Indian Oil will subsequently offload 10 per cent of the equity bought in Lubrizol India in favour of the US company to effect a 50:50 partnership at a price determined by the Centre. It is not clear at this juncture what the Lubrizol shares will cost Indian Oil.

The Rs 59,000-crore oil refining and marketing company is already committed to put close to Rs 2,300 crore into the Government coffers for a 10 per cent stake in the Oil and Natural Gas Corporation (ONGC). Just as the stake in ONGC gives Indian Oil a stronger foothold in oil exploration, the shareholding in Lubrizol will synergise with its lubricants manufacturing business.

Indian Oil is the largest manufacturer of automotive lubricants in the country. Lubrizol India is thelargest manufacturer of additives, used to blend with base oils to make automotive greases.

The Cabinet Committee on Economic Affairs (CCEA), which recently approved the divestment of the Government's shares in Lubrizol, turned down the other options suggested by the Union petroleum ministry. One option before the Centre was to offload its stake in favour of Indian Oil and allow Lubrizol Corporation to bring in additional equity to bring up its shareholding on a par with the national oil company.

Lubrizol Corporation's has had a long-pending proposal for increasing its stake in Lubrizol India with the intention of integrating the company with its international business. ONGC toyed with the idea of taking over the additives company for some time before the Indian Oil board took a decision "in principle" to buy the Government's stock in it.

Sources say the Government would have to "take a view" on the price of the Lubrizol stock. Lubrizol India has a paid-up equity capital of Rs 19.20 crore, 60 per centof which should cost Rs 11.52 crore at face value. The key shareholder (in a rush to mop up the disinvestment target of Rs 10,000 crore) is unlikely to sell Lubrizol's shares at face value, especially since the additives manufacturer is a "good company."

Lubrizol has two manufacturing units in Maharashtra, along with a research and development unit. It has a sales turnover of close to Rs 400 crore and controls nearly 60 per cent of the additives market at home. Its sole competitor in the additives business in Indian Additives.

Lubrizol India has increased its output, sales and net profit over the years. It earned a profit before tax of Rs 46 crore in 1997-98, up 17.5 per from the previous year.

The company paid a 35 per cent dividend to the Centre in 1996-97, compared to 30 per cent the year before. During 1997-98, Lubrizol India sold 38,465 tonne of chemical additive packages and exported 1,288 tonne of finished chemical additives.