Sources in financial institutions closely associated with Essar group's restructuring, said that Marathon wrote to the Ruias last month over the delay in securing the Gujarat government's approval for continuing with the direct sale of power to Essar Steel after the acquisition of Essar Power.Marathon, however, has said in the letter that it was still open to extend the June 27 deadline for completing the share acquisition transaction, sources said, adding that Essar has not yet replied to Marathon's proposal.

Essar group's spokesperson, when contacted, declined to comment on any communication between Marathon and Essar. "The board of directors of Essar companies involved will meet a few days before the expiry of the deadline to take a final decision," he said.

Government and FI sources said that with the Gujarat government insisting that Essar Power will not be permitted to sell power directly to Essar Steel post-acquisition, the "Essar-Marathon deal is as good as over." The Gujarat government wants Essar Power to sell electricity to the Gujarat Electricity Board which in turn will supply to Essar Steel at commercial rates.

Sources in financial institutions said the deal was highly unlikely to go through in the absence of the Gujarat government's approval as Essar Steel is not in a position to buy power at commercial rates. Essar Steel is currently buying 215 MW of power from Essar Power at a concessional rate by virtue of being a sister concern.

Following the acquisition by Marathon, this arrangement would come to an end in case the state government sticks to its stand. The MoU signed between the two companies clearly stipulated that following the acquisition, Marathon Power would continue to provide uninterrupted supply of 215 mw of power to Essar steel for a 20 year period at an economical cost.

Section 43 AI (C) of the Electricity Act allows a generating company to enter into contract to sell power with any entity but stipulates that the consent of the concerned state government has to be secured. The proposed acquisition deal by Marathon was considered to be one of the biggest deals in the country.