A hit, in financial parlance, happens when a lender agrees to a lower interest rate and agrees to forego some of its interest income in an attempt to get the project moving. However, such a negotiation in the by now beleageured DPC did not reach fruition in the current set of negotiations.

The talks were scheduled in the last week. The special purpose vehicle, proposed to be fuelled by Indian lenders, and backed by government guarantees, was expected to take over the entire foreign debt, with the cut.

Representatives of Indian lenders, top officials from OPIC and Citibank, among others, and senior officials from financial adviser, Rothschild, were discussing the entire deal in a hope to come to the final settlement in the scheduled one-day meeting in Singapore. Sources hoped that this would be one of the last meetings between all the DPC lenders. But with even the current set of talks hitting a roadblock, another round of discussions are expected to follow say sources close to the deal.

Enron, which, through Enron Mauritius, invested Rs 2,857.6 crores ($608m) in the Dabhol project, sold its 65 per cent stake to GE-Bechtel recently. The plant at Dabhol is lying shut since May 29, 2001 after MSEB rescinded the power purchase agreement. The total exposure of foreign lenders is around $500m while the domestic lenders have an exposure of Rs 6,200 crores. "However, the rupee appreciation has led to a 10 per cent fall in the actual cost of investment, which will have a positive impact for Indian lenders," sources added.

During earlier negotiations, the Indian lenders and Rothschild had demanded that offshore lenders forego 60 per cent of their exposure, which was rejected. However, the bargaining power is on the decline, since the condition of the power plant is steadily deteriorating.

A hit in investments by all the stakeholders was decided by working backwards to peg the unit electricity cost at Rs 2.80. Officials said that Maharashtra is currently reeling under a major shortage of power, and is ready to buy electricity. Indian lenders, led by Industrial Development Bank of India (IDBI), have an exposure of Rs 6,200 crores in DPC. Most domestic lenders have made provisions for the loss of income from their investments in DPC. IDBI will be facing a major problem if the issue is not resolved by September as it will be forced to term the Dabhol investments as a non-performing asset

Once the buyout of the foreign debt is complete, local lenders, with the support of GE-Bechtel, can invite fresh bids to sell the power plant. Among the interested parties are a Tata-BP-Gail consortium, Reliance Energy, British Gas and Shell.