It is likely to be struck in November once a new government is in place after the elections, sources said.

Essar entered into a memorandum of understanding with the $22 billion Houston-based Marathon group in June to sell its closely held 515 mw Essar Power to Marathon Power Alpha Ltd, a special purpose company floated in Maurutius. Prime Hazira holds a 49 per cent stake in Essar Power which has an equity base of Rs 523 crore, followed by Essar Steel (42 per cent) and Essar Oil (nine per cent).

Going by the terms of the MoU, Marathon would take up Essar Power's total liabilities of Rs 1,550 crore and Essar Steel would continue to draw 215 mw power fromEssar Power under a 20-year power purchase agreement at an economic cost.

However, the Gujarat government is unwilling to give the green signal to the deal as it feels that with the Essar group selling off its entire stake, Essar Power should not be allowed to draw captive power from the company. Instead, it should buy power from the state grid and the entire 515 mw should be sold to the SEB. It is insisting that Essar Steel should retain at least 25 per cent stake in the company to be able to get 215 mw power at a concessional rate--a proposal which has not found favour with the Essar group.

According to sources, Essar Power had initially offered to sell its entire power production to the SEB. But the Gujarat government opted for drawing only 300 mw power from the company, allowing Essar Power to supply 215 mw directly to Essar Steel. Essar Power is believed to have approached the state government with a proposal for continuing with the existing power supply arrangement despite the change of ownership ofEssar Power as otherwise Essar Steel's commercial viability would be serverely affected.

A decision on this issue is expected only after a new government takes over after the elections, sources said.

Meanwhile, banks and financial institutions have refused to bring down the interest cost on the Rs 1,550 debt portfolio of Essar Power. Marathon has recently made presentations to the lead institution--Industrial Development Bank of India (IDBI)--seeking a reduction in interest cost on the company's long term loans and changing the debt profile.

"It wants about four per cent reduction in interest rates--from 19 per cent to around 15 per cent. Besides, it also wants to increase the average life of the loans from seven-nine years to 12-14 years. It may not be possible to grant these concessions," institutional sources said.

IDBI leads the consortium of lenders with a rupee exposure of Rs 150 crore, foreign currency loan worth Rs 57.67 crore and guarantee for ECBs to the extent of Rs 115 crore. The exposureof the Industrial Finance Corporation of India is pegged at Rs 227 crore (including leasing). Among banks, Bank of India has lent Rs 92 crore, followed by the State Bank of India (Rs 91 crore, yet to be disbursed). Essar Power has not paid the interest for the first quarter of the current fiscal.

Industry sources said a team of Marathon executives is camping in Delhi to strike a deal at the earliest. In fact, it has already finalised the agreement details. Essar is believed to have rejected the Marathon condition on staying away from the power sector in future. "The company will get into the power business in Madhya Pradesh as well as Vadinar in Gujarat once it puts its house in order," industry sources pointed out.