The Sengupta committee was recently constituted by the ministry of petroleum and natural gas to recommend a suitable recast proposal of the downstream oil sector. In its presentation held recently, IBP formulated a model for itself which involves formation of a holding company and different subsidiaries.

The subsidiaries will be Bharat Petroleum Corporation, IBP, Madras Refineries (MRL), Cochin Refineries (CRL) and Numaligarh Refinery with the holding company being a conglomerate of all the five. It will have a non-executive chairman, managing director with executive powers as also representatives on the board from different oil companies.

"The model is akin to SAIL which, as the main holding company, has different segments like Bokaro Steel Plant, Durgapur, Bhilai and others. Similarly, this is thebest bet for IBP in a deregulated scenario," sources said. According to them, this could even pave the way for a merger in the future if the need so arises. The main point here is that it will be the ideal solution to a suitable alliance for the downstream petroleum industry.

The Sengupta panel has already seen presentations made by BPCL and HPCL recently and now plans to cover Bongaigaon Refinery and Petrochemicals (BRPL) and Indian Oil Corporation in January. The final report is expected to be submitted by the end of February.

Significantly, IBP has reiterated that it is keen on going ahead with BPCL, an indication of things to come between the two companies. Cochin Refineries, which recently entered into a marketing tieup with Indian Oil, makes sense as it would give the duo enough product for their retail outlets. Madras Refineries, likewise, is a logical inclusion though it was originally envisaged for Indian Oil. The revised thinking in the committee is that the Fortune 500 company will have morethan adequate product after its recent tieups with Reliance Petroleum and Essar Oil.

It may be recalled that the Disinvestment Commission had suggested offloading 33 per cent of the government's stake in IBP (now 59 per cent) to a strategic partner. The IBP top brass, instead, suggested a proposal suggesting an alliance, leading to a future merger, with MRL, CRL and BRPL. The logic was that it made sense for a stand-alone marketing company to team up with sole refiners.

Experts, however, did not buy the argument as IBP, for one thing, does not have a strong presence in the south to market both MRL and CRL's products. The question of a merger also does not arise thanks to its relatively low equity base of Rs 22 crore. Two committees, in the past, which worked on restructuring proposals of MRL and CRL were of the view that the best partners for them were IOC and BPCL respectively.

"However, today, it makes more sense for even Madras Refineries to go hand in hand with Bharat Petroleum as also CochinRefineries," experts say. And with IBP part of the quartet, it will translate into a partnership than can survive the ups and downs of deregulation four years from now.

The logic is not difficult to see. Bharat Petroleum has only one refinery in Mumbai with a capacity of six million tonnes. However, it has a formidable marketing network of around 4,500 retail outlets and, among the three PSUs, it can rightfully boast of the strongest retail arm spread evenly across the country. Hence, it would make sense for both MRL and CRL, as also the three-million-tonne Numaligarh Refinery, to have their products vended by BPCL and IBP.

No changes are envisaged in the case of Hindustan Petroleum which is already in a comfortable position with sufficient refining capacity at Mumbai, Vizag and Mangalore with a fourth project planned in Punjab. HPCL also has over 4,500 retail outlets with adequate product supply.