Ministry sources said that IPCL will either be asked to pick up an equity in the refinery or be an active partner for any allied activity like petrochemicals. While MRL and IOC will hold 26 per cent apiece in the equity of the Rs 7,600 crore project, Petronas of Malaysia has also been tipped to pick up a stake.

The company has, however, not confirmed its participation and sources say that it is unlikely as most world oil companies are keen on getting a foothold in marketing petro-products which is more remunerative than just refining. IOC chairman MA Pathan had recently told reporters here that Mobil was also being considered as a third party for the project.

It islikely that IPCL will be offered a stake in the Nagapattinam refinery, a move that makes sense as the petrochemicals major has been talking of getting a foothold in refineries for a while now. IPCL's reasoning was that this will help it access feedstock like naphtha for its own operations. The PSU, at one point, was keen on taking a marginal stake in IOC's Paradip refinery planned with Kuwait Petroleum Corporation and also Bharat Petroleum's Bina project where the foreign partner is the Oman Oil Company.

The biggest obstacle here has, however, been the location of these refineries as it will make more sense for IPCL to consider a project in the western region. "For sheer access, the corporation will benefit if it thinks of a refinery situated close to its facilities in Baroda and Nagothane," analysts said.

The western belt is already choked with projects right from Mangalore Refinery & Petrochemicals, Reliance Petroleum, Essar Oil and two refineries of BPCL and Hindustan Petroleum in Mumbai. This makes itdifficult and impractical to consider commissioning new refineries here.

The other option for the Nagapattinam project is a petrochemicals complex where IPCL's expertise could be put to good use. Talks are already on with IOC for a similar plan in Panipat where the latter has planned a 9-million-tonne refinery. An expert team from IPCL is studying the the proposal's feasibility and once a decision is taken, both companies will hold equity equally in the project.

Experts say diversifying into petrochemicals makes sense so long as the right choices are made. For instance, paraxylene may not be a very good idea now given the depressed state of prices the world over. This, in fact, has prompted both BPCL and the Oil and Natural Gas Corporation to think twice about their own plans for paraxylene in Hazira.

"Paraxylene will not work as it would call for a capacity of around 2,50,000 tonnes and an investment of at least Rs 1,000 crore," analysts say. The better alternative, according to them, would be gettinginto linear alkyl benzene and rubber derivatives like butyl rubber.

IPCL is primarily into polymers, which account for about 70 per cent of its turnover. Fibres and intermediates account for 14 per cent of total sales, while the balance is taken up by chemicals.

Long-term ties planned

Both IOC and IPCL are believed to be keen on working together for a host of projects. A beginning has already been made in planning a foray into petrochemicals at Panipat and Nagapattinam could also work if everything goes according to the plan. Sources confirmed that a high-level meeting has been proposed between the top brass of the two corporations to identify areas of common interest which would encompass refining, petrochemicals and, possibly, power. This coming together of two giants is a clear indication that IOC is gearing up for 2002, the year the oil sector will be completely deregulated and players with diversified interests will be more likely to hold their own.