Kolkata: Haldia Petrochemicals Ltd (HPL) is caught in a catch-22 situation.

Its founders have agreed to resolve their prolonged fight for management control. However, the management change is contingent on it restarting production at full capacity. The beleaguered petrochemical company can’t do so because banks refuse to extend working capital loans until the promoters make peace. This has resulted in a stalemate.

Founded in the 1990s by the West Bengal government and The Chatterjee Group (TCG), HPL has faced a decade-old fight over control. Production was suspended more than three months ago after a boiler breakdown.

Just a month back, the promoters agreed to resolve the dispute. The state government agreed to sell 520 million of its 675 million HPL shares to TCG and cede control. The state, which currently owns 40% in HPL, is looking to pare its stake to 9% through the proposed share sale. TCG currently owns 41%.

But like most prior agreements between the two, this one too looks jinxed. The reason is HPL’s inability to restart production for want of working capital and TCG’s refusal to buy the state government’s shares unless conditions set by it are fulfilled.

One of the key conditions set by TCG for paying 25.10 a share—adding up to a total of 1,300 crore—for the state government’s stake is that HPL will restart production and demonstrate that the plant has been restored to operate at full capacity.

To operate the plant at 100% capacity, the company needs to buy naphtha, its main feedstock. Working capital required to fulfil this condition has been estimated at 1,000 crore, but banks are refusing to lend until the promoters resolve their dispute over control.

It is widely known that HPL has not been able to restart production because it does not have working capital, said a key state government official, asking not to be identified.

This official added that with the state government agreeing to yield control, it is now Purnendu Chatterjee’s responsibility to bring in working capital, referring to TCG’s US-based founder who is also a director on HPL’s board.

A close associate of Chatterjee said that though the state government has agreed to sell a substantial part of its stake in HPL to TCG, it hasn’t yet transferred control. “How can TCG raise working capital for HPL if it is neither a majority shareholder nor in control of the management?" this person asked. He declined to be named.

If the state had transferred control to TCG even before the sale of shares, it would have empowered Chatterjee to negotiate with lenders, this person added, asking not to be named.

The state government has been in control of the firm since Partha Bhattacharyya, a former Coal India Ltd chairman, stepped down as its managing director in June 2012. Chatterjee had fielded Bhattacharyya in 2011 with the concurrence of the erstwhile Left Front government of West Bengal.

Chatterjee did not answer phone calls or reply to text messages.

Amit Mitra, West Bengal’s minister for finance and commerce and industries, did not respond to an email seeking his views.

“We have a chicken-and-egg situation which could scupper the deal," said Chatterjee’s associate cited above.

“There’s a great deal of mistrust between the two co-promoters," said a former principal secretary in the commerce and industries department. “It is because of this mistrust that they have not been able to conclude a deal and have been fighting court cases for so long," he added. He, too, didn’t want to be named.

Failure to settle the spat this time, however, could have more serious implications for HPL than any failed agreement in the past, according to the former principal secretary. The latest agreement was concluded under pressure from HPL’s lenders, and if this one, too, fails to end the imbroglio, it might be impossible for the company to restart production any time soon. That, in turn, could force lenders to declare loans given to HPL as a non-performing asset.

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