The Central Electricity Authority (CEA) had asked the company for a new "financial proposal" following a steep increase of Rs 1,574 crore in the project cost.

The revision was against the earlier provisional cost of Rs 4,628 crore. With this, the total cost had increased to Rs 6,202 crore which the CEA refused to clear.

The state government's move to turn down the revised proposal has become a stumbling block for the project which has been making all-out efforts to take off.

The 41 per cent stake holder, National Power of the UK is now said to be stepping out of the power project after the delays in sanctioning the project. Sources say that the UK company has shut its office in New Delhi.

However, the company officials maintained that the National Power is committed to the project. As per the earlier PPA, which was signed with the state, the power generated from the plant was to cost Rs 2.71 per unit during the first year of operations. This was to come down to Rs 1.6 per unit in the 13th year.

The Centre had signed a counter-guarantee for the project. The guarantee would cover foreign debt of $880 million, even as no guarantee fee would be charged for $354 million which is equivalent to the foreign equity in the project. The remaining $464 million would have guarantee fee of 12 per cent per annum on reducing balance basis.

The counter-guarantee was to come into effect when financial closure is announced. IDBI, the lead financial institution, had cleared in principal a crucial Rs 200 crore of the additional assistance pushing the project a step closure to financial closure. The IPP had tied up its entire overseas debt portion of $350 million fully underwritten by ANZ Investment Bank and HSBC Investment Bank and ECGD of the UK which will underwrite $150 million.