It is not clear who is really pushing for the joint venture, as HPCL does not appear too keen to extinguish its identity -- which is what the joint venture really amounts to. HPCL, however, is front-ending the discussions in favour of the proposal and, in the industry meeting, HPCL officials argued in favour of it. BPCLofficials, who had argued against the proposal in the first meeting, also spoke in favour of it in this second meeting. The Ministry asked HPCL's chairman H.L. Zutshi to elicit the industry's views on the matter. The government is very keen to get industry to push the joint venture as selling off assets to a foreign firm is certain to be a political hot potato.

Under the original proposal, Shell-Aramco wanted to set up a joint venture with a 50 per cent equity stake with one of the existing Indian players who have a market share of around 20 to 25 per cent. While this suggests either HPCL or Bharat Petroleum (BPCL) could be the partner, over time, the PSU increasingly being discussed as a possible partner is HPCL and not BPCL. This also seems logical, given the fact that the Nitish Sengupta panel on the post-decontrol scenario has recommended that two stand-alone refineries be bought over by BPCL. In that sense, BPCL's interests are taken care of, and the company which will face a tough time in the face ofmarket leader IOC's tie-up with Reliance Petroleum will be HPCL. Monday's meeting, in fact, will discuss the Nitish Sengupta report's recommendations as well on reducing IOC's muscle (detailed in The Indian Express yesterday).

Two alternatives were discussed in this month's meeting: that HPCL/BPCL transfer some of their existing refineries to the proposed joint venture company, as well as some of its retail outlets -- during the first meeting it was suggested that 1,000 outlets be transferred to the joint venture, but the latest proposal is silent about the number of retail outlets to be transferred. The latest proposal also states that the retail outlets are not to be transferred to the joint venture, but that they will be given on rent.

The other proposal, a minor variant of the earlier one, is that just one refinery be handed over to the joint venture. While the two alternatives allow HPCL (and/or BPCL in case it ties up with Shell-Aramco) to retain its (their) individual identity in the marketplace, how this is to be ensured is not clear. It is unlikely, for example, that Shell-Aramco will be interested in rural retail markets, as they are not the really profitable ones. So, for all practical purposes, it seems likely that HPCL (BPCL) will retain their brand name only in smaller towns/rural areas.

The cash that Shell-Aramco will bring in as its share of equity in the proposed joint venture is supposed to be used to set up a new refinery as well as new marketing facilities. Interestingly, however, Aramco had walked out of its tie-up with HPCL just last year for the Bhatinda refinery. It is curious that it should now want to invest in a refinery, more so when there is surplus capacity worldwide. For Shell-Aramco however, the deal is an excellent one as it allows them to get into marketing immediately, something which no international major has been able to do so till now -- even Reliance will not be allowed to go in for direct retail marketing till at least 2002.

The ProposedDeal