The sudden surge of interest by the companies follows the recommendations of the Disinvestment Commission in reducing government holding in IBP from 60 per cent to 26 per cent. With the first phase of deregulation of the petroleum sector having kicked off from April 1, a company like IBP with its 1400-and-odd retail outlets becomes an attractive target for any refining major.

Top sources in the ministry of petroleum and natural gas said that the list of interested candidates could also include some global oil companies.However, they added that it was too early to take a decision at this stage as there were a host of issues which neededlooking into seriously.

The first is that IBP planned a public issue in 1997-98 which would have brought down the centre's stake in the corporation to 51 per cent. The issue involved offloading 37 lakh equity shares, which would have garnered around Rs 45 crore to IBP. The money was intended to fund some joint ventures and expansion programmes. Though the public issue did not take place owing to unfavourable market conditions, sources say the government will first give this priority before implementing the recommendations of the Disinvestment Commission.

The fact that there are a host of interested parties would necessarily call for a transparent bidding mechanism. This, sources say, would call for evolving a suitable formula which is acceptable to all. The government may also want to wait for an opportune time when the IBP scrip, quoting at around Rs 145 on the BSE, is assured of fetching an optimal price.

The tricky part would occur in dealing with private players, both here and abroad, who are keenon a stake in IBP. Strong state-run companies like IOC, BPCL and HPCL are not likely to give in easily and are quite capable of matching the best price if the need arises, sources say. This is because the trade-off would be an additional 5 per cent share which is a substantial gain in a deregulated scenario.

Sources said that the present government at the centre, with its swadeshi approach, may not be inclined to rush with the Disinvestment Commission's suggestions on IBP. "When inordinate delays have occurred with relatively less complicated issues like a GDR offering for IOC, a sellout of IBP will not happen overnight," they added. This could also apply to the Indian Petrochemicals Corporation (IPCL) where the Disinvestment Commission had recommended pruning down the centre's stake to 26 per cent and rope in another partner with 25 per cent.

According to analysts, IBP would make a good takeover target for a multinational seeking entry into product marketing. The company, however, has drawbacks like asmall market share and no pipelines. Also, without its own refinery, IBP has no captive source of product which, analysts say, could have negative implications particularly in the present and near future situation where demand exceeds supply.

Merger with MRL, CRL, could be considered

An alternative to the Disinvestment Commission's recommendation for IBP is its merger with Mangalore Refineries (MRL) and Cochin Refineries (CRL). This, observers say, could be a more pragmatic option as it would mean an alliance between two stand-alone refining companies and a sole marketing entity. A committee headed by the former chief of CRL J Jayaraman has suggested a strategic tie-up between MRL and IOC and of CRL and BPCL. Roping in IBP to either of these wILL help as it would serve to protect the interests of the national oil companies, observers feel. Interestingly, a report by Arthur D Little on the oil industry had mooted a MRL-CRL merger with marketing to be done by IBP.