts say, are bound to be considerable in an era of free pricing and this is something which multinational oil companies have been quick to acknowledge.

ONGC, sources say, is also keen to send out a message to its investors that it is justified in making certain investments especially in the context of the flak that followed consequent to the crossholding with IOC. In this case, it makes perfect sense to get into refining if this translates into reaping profits from marketing.

To give a better idea of the scenario in 2002, which could explain ONGC's reservations in refining, most petro-products would be in surplus thanks to the commissioning of the Essar and Reliance refineries. Estimates (which do not include the two IOC projects at Paradip and Nagapattinam) for2002-03 show that there would in fact be a surplus of all products except liqueifed petroleum gas (LPG). Motor spirit (MS) would be in excess by 2.9 million tonnes, superior kerosene oil (SKO), aviation turbine fuel and high speed diesel (HSD) by 8.6 MMT while the shortage for LPG would be barely 0.4 MMT.

However, this overall surplus could come down by 9.5 MMT if there are hiccups in the expansion programmes for Madras Refineries, Cochin Refineries and IOC's Panipat facility. It also factors in probable delays in commissioning the Bina refinery being planned by Bharat Petroleum Corporation and the Oman Oil Company. Even a one per cent change in growth rate could have an impact on volumes to the extent of 2 MMT.

Interestingly, government estimates also show that there would be a marginal surplus in the south (1.5 MMT), west (20.6 MMT), east and northeast (1.2 MMT) while the northern region would have a deficit of 11.8 MMT. This shortage can be comfortably made up by the surplus in the west while the otherthree regions can cater to industry's needs.

The projections show that there would be a longer spread out period for making up returns on investment in refining during which time quicker compensations can be made in marketing. ONGC could, in this case, contemplate arrangements like sharing some of IOC's new retail outlets, depots etc to market products and reap the gains from such sale.

It may be recalled that prior to the time the two PSUs decided to work together in a series of petro-related activities, the ministry of petroleum and natural gas was not in favour of ONGC diversifying into refining. The argument then was that the corporation would do well, instead, to focus on its core competence of exploration and production.

The recent crossholding deal with IOC has changed all that and the two will now embark on an all important exercise of sharing expertise. While the debate on refining will reach a logical end shortly, the other downstream activities open to ONGC would include power andpetrochemicals. Apart from this, the PSUs plan an integrated oil company abroad which would cover the entire gamut of exploration, production, refining and marketing.