Petroleum Minister Ram Naik is understood to have turned down Divestment Minister Arun Shourie's request for extending nodal agency status for crude oil transportation to Shipping Corporation of India after its privatisation.

Turning down Shourie's February 6 plea seeking nodal agency status of SCI for transportation of crude oil for a period of two years after privatisation, Naik said such a move was not possible after deregulation of oil sector, highly placed sources said in New Delhi.

Naik pointed out to the last policy for ocean transportation of cargo, issued on November 15, 2001, that did not provide nodal status to SCI.

After dismantling of administered pricing mechanism, "public sector oil companies need to reduce their costs, wherever they can, and therefore it may not be possible now to continue the nodal agency status to SCI which was agreed to in a protected regime," Naik wrote to Shourie last week.

"Government has since taken a decision to divest its equity in Hindustan Petroleum Corporation Ltd to a strategic investor and in Bharat Petroleum Corporation Ltd to the public. These two companies will no longer remain public sector units and when the process is completed. It will not be possible for government to impose any preconditions on commercial decisions of these companies," he further said.

Naik said after dismantling of APM, public sector oil firms do not enjoy any protection such as an assured market.

"With private and joint venture oil companies having joined oil refining and marketing rights of retail products been granted to new entrants, the public sector oil companies now have to perform in the de-regulated scenario."

To Shourie's suggestion of public sector oil companies extending purchase preference to SCI after its divestment, the petroleum minister said such decisions would be based on least cost option/commercial considerations and SCI would need to participate in the tenders for crude transportation, sources said.

"The cabinet has extended the purchase preference policy up to March 31, 2004 and the benefits under purchase preference can be extended only up to this date," he said.

Naik further stated that imports of crude oil has been decanalised and "as and when Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited are privatised, they would be under no obligation to offer purchase preference to SCI, unless the successful bidders agree to the same."

Only two firms including Essar Shipping are left in race for buying government's 51 per cent stake in SCI. Transaction documents for the SCI sale have been frozen and government is to invite price bids shortly.