Further, with IOC's disinvestment programme scheduled to hit the market early next year, the company is keen that investors do not get the wrong message on the ONGC alliance. Likewise, it is as important for ONGC to ensure that its scrip faces no value erosion because of wrong perception on the crossholding arrangement.

The team of six in the committee comprises the chairmen of IOC and ONGC along with their technical and finance directors. The projects that have been identified for equity participation are IOC's 301 mw Panipat plant and the nine-million-tonne east-coast refinery as also ONGC's paraxylene plan in Hazira estimated to cost Rs 2,600 crore.

The two PSUs havealready announced their intentions to work together in five NELP blocks and are as keen to get into upstream activities overseas. There were plans to commission an integrated oil company in Mauritius or Thailand along with a global oil major but this has been put on hold for the present.

Sources said ONGC has decided in-principle to take a 20 per cent stake in the Panipat project and nominal equity in the Rs 8,000 crore Paradip refinery. IOC is expected to subscribe up to 23 per cent in the Hazira paraxylene plan where ONGC will account for 26 per cent. This is, however, subject to the feasibility report now being undertaken by Engineers India. IOC and ONGC recently signed a memorandum of understanding to reaffirm their commitment to working together in key petro-related activities.

The MoU stipulates that the two navratnas will focus on operations abroad while looking at opportunities in India on a case-to-case basis. "The MoU will also send a message to all investors that both IOC and ONGC are seriousabout teaming up in their endeavour to take on competition in a deregulated scenario. This alliance is only a logical fallout of the recent equity crossholding between the two companies," sources said.

The two mega oil companies have reiterated their commitment to work with each other and get set for the challenges of a deregulated oil sector in 2002. The partnership will ensure that India can hold its own versus huge global oil majors which have been very keen on getting a foothold here, especially in the more remunerative area of marketing petro-products.

IOC and ONGC have also finalised plans to set up two holding companies -- one to oversee joint operations in India and the other in regions overseas. The white paper outlining details of the proposal has been drafted by a task force and submitted to the government. The holding companies will oversee vital petro-related activities to be carried out in India and other countries.

These will include refining & marketing, exploration & production,petrochemicals, power as also research and other consultancy services. It is but obvious that IOC's interests would lie in exploration & production while ONGC will concentrate on the three key downstream areas. What is of particular interest in the IOC, ONGC alliance is the understanding reached on the pattern of equity investment in joint projects both here and abroad.

It has been decided that the lead company for the project, be it IOC or ONGC, will hold at least 26 per cent while offering up to 24 per cent to the other. To elaborate, if IOC decides to get into a petrochemicals venture, it will take 26 per cent while offering ONGC up to 24 per cent. Similarly, where ONGC finalises an exploration venture, it will pick up 26 per cent while IOC will be allowed a maximum 24 per cent.

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