State-run Indian Oil Corporation is unlikely to renew its current agreement with Reliance Industries for lifting 25 per cent of Jamnagar refinery product for sale through its retail chain, beyond March 2004.

"Our refineries are currently under-utilised. We plan to operate them at full capacity from next year (when current product off-take agreement with RIL expires). With couple of refinery expansions being completed next year, we will not need RIL products. Shortfalls, if any, would be met through imports," highly placed company sources said.

RIL, which presently does not have a retail chain of its own, sells 13.1 million tonnes of its products annually to state-run oil retailing firms -- IOC, Bharat Petroleum Corporation and Hindustan Petroleum Corporation. While the contract with BPCL and HPCL ends on March 31, 2004, the agreement with IOC is extendable by five years (till 2009).

The Jamnagar refinery has a capacity of 27 million tonnes.

Sources said the 7.5 million tonnes of RIL product that IOC sells through its retail network can easily be met through product swap agreements with other state refiners -- BPCL, HPCL and Mangalore Refineries and Petrochemicals Ltd.

"We would rather prefer imports over being tied-down to a strict take-or-pay agreement with RIL for product off-take. Imports offer lot of flexibility and are cheaper than domestic off-take," they said, adding IOC was not even inclined to take LPG and Kerosene from RIL.

RIL, which is the country's largest producer of LPG, plans to begin retailing petrol and diesel from mid-2004 but has no direct access to sell subsidised LPG and Kerosene, which are necessarily sold through PSU network.

RIL, which has secured a license to set up 5,849 petrol station, has sent the country's largest refiner fillers for a product-swap agreement beyong March 31, 2004 in certain places, sources said while indicating that even that would depend heavily on the benefits it can give to IOC.

"We don't even want their (RIL) LPG. If we have any shortfall we can obviously import. Entering into a contract with RIL, which necessarily would be on take-or-pay basis, would tie us down as in lean demand period we will have to bleed our refineries by running them at below capacity just because we would have committed lifting a certain quantity," they said.

They, however, did not rule out buying products from RIL on need basis. "If RIL offers us a price better than the imports, we certainly would be interested in taking their products on need basis."

IOC's Barauni refinery expansion was complete while its subsidiary Chennai refinery capacity would be enhanced by 3 million tonnes per annum by next year.

Besides, MRPL is planned to run at full capacity of 9.69 million tonnes instead of the present 6 million tonnes.