The company may also consider a technical tieup for this group which has been facing the strain of high labour costs and intense competition. While IBP officials were unavailable for comment on the issue, sources in government circles confirmed that work in this direction has already begun.

The chemicals business is one the three key groups within IBP, the other two being petroleum and engineering. The need for restructuring has also emanated from the fact that ownership of the PSU could change hands during the current financial if the government's disinvestment agenda is on schedule.

"A final decision on the recast of the chemicals business will be taken by the end of this year. IBP believes that there is no point persisting with an activity where returns are just not assured. Further, other players have been able to keep their costs down as they use far superior technology," sources said. The company has acknowledged that chemicals is not its main business and that it makes more sense to focus on its core activity of petro trade.

Efforts on the recast exercise are expected to kick off soon through a 60 day voluntary retirement scheme (VRS) which will see a significant reduction in staff. IBP has also shifted part of its manufacturing facilities for explosives from Manesar in Haryana to Korba, Madhya Pradesh.

The Manesar unit houses the explosives accessories plant to make PETN (pentaerythriotol tetra nitrate), detonating fuses and cast boosters. A part of this operation will now move to Korba with a view to reducing operating losses. The workforce remaining after the VRS will be absorbed by IBP's petroleum business.

IBP's annual report for 1998-99 states that as regards the chemicals business, "the performance is having an adverse impact on the company's profitability since the market is not willing to pay for the quality products being offered. Efforts in this direction are being made for an appropriate quality-related pricing system".

As part of its endeavour to focus on marketing, IBP has written to the ministry of petroleum and natural gas that it wants a quick exit from the Rs 2,600 crore Numaligarh refinery, Assam, where it has a 19 per cent stake valued at Rs 173 crore. IBP has stated that this portion could be sold to partner Bharat Petroleum Corporation which holds 32 per cent in the project and has indicated its interest in hiking this further to 51 per cent.

Observers believe that the Centre should act quickly and get on with the job of selling its entire stake in IBP to a stronger ally be it BPCL, HPCL or IOC. All the three companies have indicated that they would like to take over IBP as it would supplement their marketing endeavours in a fiercely competitive environment.

Private players like Reliance Petroleum would also benefit if they bought out IBP as there would be a ready retail base for the products of its 27 million tonne refinery in Jamnagar. IBP has 1,500-and-odd product outlets all over the country of which nearly 50 per cent are located in the north. This is an attractive proposition as this region is among the largest consumers of petro-products.

For the last two years, IBP has been going through hard times with the Centre busy trying to find a solution to the problem of stand-alone refining and marketing companies. This delay has compelled IBP to put off its public issue which would have reduced government holding in the company from 59 per cent to 51 per cent. IBP subsequently sought shareholder approval to go in for a Rs 382 crore rights issue which would have logically given the Centre an exit option. This again had to be put on hold because talks began doing the rounds that the company would be merged with BPCL as part of the Nitish Sengupta committee's recommendations.