Strategic status for the state-run oil firms will make it compulsory for the government to hold a majority stake (51 per cent or more) in them, and keep them out of the ambit of privatisation.

Such a ban does not apply to firms in non-strategic sectors.

"We have said that it would be appropriate to confer strategic status to only flagship Indian Oil Corp and Oil and Natural Gas Corp," the department official, who did not want to be identified, told Reuters.

India's cabinet committee on disinvestment is expected to decide on the issue of strategic status and privatisation of state-run oil firms on June 23.

IOC is the market leader in refining and product marketing while ONGC is the largest exploration and crude producer.

The official said DoD had suggested sale of government shares in three oil firms in fiscal 2000-01 (April-March).

"The department's view is that strategic status for the entire sector would not be feasible as the government is committed to lifting control over the sector starting April 2002," the official said.

It has said that the existing private sector refiners, who will be allowed to market products from 2002, will pose a problem in restricting the sector exclusively for state-run firms.

Private sector entry is not allowed in strategic sectors such as defence and allied equipment, railways, and atomic energy.

The department has shortlisted IOC, IBP & Co and Hindustan Petroleum Corp for share sale during the current fiscal year.

It has said the long-delayed sale of 10 per cent government share in IOC be conducted this year. "It has also suggested sale of 10 per cent each in the next two years to bring down government holding to 52.03 per cent from current 82.03 per cent," the official said.

The DoD has said that the government must reduce its equity holding to 26 per cent in IBP and HPCL, and not wait for the restructuring of oil firms as it would not impact either of them.

India plans to consolidate smaller "stand-alone" oil firms with bigger ones as it feels that the small firms would find it difficult to compete once it lifts control in 2002.

It plans to make Madras Refineries Ltd and Bongaigaon Refinery and Petrochemicals Ltd subsidiaries of IOC, and Cochin Refineries Ltd a subsidiary of Bharat Petroleum Corp.

The DoD has said the share sale be done soon because IBP and HPCL shares are fast losing value as the dismantling deadline draws near.

The government holds 51.06 per cent share in HPCL, a refining and marketing firm, and 59.59 per cent in IBP, a stand-alone marketing firm.

-- (Reuters)