To elaborate, once Cabinet gives it go-ahead, the government's stake of 55 per cent in CRL will be sold to BPCL and 51 per cent in MRL to IOC. It will also dispose of 33 per cent of its 59 per cent stake in IBP to BPCL and 26 per cent in EIL to IOC. Similarly, the Centre's holding in Bongaigaon Refinery and Petrochemicals (BRPL) will be sold to IOC.

The sale proceeds, which could amount to around Rs 2,000 crore, will be a vital input to the disinvestment target of Rs 10,000 crore set for the current fiscal. The recast will also ensure the long term survival of the oil PSUs post-deregulation when they would have to face stiff competition in a free market from stronger multinational counterparts.

The proposals, which were drafted by the ministry of petroleum and natural gas some months ago, were rejected by the finance ministry. The latter held that such sale of government equity in PSUs would require a transparent process of bidding which would fetch the best price.

The petroleum ministry maintained that this was the only way to safeguard the interests of the PSUs which would, otherwise, become vulnerable to takeovers from stronger companies both from here and abroad. It was also of the view that such sale only translated into transfer of government equity from one company to another while assuring a good price in the bargain.

Experts say that the coming together of the stand-alone refining and marketing companies with stronger allies is the best bet for the oil sector. For instance, the alliance between IOC and BRPL is important as northeast crude for BRPL is unlikely after the commissioning of the Numaligarh refinery. In this context, IOC's Haldia-Barauni-BRPL pipeline would become the lifeline for crude inputs to BRPL apart from the fact that the Fortune 500 company has a market share of over 90 per cent in the northeast.

As for the CRL-BPCL "marriage", observers say that there would not only be economies of scale but synergies in crude procurement. Customers would benefit from the saving on turnover tax. BPCL's terminal at Kochi is also an ideal backup storage to CRL. The two PSUs, it may also be mentioned, are joint equity holders in the Rs 535 crore Cochin-Karur pipeline being constructed by Petronet India. Significantly, CRL is vital to BPCL which desperately needs extra refining capacity to be able to feed its vast network of over 4,500 retail outlets.

IBP and BPCL already have an understanding in the form of a product assistance agreement which was finalised recently. The companies are also the main promoters of the three million tonne Numaligarh refinery. The alliance with BPCL will ensure that any exposure to volatility due to absence of a refinery will not erode IBP's competitiveness.

Sale of government equity in MRL to IOC will now mean that the marketing agreement between BPCL and MRL may not hold good any longer. This would also apply to the existing pact between CRL and IOC as BPCL would now step into the picture. As for Engineers India, IOC believes that the expertise of the EPC (engineering, construction and procurement) PSU would be of great help to its own plans for the future.

This restructuring, observers caution, should not result in a loss of identity for either CRL, MRL, BRPL, EIL or IBP. They recommend that these PSUs be offered shares in either BPCL or IOC while nominating their representatives on the boards of the two navratnas. Eventually, all the entities would work together towards a common goal which is building a very strong base in the Indian oil sector.