Apart from Indian Oil, Bharat Petroleum Corporation is also believed to have approached Madras Refineries in a similar marketing alliance. However, the present thinking is that Indian Oil is best equipped for the job as it has the evacuation infrastructure in place especially when it involves lifting Madras Refineries' base-oil production of 2.5 lakh tonnes.

The fact also remains that Indian Oil has been associated with Madras Refineries for over three decades since the latter was incorporated in 1965. The marketing agreement, when it materialises, will mark a formal culmination of a relationship that has worked well for both state-run firms.

Madras Refineries, it may be recalled, sells administered pricing mechanism (APM) controlled productsfrom its 6.5-million-tonne refinery to Indian Oil.

The product from its 0.5-million-tonne Cauvery basin refinery is sold to IBP, the stand-alone oil marketing company. Madras Refineries directly markets non-APM controlled products like paraffin wax, hexane and linear alkyl benzene feedstock.

"Given this background, Indian Oil is the ideal partner for Madras Refineries and it makes sense for the two to team up," experts say. And though other oil-marketing companies are also interested in an arrangement, they will really not fit the bill as ideally as Indian Oil.

Apart from this, the two oil companies are planning to set up a nine-million-tonne refinery in Nagapattinam, Tamil Nadu, where they will hold 26 per cent each. Petronas of Malaysia is also tipped to be a third partner in the venture though no final confirmation of its participation has been received yet.

The refinery could be accompanied by a petrochemicals complex where other players like the Indian Petrochemicals Corporation are also likelyto pitch in. Petronas is also rumoured to team up for this venture whose feasibility is under review.

Indian Oil has also offered to help out Madras Refineries with its highway-outlet plan which was recently okayed by the ministry of petroleum and natural gas. This has been a shot in the arm for stand-alone refining companies as they will finally get a chance to market their products possibly under their own logo. Indian Oil is believed to have assured complete support and it is probable that as the concept gains strength, the two will work together on other such highway outlets.

It may be recalled that a committee headed by J Jayaraman, former chief of Cochin Refineries, had suggested an alliance between Madras Refineries and Indian Oil as part of a restructuring proposal for stand-alone refiner. This, in the opinion of the panel, could even lead to a merger at a later date if deemed a workable option. The petroleum ministry has recently set up the Nitish Sengupta committee to suggest a suitablerestructuring proposal for the downstream oil sector. The report is expected to be submitted in February and sources say that the panel will go ahead with the MRL-IOC plan but will insist that Cochin Refineries and IBP go to Bharat Petroleum so as to ensure some parity in market share among the big three, the other two being IOC and HPCL.