At present, the three divisions within ONGC are exploration, production, and drilling. Finance and human resource development are the two support groups.

The only semblance of marketing that is carried out involves supply of C2 (ethane propane) to the Nagothane unit of the Indian Petrochemicals Corporation.

According to sources, ONGC is "well aware" that there is more money to be made through a straight forward supply mechanism instead of routing profitable products like LPG, crude, kerosene etc through the big three - Indian Oil Corporation (IOC), Bharat Petroleum Corporation and Hindustan Petroleum Corporation.

Of late, the need for direct marketing of its products has also stemmed from the crisis of huge stocks of diesel and furnace oil piling up with the refining companies. "Obviously, they will give top priority to evacuating their products first and then consider picking up ONGC's stocks," sources say. This "second degree" treatment can be prevented once the PSU gets into direct marketing, they add.

ONGC has already received feelers from refining companies like BPCL, HPCL and Cochin Refineries that they would like to source crude directly from the upstream major. The list could grow to include Reliance Petroleum which has only recently commissioned a 27 million tonnes (mt) refinery in Jamnagar, Gujarat. Likewise, Essar Oil has planned a 10.5 mt facility in Vadinar and will explore the option of seeking ONGC crude on a direct supplier basis. At present, a part of the crude produced by ONGC goes directly by pipelines to IOC's Koyali refinery and other facilities. The balance is distributed by the Oil Coordination Committee through its supply plan mechanism (SPM). By the time market-determined pricing takes over in 2002, there will be need for the SPM to continue.

ONGC will stand to gain from direct marketing of crude as it will mean more revenue in a free market. The sweet crude from Bombay High is appropriate for some refineries and they will be long term consumers. By that time, ONGC will have discovered more crude from other sources like deepwater blocks and those awarded under the new exploration licensing policy (Nelp).

The move will of course be a setback of sorts to IOC which had offered to market all products of ONGC from 2002. This would have not only included crude but also kerosene, naphtha and LPG. IOC's offer was a clear indication that the Fortune-500 company was gearing up for the rigours of deregulation which would essentially mean a fiercely competitive environment. The company would, of course, share its marketing margins on sale of these products with ONGC. The natural gas produced by ONGC would continue to be sold by Gas Authority of India Ltd (Gail).

IOC had taken into account that by the time deregulation of the oil sector happened in 2002, it would have built a strong marketing clientele in the form of RPL, Essar Oil, CRL, Bongaigaon Refinery and Petrochemicals etc. The reasoning was simple - the key to survival in a free environment lies on forging strategic alliances and mergers.

However, from ONGC's point of view, direct marketing of its crude and other petro-products would be a far more profitable option. The navratna has already indicated that it is keen on getting into the lucrative arena of marketing where this option can be comfortably exercised.

The petroleum ministry has been categoric that the oil PSU should confine its expertise to exploration & production at a time when the country is in dire need of increasing its crude output. This is the only way by which the import bill can be kept in check.

In its turn, ONGC believes that it must look at new areas like refining & marketing, power and petrochemicals while ensuring that the budgeted outlay for exploration does not suffer. "The corporation will not ignore its basic function and will, in fact, strive to pump in more funds for this activity.

However, the ministry also needs to acknowledge that ONGC must work towards becoming an integrated oil company on the lines of global giants like Shell and Exxon-Mobil," sources say. ONGC believes that this diversification will also mean raking in more revenue in the medium-term. Though it has made a beginning in a new area of consultancy services with IOC through a joint venture, the money involved here is "peanuts" compared to what can be achieved in diversifying into strategic petro-activities.