The finance ministry has ruled out repayment of $339 million demanded by foreign lenders for Dabhol Power Company and is instead considering extending sops to re-start the 744 mw plant.

The ministry is also of the view that the buy-out of Enron's equity stake by GE and Bechtel does not necessarily result in extension of the Centre's counter-guarantee to the project. GE and Bechtel hold 10 per cent each in DPC and had recently signed a letter of intent with Enron and OPIC to purchase Enron's 65 per cent equity in the Indian venture.

Senior government officials said the Centre was willing to provide tax benefits to the 2,144 mega watt project lying idle for almost two years now. IDBI chairman PP Vora met senior government officials on Monday to expedite the re-start of Phase I of the project with NTPC as the operations and maintenance contractor.

Officials said GE and Bechtel's co-operation was crucial since much of the equipment was guaranteed by them. The two foreign stakeholders also possessed technical know-how to ensure a quick re-start of the plant, officials said.

They also said that a change in ownership pattern would call for signing a fresh power purchase agreement with the Maharashtra government, which has agreed to evacuate power from Phase I of the project. The terms of counter-guarantee will hence be negotiated afresh, officials added.

They also said, that foreign institutions including ABN Amro, Bank of America, ANZ Investment Bank and CSFB had lent to DPC based on their independent assessment of the risks involved.

"They have lent to DPC and not to the government of India," said a senior official. He added that Indian financial institutions too had a Rs 6,000 crore (Rs 60 billion) exposure to the project.

The banks, led by ABN Amro, had written to Finance Secretary S Narayan earlier this month expressing their intent to exit from the project. They had cited lack of progress in the last 18 months in demanding repayment of total dues of $ 339 million as on September-end 2002.

While officials did not spell out details of the fiscal sops, the Indian lenders had originally recommended that the customs duty applicable on LNG imports be waived or alternatively be set-off against the customs duty already paid for equipment import.

In addition a proposal to waive minimum alternate tax for the initial six-seven years was also put forward.