The immediate projects identified include two petrochemical plants at Hazira and Panipat, two refineries being planned in Paradip, Orissa, and Nagapattinam, Tamil Nadu, and three power projects in Sawli (Gujarat), Panipat and Hazira.

The boards have also approved of a proposal for the two navratnas to bid jointly for blocks under the New Exploration Licensing Policy (NELP). The bidding process is scheduled to kick off next month. Similarly, both IOC and ONGC have also agreed to join hands in exploration activities abroad which would involve working on producing fields/exploration blocks in countries like Russia, Iran and Iraq.

The proposals are now awaiting government okay. This apart, both IOC and ONGC have also also sought approval for nominating directors on each other's boards.

"This is the first step towards ahistoric partnership and the two oil majors will now work on identifying other areas of common interest which will have enormous revenue potential," sources said. While some projects have already been shortlisted, the important point remains that the company concerned has the prerogative to turn down the offer if it is not entirely convinced of its viability.

Hence, task forces from IOC and ONGC will work on examining the pluses of participating in key proposals involving exploration, refining, marketing etc. For instance, if ONGC were to decide that a particular IOC-promoted project does not look very promising, it has the freedom to withdraw. The same would apply to IOC if its own task force is of the opinion that an exploration foray looks too risky and that it makes more sense to drop out.

For the time being, however, the two mega oil companies have reiterated their commitment to work with each other and get set for the challenges of a deregulated oil sector in 2002. The partnership will also ensurethat India can hold its own versus huge global oil majors which have been very keen on getting a foothold here, especially in the more remunerative area of marketing petro-products.

IOC and ONGC have also finalised plans to set up two holding companies -- one to oversee joint operations in India and the other in regions overseas. The white paper outlining details of the proposal has been drafted by a task force and submitted to the government.

The holding companies will oversee vital petro-related activities to be carried out in India and other countries. These will include refining & marketing, exploration & production, petrochemicals, power as also research and other consultancy services. It is but obvious that IOC's interests would lie in exploration & production while ONGC will concentrate on the three key downstream areas.

What is of particular interest in the IOC, ONGC alliance is the understanding reached on the pattern of equity investment in joint projects both here and abroad. It has beendecided that the lead company for the project, be it IOC or ONGC, will hold at least 26 per cent while offering up to 24 per cent to the other. To elaborate, if IOC decides to get into a petrochemicals venture, it will take 26 per cent while offering ONGC up to 24 per cent. Similarly, where ONGC finalises an exploration venture, it will pick up 26 per cent while IOC will be allowed a maximum 24 per cent.

"The arrangement will ensure that the joint venture does not become a government company and, therefore, guarantee greater flexibility in operations," sources said. Significantly, the second partner with the 24 per cent option is not bound to pick a stake and can always reject it if necessary.

Final cross-holding instalments paid
Both IOC and ONGC have paid up their final crossholding instalments to the government for a ten per cent stake in each other's equity. The net outgo for IOC has been in the region of around Rs 2,400 crore and around Rs 1,700 crore in the case of ONGC. Similarly, the twooil majors have cleared the payment schedules for their five per cent stake in the Gas Authority of India. The cross-holding arrangement was mooted as an alternative to the buyback proposal first suggested by the government. However, it is unlikely if the two PSUs will be inclined to go in for a similar exercise this year given the tepid response from investors.