Sources told The Financial Express that the French oil major has had an initial round of talks with Essar Oil and may actively consider the role of a strategic ally in the refinery. MRPL has, incidentally, zeroed in on Total and Kuwait Petroleum Corporation and will make a final choice during the next few months.

Essar Oil has already offered Oman Oil Company and Bharat Petroleum Corporation a 26 per cent stake in its 12-million-tonne refinery being commissioned in Vadinar two years down the line. The company has also kicked off discussions with Indian Oil Corporation where it has guaranteed construction time and cost for the Rs 7,300-crore project.

"It makes sense for Essar Oil to consider several alternatives in choosing a strategic partner. As things stand,Oman Oil is very keen to take a stake in the refinery and a decision is likely by the end of this year," sources said. Indications are that BPCL is still not too certain if it should participate in the project while IOC is keeping its options open.

Ideally, it would make sense for Oman Oil and either BPCL or IOC to subscribe to the equity of the refinery. While the former will cater to the crude requirements of the refinery, BPCL/IOC with their huge retail network can market the products.

MRPL is equally keen on marketing the products of its refinery, a function that is being carried out by partner, Hindustan Petroleum Corporation. The company has roped in Arthur Andersen to conduct a feasibility report and the eventual objective is to use the expertise and financial muscle of the strategic partner (Total or Kuwait Petroleum) to build a marketing network.

Experts say that the ideal starting point for this plan would be the south keeping in mind the Rs 1,100-crore Mangalore-Bangalore pipeline which willbe commissioned towards the end of 2002. The network will carry products from MRPL's refinery through deficit zones in Karnataka and Andhra Pradesh and this is where marketing support would be appropriate. MRPL and HPCL plan to hold 13 per cent each in the equity of the pipeline with the balance to be taken up by Petronet India and other strategic investors.

MRPL's interest in a foray into marketing stems from the fact that this would be the best way to make up for the disadvantages of being a stand-alone refiner. This also applies to PSUs like Madras Refineries (MRL), Cochin Refineries (CRL) and Bongaigaon Refinery and Petrochemicals (BRPL) whose products are being marketed by BPCL and IOC. This is the reason why the government is keen on a merger of sole refiners and stronger marketing allies, a proposal that is now awaiting Cabinet approval.

Multinational oil companies keen on getting a foothold in India's oil sector have made it clear that they would require access to marketing before contemplatingany investment in refining. Shell and Saudi Aramco, in fact, presented a unique proposal to the petroleum ministry which involved creation of a marketing company whose assets would comprise the retail outlets of a PSU. The plan was rejected following strong opposition from the oil companies.

INSIGHT:

Alliance makes sense
For standalone refineries such as Essar Oil and MRPL, both of which are beset with financial problems, taking in partners is essential. For Essar Oil, it would make a lot of sense to tie up simultaneously with a foreign oil major to supply the crude and the finance, and an oil marketing PSU to ensure a marketing channel. The foreign partner would also be far more willing to take a stake if marketing support from a PSU is available, while a PSU would welcome the financial support which a foreign stakeholder would provide. The synergies are obvious.

-- Sarad Saraf