This has put the government and the newly appointed global advisors, ICICI Securities and Bank of America, in a tricky situation as the induction of a strategic partner necessitated a new shareholders' agreement for transfer of management control to the new partner.

The new agreement would, however, also lead to dilution of the rights which NIOC holds under the Fertiliser Formation Agreement (FFA). By virtue of the FFA, NIOC has certain special rights which allows it to block resolutions and have a say in important matters like addition of capital and borrowings to be made by the company. The NIOC has insisted that the new FFA should not in any way affect the rights accruing to it under the present agreement.

At present, the government holds 58.74 per cent share of MFL, while the NIOC and the public holds 25.44 per cent and 15.82 per cent, respectively. Strategic sale of 32.26 per cent of the government's share has been approved by the Centre.

In a bid to facilitate disinvestment of the PSU and resolve differences with NIOC, the officials of the fertiliser department and the global advisors held a meeting with NIOC officials in Chennai recently. According to sources, since NIOC was against the idea of giving up its management rights, it was urged by the government to dilute its investment in MFL.

Despite resisting the idea of disinvestment initially, NIOC officials have promised to consider the option and present the matter to its Board, sources said.

Till the NIOC takes a decision regarding the retention of its investment in MFL, the government has no option other than biding its time. The situation has ruled out the possibility of concurrent disinvestment of National Fertiliser Ltd and MFL as had been earlier planned by the government to maximise returns from the sale.

MFL was incorporated in December 1966 as a joint venture between the government and Amoco India Inc of the US based on a Fertiliser Formation Agreement signed between the two. The government holding 51 per cent of the equity share capital.

In accordance with the Participation Agreement between the government, Amoco and NIOC, 50 per cent of Amoco's shareholding was acquired by NIOC in November 1992. Later, the remaining shares of Amoco were purchased by the government and NIOC in their respective proportions.