India's biggest state-owned oil explorer has announced its intention to bid for one of the two oil companies up for privatisation in the country's long-planned and much-delayed energy sell-off.

A cabinet rift has delayed plans to privatise stakes in Bharat Petroleum and Hindustan Petroleum, which between them dominate the domestic petrol market.

Now, though, the cabinet's privatisation panel is due to agree a compromise when it meets on the evening of 27 December.

But the revised deal could be further distorted if Oil & Natural Gas Corp (ONGC) continues with plans to bid for Hindustan Petroleum itself.

Nationalism

ONGC told the Sensex stock market in Bombay (also known as Mumbai) that it had approached the oil and gas ministry for permission to bid.

Fernandes is a key opponent of the oil sell off

The ministry is run by Ram Naik, one of the ministers adamantly opposed to selling stakes to foreign companies; Indian newspapers have speculated that he will back ONGC.

The cabinet committee on disinvestment (CCD) will pit Mr Naik against disinvestment minister Arun Shourie.

Defence minister George Fernandes, who believes oil and gas are strategic national resources and should stay that way, is also likely to join in the argument.

Shortfall

The government is desperate to restart the privatisation process, which so far has raised only 50bn rupees (�635m; $1bn) - less than half the 120bn rupee target.

This has made it tough for the government to push through reductions to a budget deficit of 5.35% of India's output.

The compromise agreed early in December was for the government to float 35% of its two-thirds stake in Bharat, while selling a 15% stake in Hindustan to a strategic partner.

Now, though, the Indian media is predicting that the strength of the Hindu right within the BJP means Prime Minister Atal Behari Vajpayee will back Mr Naik, allowing the ONGC bid to go ahead.

But that could damage the rest of the government's privatisation plans by making foreign firms more reluctant to get involved.