Top sources told The Financial Express that the two navratnas are categorical that the book values will not be considered as it will result in a huge outgo while buying out government equity in these stand-alone refineries. They are of the view that it makes more sense to consider a 15-day average price on the markets instead.

Cabinet had recently given its approval to sell the Centre's holding in BRPL and CPCL to IOC and in KRL to IOC. The estimated revenue from such sale was projected to be in the region of Rs 2,000 crore. However, the shares of these refining companies are being traded at far lower prices on the bourses. For instance, KRL has a book value of around Rs 185 (prior to the recently announced 1:1 bonus issue) but a market price of Rs 83. Likewise, CPC's book value is close to Rs 90 but is being traded on the bourses at Rs 30. In the case of BRPL, its market price is a measly Rs 6.50 but the book value a good four times more.

While it is almost certain that the Centre will not sell its equity in these companies at their market value, sources in BPCL and IOC say that it is equally unfair should these shares be offered at their book value. While BPCL desperately needs refining capacity to make up for its retail imbalance, the company is still firm in its stance that coughing up nearly twice the figure for KRL at Rs 70 crore will not reflect a fair value.

In the case of IOC, it will need to fork out close to Rs 1,000 crore for buying out the government's equity in CPCL and BRPL. IOC would not be acquiring any additional strengths through BRPL for which it needs to pay Rs 300 crore. This is a small refinery in the north-east which is bogged down with problems especially in sourcing its crude requirements.

While CPCL is a strategic acquisition, given that IOC is in dire need of a strong presence in the south, the fact remains that a sum of Rs 700 crore actually represents a hugely inflated figure if the market price is taken as a basis for valuation. Naturally, this has caused some concern especially when shareholders have begun to question the wisdom of IOC's investments in, what they perceive as, unrelated activities.

Industry sources have argued that the government should follow the same formula in the crossholding of equity between IOC, ONGC and GAIL in January 1999. At that time, the valuation of shares was based on their preceding 15-day average price on the bourses.

Consequently, IOC paid close to Rs 3,000 crore for buying out 10 per cent of the Centre's equity in ONGC and 5 per cent in GAIL while ONGC coughed up around Rs 2,400 crore for acquiring shares in IOC and GAIL. This was deemed fair and equitable though it is a different matter that the entire crossholding exercise came in for tremendous flak from investors. Oil industry sources argue that, even this time around, the Centre should act reasonably and fix a market-based valuation for the shares of CPC, KRL and BRPL. The truth, however, remains that the government will not accept any figure which is lower than the book value of these shares.