"The Nagapattinam refinery has been planned as an expansion of CBR and there is no question of going ahead if this cannot be worked out," sources said. The facility is incidentally that of Madras Refineries which has another refinery with a capacity of 6.5 million tonnes in Manali near Chennai.

IOC is also categoric that it will not scout for an alternative location for the project as this would be a time-consuming exercise. The Fortune 500 company will then exercise the option of picking a 26 per cent stake in Nagarjuna Oil's six million tonne refinery in Cuddalore (which is very close to Nagapattinam) scheduled to be commissioned in 2001-02.

MRL has been sending feelers that it is quite lukewarm to the idea of partnering IOC in the Nagapattinam project. The PSU is already working on expanding its Manali refinery to 9.5 million tonnes and is of the view that this is enough for the moment. The fact that there could be a surplus of products in the south is also prompting MRL to think twice about Nagapattinam, sources say.

At one point, IOC had suggested that MRL evaluate the assets of CBR and infuse that as equity to the new expanded project. Current estimates are that this will work out to Rs 200-300 crore which would roughly translate as a 10 per cent stake for the Rs 8,000-crore refinery (based on a 3:1 debt, equity ratio).

MRL, incidentally, has planned a jetty for the CBR but IOC believes this is a futile investment in the context of the Nagapattinam refinery. "The CBR is a mere 0.5 million tonnes but this project is a whopping nine million tonnes where a jetty would be of little use," sources say.

The revised thinking now involves putting up a single buoy mechanism (SBM) which can handle crude imports at Nagapattinam. Interestingly, IBP is reported to be equally keen on taking a stake in the original jetty plan as it markets the products of MRL's CBR.

Petronas of Malaysia and Marubeni of Japan are reportedly in the race for picking up a 26 per cent stake in the Nagapattinam refinery while a portion of the equity will be offered to the Oil and Natural Gas Corporation. The balance will be offered to the public and financial institutions.

The Nagapattinam project is crucial to IOC as it would mark its foray into the south, a region where its marketing advantage is not as strong as it is in the north. This explains why the Fortune 500 company has been in such a tearing hurry to have formal marketing agreements tied up with both MRL and Cochin Refineries.