Reliance Industries [Get Quote], which owns the world's biggest refinery complex, is looking at additional cash flows, tax benefits, continuity of export status and other synergies in its attempt to merge Reliance Petroleum [Get Quote] with itself, after a 54 per cent decline in stock prices.

The biggest benefit for RIL seems to be using additional cash flows generated by RPL which can be used to step up investment and expansion of its oil & gas exploration business.

"RPL will start generating cash. A smart thing is to merge RPL with RIL, which can use the RPL cash flows to fund its expansion,'' an analyst with a local brokerage said.

RPL is expected to report a profit of about Rs 4,500 crore (Rs 45 billion) in 2009-10 while RIL expects to post a profit of more than Rs 19,000 crore (Rs 190 billion) in 2009-10.

Yet another factor motivating the merger may be the continuity of tax benefit accruing from a special economic zone for another five years.

The RIL refinery enjoyed a ten-year tax holiday, sales tax deferment and other tax rebates, all of which ended a couple of years back when it sought an export-oriented unit. But  the Jamnagar refinery is set to lose its EoU status, entailing tax incentives, next month as the term expires.

Additionally RIL will save on transfer pricing on use of KG Basin gas and other related products between the two companies. The company will also save on taxes to be paid arising out of the transfer resulting in savings of about $1-1.5 for every barrel of crude processed, analysts said. The savings will occur at a time when refining margins are under pressure because of a slump in oil prices.

As for RPL, with the completion of the refinery, the cash flow generated will help Reliance Industries in enhancing its investment in exploration and production business, analysts said.

"Overall it seems a good move from Reliance Industries' perspective,'' Deepak Pareek, an analyst with Angel Broking said.

On the basis of the market price of the two companies the swap ratio works out to 17 shares of RPL for every one share of RIL, while if the company opts to swap shares on the basis of book value the swap ratio will be 20:1. Analysts believe that RIL may swap each of its share for every 18 shares of RPL.

For investors of RPL, even though it may be seem to be a losing proposition, in the current market situation, it would make sense for them to convert their holding into a larger company which has a wide variety of businesses rather than invest in a company with a single income stream.