The project has been envisaged to combine two plans being pursued separately by IOC and ONGC in Gujarat. One is the 500mw Sawli power project planned by IOC and Mitsibishi of Japan with stakes of 26 per cent each. The other is the 300mw plant proposed to be set up jointly by ONGC and NTPC in Surat.

IOC and ONGC have already announced their intentions to work together in key petro-related activities both here and abroad. The boards of the two oil public-sector units (PSUs) have also recently cleared a strategic alliance in several projects including power, petrochemicals, and refining.

As per the understanding, the joint ventures for these plans will be non-Government entities where the lead company, be it IOC or ONGC, willtake up at least 26 per cent while offering the other up to 24 per cent. In the event of the PSU concerned refusing the offer, the lead company will have the option of increasing its own stake to 50 per cent.

It is in this context that the two power projects being planned for Gujarat become relevant as the eventual objective is to ensure the participation of both IOC and ONGC, while simultaneously attempting to cut costs. "There is no point duplicating efforts as the idea is to get a firm foothold in Gujarat first," sources said. Talks are yet to take off at a serious level between NTPC, ONGC, and IOC to discuss the prospects of a combined 50 per cent holding, and if they do materialise, it could mark the beginning of the trio working on similar projects in other parts of the country.

For IOC's 500mw Sawli plan, where the Fortune 500 company and Mitsubishi are the co-promoters, Larsen & Toubro has also expressed its interest in picking up a stake in the project. As per their understanding, IOC had offeredONGC the first right of refusal, following which, L&T could be considered.

If IOC, ONGC, and NTPC do agree and set up a plant in Gujarat, it is likely that the balance 50 per cent of the equity could be offered to both Mitsubishi and L&T in the proportion of 26:24.

The sources also indicate that there could be a change in location of the power project if the two plans of IOC and ONGC are combined into one. There is also every likelihood of continuing with either Sawli or Surat and possibly contemplate a capacity of over 500mw. A decision on this change is expected to take some time.

The ONGC board has, in the meantime, given its go-ahead to participate with IOC in the 301mw power project being planned at Panipat. ONGC will pick up 20 per cent in the plan, with IOC and Marubeni of Japan accounting for 26 per cent apiece. The balance is proposed to be offered to financial or strategic investors.

The Sawli power project will use the residual fuel from IOC's nine-million-tonne refinery in Koyali, Gujarat.The plan envisages a debt: equity of 70:30, and is expected to go on stream by 2002.

Power has emerged as a vital area of operations for the oil companies as the previous budget had granted a five-year tax holiday on all projects commissioned after October 1, 1998. This has prompted a host of oil PSUs to draw up plans for entering power in a big way, of which, the two most aggressive have been IOC and ONGC.