Sale-bound Bharat Petroleum Corporation Ltd (BPCL) may buy out the entire stake of OQ, the erstwhile Oman Oil Company (OOC), in their Madhya Pradesh joint venture, the Bharat Oman Refineries Ltd (BORL).

Government sources said that BORL became a subsidiary of BPCL in March this year and the next step now is to convert it into a 100 per cent subsidiary before government stake in the company is sold to a strategic partner.

For this to happen, it is essential that BPCL buys out OQ's stake in the refinery before its own sale process goes off the ground. This is important as BPCL's valuation may be impacted if a joint venture remains in its fold even after new owners take control.

BPCL and OQ were 50:26 joint venture partners in BORL till March when BPCL converted 13 per cent of its earlier investment made in compulsorily convertible debentures and share warrants of BORL or Bina refinery. This made BORL a subsidiary of BPCL as its stake in the refinery increased to 63 per cent from 50 per cent earlier.

The investment in convertible debenture was equivalent to 24 per cent additional equity stake in BORL. Sources said, if BPCL converts the remaining 11 per cent of convertible debentures to equity, its holding in BORL will increase to 74 per cent given that OQ has not shown interest in increasing stake in BORL by putting in additional equity. This will leave 26 per cent equity with OQ that the company will negotiate to buy to complete 100 per cent acquisition of Bina Refinery.

OQ could not be reached for comments.

The refinery has expanded its capacity from 6 million tonne (mt) per annum to 15 million tonne in two phases. While OOC had agreed to provide funds in the first phase of expansion to 7.8 mt with an investment of Rs 3,500 crore, it was unwilling to participate in the second phase that needed another Rs 30,000 crore over next five to six years.

BORL was formed as an equal joint venture company way back in 1993. However, following inordinate delays in the implementation of the project, OOC froze its investment in the company at Rs 75 crore for a two per cent equity stake. In 2009, OOC paid a 50 per cent premium for a re-entry into the Rs 11,397-crore Bina refinery project, picking up 26 per cent stake.