A day ahead of a crucial meeting of the Cabinet Committee on Divestment, Defence Minister George Fernandes said he favoured public sector units like Oil and Natural Gas Corporation to be allowed to bid for oil company Hindustan Petroleum Corporation, a view that the divestment ministry opposes.

Asked about the reported move of the divestment ministry to keep PSUs at bay from the divestment of HPCL and BPCL (Bharat Petroleum Corporation), Fernandes told PTI: "The understanding is that PSUs can also bid for oil companies."

He answered in the affirmative when queried if the understanding was reached at the informal meeting held by Prime Minister Atal Bihari Vajpayee with senior Cabinet colleagues on December 5 to resolve the imbroglio over divestment in the oil PSUs.

"There is no harm in it (PSU bidding for other PSU) if a company is in position to pay the price (for government equity put on the block)," Fernandes said.

On the other hand, divestment ministry is believed to have suggested, in its note circulated ahead of Friday's CCD meet, to keep out PSUs from the divestment process of HPCL.

Fernandes' position is expected to help Petroleum Minister Ram Naik who is understood to be making a case for allowing ONGC to bid for HPCL, where the government may offer 34 per cent equity to a strategic partner.

Emphasising that there was no harm if PSUs buyout state-owned sister firms through the government's divestment process, Fernandes said: "Your assets remain where it is, workforce remains where it is, management remains where it is and above all you receive the price fixed for the assets and therefore get liquidity, which will be used to create new infrastructure."

The objective of divestment policy is to raise resources for investment in new infrastructure like national highways, rural connectivity, power generation and for social welfare activities like hospitals, school and educational institutions, he said.

However, Fernandes was of the view that divestments process should not result in the creation of private monopolies.

"(In) any area of economic activity, monopoly will be the means to loot the consumers," he said when asked if monopoly was a threat only in retail sector and not manufacturing as had been the view of the divestment ministry.