IOC has offered to buy out 25 per cent in IPCL even while the Centre will retain 26 per cent. In effect, the combined holding will be 51 per cent which would only relegate IPCL to a government-owned company. This would serve no purpose as the Disinvestment Commission had recommended the induction of a strategic partner with a specific purpose of diluting government control in IPCL.

While IOC officials were unavailable for comment on the issue, sources say that the Fortune 500 company could still have its way if it were to bid for a stake of less than 25 per cent. In this case, even with 26 per cent government holding, IPCL will not have the status of a PSU.

However, there have been unconfirmed reports which suggest that the Centre could even consider a complete exit from IPCL ifinduction of the strategic partner results in significant value-addition overall. In that case, IOC would qualify though market reports indicate that Reliance Industries is tipped to be the hottest contender for IPCL.

The fact that IOC is still to make a formal bid could also disqualify it from the race. Warburg Dillon Read, the financial advisor for the IPCL disinvestment process, closed bids precisely a month ago and though the response was relatively tepid, the entire process will have to take its normal course. The government currently holds 59 per cent in IPCL which will be down to 51 per cent on maturity of the $175 million foreign currency convertible bond issue in 2000.

Experts believe that IOC is best equipped to team up with IPCL as a strategic ally as it would cater to the latter's requirement of feedstock. The two have only recently entered into a memorandum of understanding to work jointly in petrochemical and refinery projects both here and abroad. A beginning has already been made inPanipat where IOC has planned a petrochemicals complex while similar plans are on at Nagapattinam in Tamil Nadu. There have also been unconfirmed reports that the two PSUs are exploring the option of setting up a refinery in the middle-east.

IOC, it may also be recalled, has recently agreed to cater to imports of naphtha on behalf of IPCL for its Baroda complex. The two PSUs have entered into a ten year pact for this purpose and observers say this will translate into significant cost savings for IPCL.

"It is a good business deal which clearly indicates that PSUs can work in tandem instead of merely competing with each other," sources say. Prior to this agreement, IPCL would import around 2.4 lakh tonnes of naphtha on its own which, in turn, constituted 40 per cent of its Baroda plant's needs. In the future, this will be increased to 4 lakh tonnes or 70 per cent of the total naphtha requirement of the complex. The greater need will be a fallout of capacity expansion at Baroda and now with IOC stepping intothe picture, experts say IPCL will stand to save over Rs 1,000 per tonne of naphtha imported.

IOC, incidentally, caters to a part of IPCL's naphtha requirements from its own refinery in Koyali. The pact will ensure that IOC also benefits as it can club its own naphtha imports with those of IPCL. "A packaged arrangement makes more sense than piecemeal consignments," sources say and to IPCL, a change in the supply chain is of little relevance so long as it is not disrupted.

In fact, it was more than five years ago that a working group presented a proposal to the ministry of petroleum and natural gas which suggested a strategic alliance between IOC's Koyali refinery and IPCL's Baroda complex. However, there was some resistance to the idea and unconfirmed reports indicated that IOC was not ready to accept it as the Gujarat refinery was "its jewel in the crown".

The same recommendation was revived recently when the issue of finding a strategic partner for IPCL was mooted by the Disinvestment Commission. Ateam of experts again reiterated that it was in the interests of the corporation to seek a tie-up with IOC as supply of feedstock, naphtha, remained the key reason for seeking a strategic tie-up. "It makes sense for IOC to step into the picture instead of roping in a global player," experts aver.