Kolkata: The West Bengal government and The Chatterjee Group (TCG)—co-promoters of Haldia Petrochemicals Ltd (HPL)—have agreed to resolve their decade-old spat over ownership and control of the firm, but the country’s banking regulator now holds the key to the deal between them getting funded.

Under pressure from HPL’s lenders, West Bengal has agreed to hand control of the firm to TCG by selling 520 million shares for 1,305 crore, or at 25.10 a share—the same price offered by Indian Oil Corp. Ltd in October last year to acquire a substantial stake in the beleaguered petrochemicals firm.

This values the firm’s 700,000-tonne per annum naphtha cracking facility 125km from Kolkata at around 4,200 crore.

The decision was ratified at the meeting of the state cabinet last week, according to a minister and two key government officials. All of them asked not to be named. Indian Oil, which owns 8.9% in HPL, is no longer interested in buying the state government’s stake in the company, they added.

Because the polymer producer has been defaulting on its own loan obligations for the past two years, lenders need clearance from the Reserve Bank of India (RBI) to make loans to TCG for its proposed purchase of HPL’s shares.

Though TCG is likely going to mortgage other assets as well, RBI’s clearance is mandatory for banks to lend for this purpose, the government official said, adding that TCG has indicated to the state government that it has already approached banks for loans.

TCG refused to comment. Amit Mitra, West Bengal’s finance and commerce minister, also declined to comment.

The state’s deal with Indian Oil last year for sale of its entire 40% stake, or 675 million shares, in HPL couldn’t be concluded because of its outstanding legal dispute with TCG over 155 million shares.

TCG claims it has irrevocable right to acquire these shares under a January 2002 agreement, and the dispute over them is currently under arbitration at an international forum in Paris.

The state government will for now hold on to these 155 million disputed shares, but the proposed sale of its 520 million shares will raise TCG’s stake from 41% to 72%.

In the same cabinet meeting last week, it was also decided that the state government will offer fiscal incentives to HPL in the form of partial waiver of local taxes for 12 years, according to the official cited above. The firm has been getting this incentive from the commencement of production except on motor spirit, which it started producing at a later stage.

The deal between the co-promoters is crucial to rescue HPL, said the head of a consulting firm, asking not to be identified. “TCG must find a way to raise funds and close the deal this time," this person said, referring to previous deals that could not be concluded for TCG’s inability to infuse cash into the operations of HPL.

HPL in 2012-13 made a pre-tax loss of 1,070.75 crore on net revenue of 8,662.75 crore. Its net loss expanded to 960 crore in the year till March 2013 from 746.38 crore in the previous year, largely on account of increase in naphtha prices.

Unless it manages to turn the corner soon, HPL may have to seek creditor protection by referring itself to the Board for Industrial and Financial Reconstruction. In view of HPL’s expanding losses and precarious financial condition, lenders have been pressuring the co-promoters to bury the hatchet.