"There would be a delay in implementation of the projects,"said a Petroleum ministry official.

"The government approval (for setting up the refinery) is for a particular joint venture. Any change in the foreign partner would mean seeking the cabinet approval afresh."

India's plan to build new plants through ventures between state-run firms and foreign majors suffered another setback on Monday when Junior petroleum minister Santosh Kumar Gangwar said Royal Dutch/Shell had withdrawn from a proposed refinery with Bharat Petroleum Corp Ltd.

Shell and BPCL had planned to build a 7.0-million-tonne-per-annum (144,000 barrels per day) refinery at Allahabad in the northern state of Uttar Pradesh.

India had originally aimed to raise its annual crude refining capacity to 155.75 million tonnes (3.2 million bpd) by March 2002 from the current 61.55 million (1.26 million bpd).

The government now expects to have an annual capacity of only 118.05 million tonnes, including 33.20 million through expansion of existing refineries, by that target date because no groundwork has been done on slated private plants.

Demand by that year is estimated at 121.3 million tonnes.

Petroleum minister VK Ramamurthy maintains that plans to expand refining capacity will remain unaffected by oil majors' reluctance to partner joint ventures.

"Whether Shell withdraws or Exxon withdraws or any other MNC (multinational corporation) withdraws, our refinery programme will go on," he told a news conference in Madras on Tuesday.

Oman Oil Company, which had joined hands with Hindustan Petroleum Corp for a 6.0-million-tonne (123,000 bpd) unit in the western state of Maharashtra, was the first to drop out, saying it had a funds crunch.

HPCL also has no partner for a 9.0-million-tonnes-per-annum (185,000 bpd) refinery it plans to set up in Bhatinda in the northern state of Punjab after Saudi Aramco dropped out of a partnership pact earlier this year saying the project was not economically viable.

Indian Oil Corp's 9.0-million-tonne refinery, planned for Paradip in Orissa is also in the doldrums as its joint-venture partner, Kuwait Petroleum Corp, is unsure of the project's economic viability.

An IOC official said KPC has promised to give an answer next month after its end-November board meeting.

"Though they (oil majors) cite different reasons for dropping out, their main interest is getting marketing rights for transport fuels," said an analyst at a British investment bank.

"All of them want marketing rights and retail outlets before investing in the refineries," agreed the ministry official.

India's oil sector decontrol blueprint allows private and joint venture firms to have marketing rights for petrol, diesel and aviation fuel if they invest Rs 20 billion ($471.5 million) in the refining sector or produce three million tonnes of crude a year.

"Marketing margins the world over are higher than refining margins. Refining has a high capital cost, with thin margins. Most people are keen to enter marketing," said the analyst.

"Once the Reliance refinery comes up, there will be space for one more refinery in the next three-four years. Including the expansions, there will be a surplus of products and refiners will be forced to export products," said an analyst with a Dutch investment bank.

Reliance Petroleum is building a refinery of 23.0 million tonnes (470,000 bpd) at Jamnagar in Gujarat and Essar Oilis building a 9.0-million-tonne unit at Vadinar in the same state.

Both refineries are expected to be commissioned in 1999 with a smaller capacity at the outset.

On line are a joint-venture refinery of BPCL and Oman Oil at Bina in the central state of Madhya Pradesh and that of an IOC, Madras Refineries Ltd and Malaysia's Petronas consortium at Nagapattinam in the southern state of Tamil Nadu.

The capacity of Bina refinery has been pegged at 6.0 million tonnes and that of Nagapattinam at 9.0 million.