The navratna duo has identified Mauritius as a potential area of activity along with some countries in the middle east. The scope of operations could also include rehabilitation efforts in fields which have stopped producing oil or even refineries which need to be put back on track.

IOC and ONGC, at one point, had contemplated integrated oil operations in Mauritius where they would hold 40 per cent each and the balance taken up by a multinational oil company. This was put on hold and IOC has now embarked on a $14-million investment in the country.

Sources say that the move to diversify overseas makes sense given that the opportunities here are quite limited. It is also the only way to give a kickstart to the IOC-ONGC strategic alliance announced early last year. The two had indicated that they would work together in a series of key petro-related operations like exploration, refining, marketing, power, petrochemicals and consultancy services.

Almost nothing has materialised locally and the sole contract abroad involves working on an elusive LNG (liquefied natural gas) project in Iran where the Reliance group and Petronas of Malaysia have already staked their claims in tandem with the National Iranian Oil Company.

It is still a matter of concern that the strategic alliance between IOC and ONGC has virtually come a cropper. According to industry sources, the problems began when the petroleum ministry told ONGC that it was better off confining its interests to exploration at a time when the country needed to increase its crude output with world prices on the rise.

The PSU, in its turn, argued that with deregulation of the oil sector scheduled to happen in 2002, it made more sense to diversify into new areas. ONGC also said that it had a comfortable debt, equity ratio which would enable it to raise funds as and when needed. The fact also remained that the corporation did not think it worth its while to participate in the refinery and power projects of IOC. Thus far, a beginning has only been made in the training and consultancy joint venture which will be incorporated during then next few months. Experts say that it is a matter of concern that a "long-term vision by two giants in the oil sector is yet to see the light of day". The biggest problem lies in the fact that being government-controlled, they are compelled to work with one hand tied behind their backs.

This has only ensured that a potential mega alliance is virtually skating on thin ice.

The objective of the alliance was to swap expertise and diversify into new areas as part of an effort to become an integrated oil company on the lines of global counterparts like Exxon-Mobil, Shell, BP-Amoco and others. To further this goal, IOC and ONGC also entered into a 10-per cent crossholding of equity.

The two companies decided that the lead player in any project would hold at least 26 per cent equity while offering the other up to 24 per cent. This was to ensure that the joint venture would remain a non-government company. In the event of the second company turning down the offer, the lead player would have the prerogative of increasing its stake to 50 per cent while roping in alternative participants both from here and abroad.