The government may allow Oil and Natural Gas Corporation to bid for the 26 per cent equity on offer in Hindustan Petroleum Corporation Ltd as a compromise formula to break the logjam over oil sector divestment.

With the divestment and petroleum ministers hardening their positions a day before the Cabinet Committee on Divestment meets to finalise the modalities of the sale of the two oil companies, senior  government sources said Prime Minister Atal Bihari Vajpayee would prevail on Divestment Minister Arun Shourie to relent on the issue of ONGC's bid.

Until Thursday evening, the divestment ministry stuck to its position that public sector companies should not be allowed to participate in the government's selloff process even as the ministry of petroleum gave final touches to a proposal to relax the September 7 CCD decision on barring PSUs to allow ONGC to bid for HPCL.

The two ministries are also likely to slug it out on the quantum of equity to be offloaded in Bharat Petroleum Corporation Ltd.

In response to the divestment ministry's proposal to sell 35 per cent government equity in Bharat Petroleum Corporation Ltd in the markets, the petroleum ministry has said that the government should sell just 15 per cent stake to keep its holding in the company at 51 per cent.

The divestment ministry was quick to point out that the markets would not respond favourably if the government kept majority control in BPCL.

"We have seen that our realisations were much lower when we went in for minority selling. In BPCL, we think that the prospective buyers of the government equity would not find the stock attractive if state holding does not fall to below 51 per cent," according to a divestment ministry official.

The divestment ministry has also questioned the logic of such a small public issue in the blue chip oil company after so much brouhaha that saw the oil sector divestment being put on freeze for three months.

A petroleum ministry official, however, said the government should go in for a gradual exit and let the market acquire adequate depth to absorb large doses of stock.

Even the future of the greenfield refineries being implemented by both BPCL and HPCL has become a bone of contention.

The divestment ministry has ruled out any clause to bind the prospective bidder for HPCL to the company's Bhatinda project, saying that the decision must be left on the company's management.