With IOC's own refining capacity at around 26 million tonnes from eight refineries across the country as compared to HPCL's 10 and BPCL's 6.5, IOC already has a head-start over the competition. And through a quirk of history, it is the only refining-marketing company in the country which has any experience of importing petroleum products. This edge, unfortunately for its rivals, could actually increase over time.

All three of the major marketing companies are in the process of setting up one additional refinery each, expected to be up within the next five years --IOC is setting up the Paradip refinery in Orissa, HPCL is setting up the one in Bhatinda in Punjab, and BPCL the one in Bina in Madhya Pradesh. HPCL will also be expanding capacity of its Vizag refinery as well as its joint sector (with the Aditya Birla group) Mangalore one. IOC will also be expanding the capacity of its existing refineries.

IOC's decisive edge, however, is expected toemanate from the marketing agreement with Reliance Petroleum whose refinery is currently expected to be around 27 to 30 million tonnes, but can even go up to 50 million, if you go by the industry buzz. Even at the current capacity, that means that IOC's share in the total refining capacity in the country, either directly or indirectly, could go up from the existing 40 per cent to between 45 and 50 per cent. As per its agreement with Reliance, IOC will pick up 8 million tonnes of Reliance's products to sell directly through its outlets. The rest which Reliance offers -- apart from its own captive consumption -- is to be sold through a 50:50 joint venture between IOC and Reliance. If, however, IOC and Reliance decide that they want to sell some produce to other companies, this can also be done. Under the agreement, however, IOC will virtually have the first lien on all Reliance's products in the post-decontrol era, after the year 2002. The IOC-Reliance joint venture, for example, will be allowed to get issupplies of various petroleum products only from IOC. This, according to IOC's logic, will prevent Reliance from trying to get into side agreements with any other companies to market its refinery's products. Because if it does, IOC can choke off supplies to the JV and also stop buying the 8 million tonnes of Reliance's products that it has promised to market directly.

Sure, the other marketing companies could always import various petroleum products, but given the transportation charges, import duties and delays at the country's ports -- oil companies today pay close to Rs 1,000 crore per year in demurrages, or delay charges at the country's ports while importing crude oil or products -- it seems apparent that the determining factor is going to be the refineries whose product you control.

And then, for IOC, a couple of months ago, the rosy picture began to appear a little bit less so. First came the Nitish Sengupta report. The Committee, headed by the head of the International Management Institute (IMI),was asked to examine India's post-decontrol oil scenario, to make recommendations on how various companies were to protect their interests. Sengupta's panel did this -- stand-alone refineries such as Cochin and Madras -- were to be handed over to BPCL, to almost triple its current refinery output. Including the Bina refinery, this move would take BPCL's refinery capacity to around 26 million in another five years.

That, from IOC's point of view, was still all right, since it was still heads and shoulders ahead of the competition. But then Sengupta's panel decided not to stick to the script, and recommended that IOC be asked to give up its vast network of oil pipelines across the country, which are currently valued at upwards of Rs 20,000 crore. The reason for this is not too clear, though ostensibly it is to ensure that IOC does not use its ownership as a means to monopolise the pipelines, to prevent other oil companies from using these to deliver crude to their refineries or products from them to theretail outlets or depots. Rightly, or wrongly, IOC felt that the Sengupta recommendation was essentially aimed at cutting it to size. If it could be asked to give up one of its divisions for what it felt was no good reason, IOC fumed, it could be asked to give up one of its refineries or some part of its vast retail network some other day.

Worse was to follow for IOC. Around the same time that the Sengupta panel was finalising its recommendations, the government appeared to be dusting the cobwebs off a year-old Shell-Aramco proposal to enter the Indian market by purchasing an existing refinery. Though rejected once before, the ministry of petroleum this time asked HPCL's chief H. L. Zutshi to elicit the views of other industry players on the proposal. Essentially, the proposal boiled down to HPCL creating a joint venture with Shell-Aramco. As its part of the equity of the proposed joint venture, HPCL was to transfer one or all of its refinery assets to the JV. HPCL was also to give the joint venturecompany the rights to market products through HPCL's existing outlets, though under a new logo.

Though, in the proposal under consideration, HPCL was to retain its original brand, for all practical purposes, HPCL would be subsumed within Shell-Aramco. For Shell-Aramco, the advantages are obvious. Almost immediately, it would get a ready-made distribution network from which to operate from. And while no private parties, Indian or otherwise, are in a position right now to get into marketing immediately, Shell-Aramco would be off to a flying start.

For HPCL, the advantages are also manifold. Shell-Aramco would bring in a war-chest of cash, which could be used to either strengthen HPCL's existing dealer network, to build new refineries, or refurbish and expand its existing ones. Also, given that Shell-Aramco have surplus refining capacity globally, the import option would also be a lot more economical for the new venture. The fact that Shell-Aramco also control very large oil fields could also ensure that theHPCL-combine may have access to cheaper oil.

While the HPCL-Shell-Aramco alliance is still at a very preliminary stage, and the government has still not accepted Sengupta's recommendation to partially dismember IOC, the company's top management is no longer looking looking at the future with equanimity. Life, it seems, may just go awry.