Domestic lenders to the Dabhol power project feel the central government is turning out to be the biggest stumbling block for the revival of the project.

Top institutional sources said the lenders were unwilling to accept the government's demand of having the first charge on Dabhol assets as a pre-condition for a guarantee for long-term bonds to be raised for buying out the foreign lenders' exposure to the project.

In a related development, General Electric -- which earlier demanded a guarantee from the government indemnifying it against the liabilities of Dabhol Power Company -- has come down from its stance and is prepared to waive the indemnity clause to enter into a settlement.

However, Bechtel, the other equity partner, was not willing to soften its stance, sources close to the finance ministry said.

Sources close to the development said since the Centre was bailing out four Indian banks -- ICICI Bank [Get Quote], Industrial Development Bank [Get Quote] of India, State Bank of India [Get Quote] and Canara Bank [Get Quote] -- it was demanding that its charge on assets be superior to all other creditors. The four banks collectively have a Rs 5,500 crore (Rs 55 billion) exposure to the project.

These banks will take up the issue with their respective boards soon but the proposal is unlikely to get board nod. "Why should we give up the first charge to the government?" asked one senior banker.

The reason behind GE's softening of stance is its bigger business interest in India. "GE wants to set up a bank here. Besides, it is planning to team up with NTPC for a power project and fund Air-India's fleet acquisition. At this point, GE does not want to rub the government on the wrong end," said a source.

To make the matters worse, National Thermal Power [Get Quote] Corporation and Gail (India) Ltd have not yet given their consent to shell out Rs 500 crore (Rs 5 billion) each as new equity partners.