Though the government claims to have sorted out matters pertaining to the privatisation of oil majors Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd, the issue remains open with differences between the petroleum and divestment ministries persisting.

Friday's meeting of the Cabinet Committee on Disinvestment is expected to be a stormy one.

Petroleum Minister Ram Naik, who has agreed to a strategic sale of HPCL, is determined to find a way to implement the company's proposed 6-million tonne refinery at Bhatinda in Punjab.

HPCL has spent Rs 300 crore (Rs 3 billion) on the project and has acquired 2,000 acres of land for it. It has also completed a large part of the tendering for the project.

Naik, who says the refinery is part of a political promise to Punjab, is open to the idea of a standalone project, but only on the assurance of government funding.

On the other hand, Divestment Minister Arun Shourie is of the view that if the Bhatinda refinery is retained as part of HPCL, no buyer will come forward since completing the refinery will mean an additional cost of around Rs 10,000 crore (Rs 100 billion).

The divestment ministry has also argued that an initial public offer for BPCL will attract a poor price if the public sector oil firm has to commit an investment of Rs 10,000 crore for the Bina refinery.

While the divestment ministry feels that there is no justification for either of the two refineries, the petroleum ministry has justified the Bhatinda refinery on the grounds of a demand-supply gap of around 6 million tonnes in north India during the Tenth Plan.

More so, because the Kandla-Bhatinda pipeline, which carries oil products to the north, is being converted into a crude pipeline by Indian Oil Corporation to serve its Panipat refinery, whose capacity has been increased to 9 million tonnes.

The petroleum ministry has further said that for strategic reasons the northern region needs a refinery and cannot rely on imports alone.

Apart from being near Pakistan, the ministry argues, states like Gujarat are prone to cyclones and, therefore, it makes sense to spread the risk.

According to petroleum ministry sources, even if the existing coastal refineries such as Reliance's Jamnagar refinery are expanded, and a new product pipeline is laid till Bhatinda at a cost of over Rs 3,000 crore (Rs 30 billion), products like liquefied natural gas, naphtha and furnace oil will still have to be transported by road.

In that case, there is an economic justification for the project, according to HPCL officials. The internal rate of return of the Bhatinda project is a healthy 17 per cent.

While the privatisation of HPCL and BPCL was put off three months ago, the recent compromise formula had decided that HPCL would be sold to a strategic buyer, and an initial public offer would be conductedto sell a part of the government's holding in BPCL.