Kolkata: The spat between the co-promoters of Haldia Petrochemicals Ltd (HPL) over control and ownership of the beleaguered firm is far from over though the West Bengal government struck a deal late last week to sell its stake to The Chatterjee Group (TCG) for an estimated 1,300 crore.

TCG has set two challenging conditions for paying 25.10 a share for HPL’s shares—the same price offered by Indian Oil Corp. Ltd (IOC) almost a year ago—and it has been agreed between them that unless the state government fulfils them, TCG will not pay that price.

TCG, which co-founded HPL, wants the state to negotiate with the Centre for waiver of a 1,200 crore tax demand that has recently arisen from HPL’s inability to fulfil its export obligations, according to state government officials who did not want to be identified.

TCG also wants the current management to demonstrate that the plant, which is not in operation for want of working capital, can be sustainably run at its installed capacity, the officials added.

The state government has been running HPL since Partha Bhattacharyya stepped down as managing director in June 2012.

“Both the conditions are major red herrings," said one of the officials cited above.

West Bengal’s minister for finance and commerce and industries Amit Mitra refused to comment.

Principal secretary in the industries department C.M. Bachhawat did not answer phone calls or reply to text messages. TCG, too, declined to comment.

The tax liability has arisen from a customs duty waiver HPL has enjoyed over several years on its naphtha imports. HPL failed to achieve the polymer export target that it had committed to claim the waiver, resulting in the customs department now demanding 1,200 crore in unpaid duties, interest and penalty.

TCG is of the view that only the state government can negotiate with the Centre for waiver of this tax demand, said the officials cited above. Also, when as the lone bidder in the auction held last year, IOC had offered to pay 25.10 a share for the West Bengal’s government’s 40% stake in HPL, this liability had not yet arisen, they added.

Alongside, TCG wants to be sure that HPL’s plant hasn’t suffered any long-term damage from months of partial capacity utilization and the shut-down through the last two months. The company suspended production in early July because of a technical snag.

Though HPL’s management had said at the end of August that the problems have been fixed, production hasn’t resumed yet because of working capital shortage. Banks have stopped lending to the company in view of the long outstanding dispute between its co-promoters.

In conversations with the state government, TCG has expressed apprehension that such an extended shutdown can have long-term implications for the plant, the officials said. So, before it pays for the state’s shares, it wants to be sure that the plant can run at 100% capacity without breaking down.

To sweeten the deal for TCG, the state government has allowed it to pay in two tranches of 650 crore each and only for 520 million shares, leaving 155 million more shares to be dealt with separately.

As desired by TCG, the fate of these 155 million shares currently held by the West Bengal government is to be determined through an arbitration at the International Chamber of Commerce, Paris. TCG claims irrevocable right to these shares from an agreement and a deal aborted almost a decade ago.

Both the West Bengal government and TCG hold around 40% in HPL—the latter slightly more than the other co-promoter. The agreement concluded last week is intended to give TCG complete control over the firm in line with what lenders have been demanding. TCG has agreed to withdraw all court cases except those over the 155 millions shares if the deal is consummated.

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