Top sources told The Financial Express that Cochin Refineries, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have already intimated ONGC that they would like to source crude directly from the upstream major.

The list will grow to include Reliance Petroleum which has only recently commissioned a 27 million tonne refinery in Jamnagar, Gujarat. Likewise, Essar Oil has planned a 10.5 million tonne facility in Vadinar and will explore the option of seeking ONGC crude on a direct supplier basis.

At present, a part of the crude produced by ONGC goes directly by pipelines to IOC's Koyali refinery and other facilities. The balance is distributed by the Oil Coordination Committee through its supply plan mechanism (SPM). By the time market-determined pricing takes over in 2002, there will be need for the SPM to continue.

ONGC will stand to gain from direct marketing of crude as it will mean more revenue in a free market. The sweet crude from Bombay High is appropriate for some refineries and they will be long-term consumers. By that time, ONGC will have discovered more crude from other sources like deepwater blocks and those awarded under the NELP (New Exploration Licensing Policy).

The move will, of course, be a setback of sorts to Indian Oil Corporation which had offered to market all products of ONGC from 2002. This would have not only included crude but also kerosene, naphtha and liquefied petroleum gas (LPG). At present, these products are jointly marketed by IOC, BPCL and HPCL.

IOC's offer was a clear indication that the Fortune 500 company was gearing up for the rigours of deregulation which would essentially mean a fiercely competitive environment. The company would, of course, share its maketing margins on sale of these products with ONGC. The natural gas produced by ONGC would continue to be sold by Gas Authority of India (Gail).

IOC had taken into account the fact that by the time deregulation of the oil sector happened in 2002, it would have built a strong marketing clientele in the form of RPL, Essar Oil, CRL, Bongaigaon Refinery and Petrochemicals etc. The reasoning was simple -- the key to survival in a free environment lies on forging strategic alliances and mergers.

However, from ONGC's point of view, direct marketing of its crude would be a far more profitable option. The navratna has already indicated that it is keen on getting into the lucrative arena of marketing where this option can be comfortably exercised.

The petroleum ministry has been categoric that the oil PSU should confine its expertise to exploration & production at a time when the country is in dire need of increasing its crude output. This is the only way by which the import bill can be kept in check. In its turn, ONGC believes that it must look at new areas like refining & marketing, power and petrochemicals while ensuring that the budgeted outlay for exploration does not suffer. "The corporation will not ignore its basic function and will, in fact, strive to pump in more funds for this activity. However, the ministry also needs to acknowledge that ONGC must work towards becoming an integrated oil company on the lines of global giants like Shell and Exxon-Mobil," sources say. ONGC believes that this diversification will also mean raking in more revenue in the medium-term. Though it has made a beginning in a new area of consultancy services with IOC through a joint venture, the money involved here is "peanuts" compared to what can be achieved instrategic petro-activities.