The change in ownership will go hand-in-hand with a sale of the government's 59 per cent stake in IBP to IOC. This could pave the way either for a merger between the two companies or in IBP becoming a subsidiary of IOC. The whole process is expected to be completed this fiscal.

Though IOC's overall market share is 55 per cent (taking into account its LPG bottling plants, aviation fuel stations, terminals and depots etc), it has a handicap in the city retail segment where both Hindustan Petroleum Corporation and Bharat Petroleum Corporation are better off relative to their refining capacities. IBP, a stand-alone marketeer, has a "pretty decent" presence in cities and a takeover of its outlets will be a shot in the arm for IOC. It will also ensure a supply channel for five million tonnes of products, which is presently the case, to IBP.

"Both BPCL and HPCL benefited when they were nationalised in the 70s as Shell and Caltex had, by then, left a legacy of a strong urban marketing base. IOC did not have this advantage as it began as a government-owned company and this has been a stumbling block," sources say. Given its huge refining strength of nearly 30 million tonnes, IOC needs a greater retail network than its existing 7,000-and-odd outlets. The reverse is true in the case of BPCL which desperately needs more refining capacity to satiate its vast network of over 4,000 product outlets. This will be rectified once Cabinet approves its acquisition of Cochin Refineries as part of an overall recast proposal.

IOC's keenness to increase its number of retail sites can be gauged by the fact that it is the only PSU that has been very aggressive on setting up jubilee outlets. "The ministry's directive two years ago was the best piece of news to IOC as this it contributed to building up a strong marketing base," experts say. In comparison, neither BPCL nor HPCL has felt a similar urgency to go in for commissioning these jubilee outlets as the present number of over 4,000 apiece is quite adequate.

The thinking within the ministry is that IOC has had a long standing rapport with IBP in the past which can comfortably pave the way for a change in ownership. Existing IBP dealers would also be quite glad to have an IOC banner which is representative of a strong brand. The fact remains that IOC's popular Servo lubricant was initially vended in all IBP outlets.

According to sources, a sale to IOC will equally help IBP's chemicals and engineering divisions which have been under the strain of heavy costs and increasing competition. IOC believes that it can contribute to the health of both units as it has only recently made a foray into petrochemicals where there will be some obvious synergies.

Once Cabinet approval for the sale is obtained, the next step would be to go in for valuation of government holding in IBP. This would logically be done at the average market price, which was followed in the equity cross-holding of IOC both with the Oil and Natural Gas Corporation and Gas Authority of India. Valuation of IBP's assets will be done at the prevailing market price.