If everything goes according to plan, the deal with Oman Oil will befinalised in a month and $200 million will be pumped in as equity for theproject. Talks with BPCL have not made much headway ever since EngineersIndia completed its valuation of the Rs 7,400-crore Essar refinery.

The Ruias are apparently of the view that with Oman showing a more positiveresponse, there is no urgent need to hold parallel negotiations with BPCL. Feelers have also been sent to Indian Oil Corporation where there have beenguarantees made on construction time and cost.

Oman Oil has indicated that it will also need to take a 26 per cent stake inthe tankages of Essar Shipping which will be hived off into a new company.This is a crucial part of its plan to participate in the equity of Essar Oilwhere the stake of the Ruias (and associates) will be down to 40 per centfrom 57 per cent. Even after this, there will be scope for either BPCL orIOC to come in as a third partner with a 26 per cent stake.

Essar Oil, it may be recalled, is also considering a demerger of itsexploration & production (E&P) business as part of a major restructuringdrive. PricewaterhouseCoopers is working on the feasibility plan which willinvolve equity participation by an oil company from either here or abroad.Similarly, NM Raiji & Co, the Mumbai-based chartered accountants, areworking on a proposal which will involve the demerger of Essar Shipping'sterminals and tankages.

Sources say BPCL is, at this stage, more inclined towards buying out theCentre's stake in Cochin Refineries and IBP. There has also been someconcern on the cost of the Essar project as well as issues related toenvironment clearance. BPCL officials were unavailable for comment on thematter.

Sources in Delhi say BPCL's apparent lack of interest in the Essar projectstems more from a practical knowledge of the proposal facing severalbureaucratic obstacles. "The PSU is open to the idea of a stake in therefinery and while it is true that there are issues like costs to be sortedout, the bigger problem will be at the government level," they say.

The same will apply to IOC and the objections are likely to follow a patternof excess refining capacity in Gujarat as well as the need to invest in aproject at this stage.

The advantage of an MNC like Oman Oil coming in as strategic ally would sortout the problem of sourcing crude for the refinery. A separate marketingarrangement, experts say, could then be worked out with BPCL which wouldneed the products anyway for supply in the northern region. This is possiblythe only way the Essar Oil tangle can be resolved, they add. As for IOC, theFortune 500 company will need to consider important parameters like the costof the project and the need to go in for further refining capacity inGujarat. The company is already planning to increase capacity of its Koyalirefinery to 18 million tonnes and will have to decide if it makes sense toacquire another 12 million tonnes of Essar Oil.

The other point to be considered is that IOC has a marketing agreement withReliance Petroleum (RPL) to lift half the products from its 27 million tonnerefinery in Jamnagar. A separate joint venture company will be formed after2002 when the oil sector is completely deregulated. It is in this contextthat IOC will need to carefully consider if it needs to participate in theequity of Essar Oil though it has already agreed to market its productsalong with BPCL and HPCL.