Indian financial institutions, having stake of up to Rs 5,000 crore (Rs 50 billion) in the Dhabol Power Company, have reached a settlement with the consortium of offshore lenders and Overseas Private Investment Corporation of the United States as part of efforts to restart the $3 billion power project.

Informing the Supreme Court about the settlement, Attorney General Milon Banerjee said domestic FIs are now negotiating settlement with foreign partners GE and Bechtel and the proceedings are at a 'delicate stage.'

The issue came up during the hearing on a petition filed by DPC challenging a Bombay high court order holding that Maharashtra Electricity Regulatory Commission has jurisdiction to decide disputes between the power producer and Maharashtra State Electricity Board.

On the basis of information furnished by FIs, Banerjee told the Bench of Justice Y K Sabharwal and Justice Tarun Chatterjee that domestic institutions are very much hopeful that the settlement with foreign partners (GE and Bechtel) will be reached.

"All will be happy if the plant (closed for over three years now) is restructured and restarted," Banerjee said.

In its petition before the Supreme Court, DPC said there was an arbitration clause in its agreement with MSEB and hence arbitrations should be resorted to instead of going to MERC.

Last week, the government had decided to stand guarantee to domestic financial institutions to settle foreign debts of DPC as part of its efforts to settle the issue and restart the power company.

DPC was set up in two phases. Phase-I (740 MW) was initially based on naphtha but to be switched to LNG, while Phase-II (1444 MW) was based on LNG from the outset.

A 'take-or-pay' power purchase agreement between MSEB and DPC obliged MSEB to purchase 90 per cent of the power generated by DPC.

Due to commercial disputes between state government and Dabhol over the pricing of electricity, Maharahstra had stopped buying power from Dabhol.

DPC has been lying idle for more than three years now and Indian FIs, which have an exposure of more than Rs 5,000 crore in the project, have been struggling to revive it in coordination with majority partners GE and Bechtel.