Although the move is aimed at boosting efficiency, top executives of the companies said it would not result in the shutdown of any facilities, despite chronic overcapacity now plaguing the Japanese refining industry.

``Our combined refineries will be operated by one company, enhancing efficiency in various aspects such as crude oil procurement and product distribution, so we are not planning any integration of facilities,'' Tonen President Tamehiko Tamahori told a news conference. Tonen's 501,000 (bpd) refining capacity includes wholly-owned subsidiary Kygnus Sekiyu Seisei's 80,000 bpd refinery, which some have considered a possible target for closure due to its small scale. But Tamahori said the plant played a key role with Tonen's own 255,000-bpd plant in the same complex near Tokyo, Japan's largest oil product-consuming area. Industry sources and analysts have also said refineries at Tonen and General Sekiyu are relatively efficient and have been running at high operating rates with little room to cut, while rival Japanese refineries have scaled back output in an effort to reduce supplies and boost depressed prices.

Tonen's capacity, combined with the General Sekiyu group's256,000 bpd, will account for 14 per cent of total Japanese capacity, still lagging the Nippon Mitsubishi Oil Corp group's 25.2 per cent but overtaking the number-two Idemitsu Kosan group, which plans to cut capacity in April. Tonen, General Sekiyu and two other Exxon Mobile affiliates in January mapped out a general reorganisation plan that would integrate marketing and administration operations at two new companies, while signing mutual service agreements for refining and distribution.

The moves are bound to turn up the heat on cost-cutting competition in Japan's ailing refinery industry, hit in recent years by deregulation and a sluggish economy that has made it hard to raise oil product prices. ``I don't think the merger itself will be an immediate threat, but Exxon Mobil's strong cost-slashing power should be closely watched,'' said a top official at a rival Japanese oil company.