The move comes close on the heels of IOC's decision to acquire 10 per cent equity in Oil and Natural Gas Corporation (ONGC) and another five per cent shares of Gas Authority of India Limited (GAIL).

IOC chairman M A Pathan told PTI that the corporation had submitted a proposal to the petroleum ministry for picking up 26 per cent stake as a strategic partner in EIL. ``I have made my proposal for an in-principle clearance from the government, after which it would go to the IOC board for further deliberations on the various modalities of picking up the stake,'' Pathan said.

Stating that proposal was under consideration, Minister of state for petroleum and natural gas Santosh Kumar Gangwar told PTI that "we are likely to take a final decision only after the budget". The acquisition of government's26 per cent share in EIL would help IOC strengthen its engineering and technological capabilities and also assist its on-going operations as well as new projects, Pathan said.

The disinvestment commission had also suggested that EIL have a strategic alliance partner and also offload its equity to other oil undertakings. The commission in its fifth report had recommended a mix of disinvestment modalities including offering equity upto 10 per cent to other public sector oil companies as also to GAIL, Steel Authority of india Ltd (SAIL) and National Thermal Power Corporation (NTPC), due to EIL's expertise in providing services to these companies.

Meanwhile, EIL sources said, the state-owned engineering company would now have 61.5 per cent stake after divesting its 26 per cent stake to IOC. About 12.5 per cent of the stake in EIL is held by various financial institutions and employees, they said.

The company had reported a turnover of about Rs 350 crore last year and posted a profit after tax of more thanRs 75 crore, the sources added. Asked whether EIL would divest its 61.5 per cent stake to any other oil PSUs like Hindustan Petroleum or Bharat Petroleum, they said nothing had been decided on this front yet.

ONGC and IOC do not plan to go in for further crossholding of equity till the government decides to reduce its stake in these PSUs below the 51 per cent mark.