The plan to restart the Dabhol power project has received a hard knock with two of the 19 foreign banks involved in financing the plant refusing to sign the proposed settlement with Indian banks.

The deadline for entering into a settlement, which expired on Saturday, has now been extended by 2-3 weeks.

Sources close to the development said ABN Amro and ANZ had refused to sign the deal and had asked for an additional $25 million. It was decided earlier that the domestic lenders would buy out the exposure of the 19 foreign banks for $230 million.

In yet another setback, the proposal to buy out the equity exposure of General Electric and Bechtel has also hit a roadblock with both demanding a guarantee from either the government or the domestic lenders indemnifying them against the liabilities of Dabhol Power Company.

"Neither the government nor the group of domestic lenders is willing to offer them indemnity against an unspecified amount as nobody has any idea about the liabilities of DPC," a source said. The deadline for signing the deal with the equity holders expires on June 1.

According to the sources, the government is willing to guarantee a 20-year bond, which will be floated to generate money to clear foreign lenders' dues. The Life Insurance Corporation will subscribe to the bond.

ICICI [Get Quote] Securities, the investment banking arm of ICICI, is brokering the deal. The bond will offer a 55-60 basis points higher coupon over a comparable maturity government paper. One basis point is one hundredth of a percentage point.

The first leg of the plan was to settle the dues of the foreign lenders at a discount. At the second stage, the plan was to buy out the exposures of two export credit agencies -- Japanese Exim and US Exim.

This was to be followed by settling about $225 million exposures of Overseas Private Investment Corporation, a US risk insurance agency.

The last leg of the plan was to buy out the equity holders with the money raised from National Thermal Power [Get Quote] Corporation, Gail (India) Ltd and three Indian lenders -- State Bank of India [Get Quote], ICICI and Industrial Development Bank [Get Quote] of India.

Short circuit

• ABN Amro, ANZ have refused to sign the settlement deal, demand $25 million more
• GE, Bechtel want guarantee indemnifying them against Dabol Power Company's liabilities
• Settlement deadline expired on Saturday. It has now been extended by 2-3 weeks