"There is no way this will work and MRL would rather focus on its own marketing plan for the highway retail outlets," ministry sources told The Financial Express.

IBP is believed to have forwarded a proposal to the ministry of petroleum and natural gas which involves a strategic tieup with MRL, Cochin Refineries and Bongaigaon Refinery and Petrochemicals. This, in the view of the company, would eventually lead to a merger benefiting the companies concerned.

IBP's proposal follows the recommendations of the Disinvestment Commission that government holding in the PSU be pared to 26 per cent from 60 per cent. It was also suggested that 25 per cent be offered to a strategic partner, a move that generated tremendous enthusiasm among the big three oil companies - IOC, BPCL and HPCL - as also some private playersboth here and abroad.

The logic among the think-tank in IBP was that instead of roping in a single player, in the long run, an alliance between a stand-alone marketing company and sole refiners would be a pragmatic option. This, according to them, was especially relevant as the process of deregulation had already kicked off in the oil sector.

However, MRL's reluctance to go ahead with this proposal can partially be attributed to the petroleum ministry permitting the company to set up its own retail outlets. Though this will be confined only to three units initially, there is every possibility of the oil PSU expanding its network in the future.

According to experts, if IBP shared some of its retail outlets with MRL or CRL, an alliance can still be considered as both companies have been fighting for individual marketing rights for years. Both have been given the opportunity to display their skills in the highway outlet plan even if this is on an extremely small scale.

The other limitation to the IBPproposal is the fact that the petroleum ministry is believed to be seriously considering an alliance between MRL and IOC. A committee headed by J Jayaraman, former chairman and managing director of CRL, worked on two restructuring proposals for MRL and CRL. The team recommended that while IOC could work with MRL, either through a strategic alliance or merger, BPCL could similarly forge an alliance with CRL.

If these recommendations are accepted, the government would have little option than to rope in a strategic partner as per the Disinvestment Commission's proposal. This, however, is unlikely to materialise if the company's proposed public issue hits the market first which would bring government holding down to 51 per cent. It is only after this that the whole process of bringing in an ally with a 25 per cent stake will kick off.

International consultant, Arthur D Little, in its study of the Indian downstream sector had suggested a merger between CRL and MRL and also that BRPL's products could bedirectly marketed by IBP. The study concluded that some amount of restructuring was essential to reduce IOC's dominance in the Indian oil sector.