The ministry of finance, it may be recalled, had turned down the recommendations as it felt that a transparent bidding process was a more appropriate solution to the divestment plan. The petroleum ministry was, however, of the opinion that the sale would ensure that Government equity would be in "safe hands" as it merely involved transfer of equity from one PSU to another.

It remains to be seen if cabinet will give its approval to the Sengupta Committee's suggestions. The major stumbling block may not be the finance ministry's objections but the timeframe for such an exercise as elections are around the corner. "There is little hope of an answer coming within the next two months and it only up to the new Government to review the recommendations," say top industry sources.

During this interval, MRL has already firmed up a 10-year marketing pact with BPCL while IOC has executed a similar one with CRL. The grapevine suggests that cabinet will allow this arrangement to continue and only pass the proposal relating to partial sale of IBP to BPCL. The former is also reported to be comfortable with the idea as it would mean teaming up with a strong ally like BPCL to ensure its survival post-deregulation of the oil sector.

The finance ministry had earlier turned down a proposal by the petroleum ministry on sale of 26 per cent of the Centre's stake in Engineers India (EIL) to IOC on the grounds that this again would have to go through a global bidding process.

The petroleum ministry made its recommendations based on a report prepared by the Nitish Sengupta panel which maintained that it made sense for stand-alone refiners like MRL and CRL to be merged with stronger marketing allies. CRL, however, maintained that it could hold its own in a deregulated market especially when it had a five-year marketing agreement with IOC in place.

IBP was of the view that it could strike an alliance with MRL and CRL for its long term survival based on the logic of a marriage of sole refiners and marketeers being the ideal formula. Experts, however, pooh-pooh this theory as IBP has a relatively weak base in the south and cannot cater to the marketing requirements of neither CRL nor MRL which have a combined refining capacity of 17 million tonnes.

Industry observers say that a delay in decision making would ensure that the disinvestment target of Rs 10,000 crore for the current financial will not be met. Progress is being made only in the case of Indian Petrochemicals Corporation where a financial advisor has been appointed to monitor the sale. Here, again, the elections could act as an impediment to timely execution of the plan.

Insight:

Marketing share holds the key

The present proposals for a cross-holding structure raised by the ministry of petroleum would mean that the Government would be able to get less than 1,000 crore at the current market price. Obviously, in the present year, the divestment target cannot be met from oil companies alone.

From the companies point of view, what is to be seen is whether having a long-term contract for marketing is better or a holding of the company's equity is better. Marketing margins would be coming down and so would be the returns to equity. But since marketing margins would continue to be higher than returns on equity (base of equity is very large), the PSU which has a stronger marketing share will gain more.

--Manish Saxena