Oil India was invited to participate in the equity of the Rs 2,600 crore project being promoted by Bharat Petroleum Corporation (32 per cent), IBP (19 per cent) and the government of Assam (10 per cent). The PSU was tipped to pick up 12 per cent but has been dilly-dallying over the proposal for the last two years.

Initially, the think-tank in Oil India was of the view that it made little sense to participate in a refinery with a capacity of merely three million tonnes. The fear was that this size would be hardly adequate in a totally deregulated scenario where ideal refining capacities are nine million tonnes upward.

While this debate was going on, theministry of petroleum and natural gas constituted a committee to examine a plan involving a merger of Oil India with Bongaigaon Refinery and Petrochemicals (BRPL). The findings indicated that this move was not feasible and the proposal to pick a stake in the Numaligarh project was again revived.

While the top brass of the PSU were close to finalising the extent of equity participation, the petroleum ministry voiced its concern on the need for an exploration company to diversify into downstream operations. This was also communicated to the Oil and Natural Gas Corporation (ONGC) which was at that time keen on picking a 15-20 per cent stake in the six million tonne Bina project promoted by BPCL and the Oman Oil Company.

Meanwhile, Icra was commissioned by Oil India to give an opinion on the move to diversify into refining and the recent positive findings seem to indicate that the PSU will now exercise its option. Sources say that Oil India will confine its interest to 10 per cent which translates into anoutgo of Rs 90 crore.

This will be the best piece of news to the promoters, BPCL and IBP, as it would reduce the size of the orginally planned Rs 350 crore public issue. Though shares were planned to be offered at par, the biggest fear was the weak sentiment prevailing in the market which would not attract investors.

Once Oil India subscribes to its 10 per cent portion, the public issue component will be only 29 per cent of the Numaligarh project's equity or Rs 260 crore. Sources say that cost savings to the extent of Rs 100 crore have already been made and the balance Rs 160 crore could now be made up in the form of short term borrowings instead of a public issue.

The Numaligarh refinery was first planned as an IBP-promoted project but BPCL entered the picture when funds were hard to come by. Apart from Oil India, ONGC was also invited to take up a 12 per cent stake in the project but declined the offer as its interests were confined to the Bina project.