PowerGen will buy out the holding for $42 million, or around Rs 12.60 a share, sources closely invloved with the deal told The Financial Express. The PowerGen board, which is to meet in London on Tuesday, is expected to make a formal announcement after the meeting.

It is believed that Tractabel had initially been asking for around $63 million (or Rs 20 a share) to sell its entire 50 per cent stake, but has now settled for a lower price given the rough weather that the project has run into.

Jindal Tractabel Power was initially promoted as a 50:50 joint venture between the Sajjan Jindal group and the Belgian major. Under the new scheme of things, the Jindals will buy 1 per cent from Tractabel, while PowerGen will pick up the balance.

The Jindal group willalso have management control over the power company. The entire transition is expected to be through by October, sources said.

PowerGen has already made a Rs 1,100-crore acquisition of Torrent Power and is additionally promoting a Rs 2,600-crore project with the Aditya Birla group in India.

The Rs 1,180-crore Jindal Tractabel is part of the integrated Jindal Vijaynagar Steel complex. To break the project into manageable chunks, the Jindals have roped in equity partners for allied units like power and the oxygen plant.

Till now, only the first phase has been commissioned. The plant generated power for a brief period this January but subsequently had to be closed down following a technical snag.

The power purchase agreement signed with JVSL has recently been reworked. While the steel company will require around 140mw for captive consumption, it will have to seek out buyers for the balance power.

The future arrangement has been worked out so as to reduce the return on equity from approximately 40 percent to 20 per cent. The IRR offered to PowerGen is also down from 20 per cent to 10 per cent.

The advantage of buying a ready power plant and assured offtake has reduced the entire project risk for the company, which has made the proposal very attractive even at the lower IRR.

Under the new arrangement, the power plant would be supplying power to JVSL at Rs 2.60 per unit. The tariff will be raised by 5 per cent annually.

The 2x130mw power plant would be using a mix of corex gas produced from the corex-module and coal fines alternatively to produce the desired power. At full stabilisation the plant's fuel requirement would be met evenly by fuel gas as well as coal fines.

The price for the corex gas, to be supplied as fuel, is linked to its calorific value and the corresponding price of equivalent coal in international markets. This would ensure that there is hardly much variation in the tariff charges.

Sources said that coal prices are not as volatile as oil prices and hence the fuel cost, which isbasically a pass-through expenditure, would remain under control.