Top level official sources told The Financial Express that in case chief minister J B Patnaik does not withdraw his demand for a 12 per cent free power share from Hirma, the power ministry will initiate the process of identifying an alternative site in some other state.

Sources said that despite repeated requests from Kumaramangalam to withdraw its `unreasonable' demand for free power from this project, the Orissa government is still adamant on its stand which forced the power minister to harden his stand.

Whereas, earlier Orissa was insisting on having a share of free power from the private sector 4000 mw Hirma as well as from the 2000 mw Talcher-II power project of the NTPC, it later withdrew its demand for free power from the NTPC's project.However, there has been no change in its stand on the Southern Electric's Hirma power project.

Sources said in his recent letters written to the Orissa chief minister, Kumaramangalam has also explained the legal and constitutional power of the states to impose a tax on electricity generated in one state for consumption in other states.

A final reminder was sent to Patnaik on October 20 for his final view on demand for free power by November 15, sources said.

It may be mentioned here that Hirma is the only mega power project which has been negotiated on the MoU route. All other mega power projects will be offered through the competitive bidding route.

The proposal for a putting up a mega power project at Hirma was initially given by Consolidated Electric Power Asia (CEPA) Ltd of Hong Kong, which envisaged setting up of 16 units of 660 mw each totalling 10,560 mw capacity.However, following an appraisal done by the Central Electricity Authority (CEA), an in-principle clearance for putting up 6 units of660 mw each totaling 3960 mw at Hirma was given to CEPA. Five states including MP, Gujarat, Rajasthan, Punjab and Haryana were identified as beneficiaries of power from this project.

The project suffered subsequent delays, following a change in the shareholding of the company wherein Southern Electric of Atlanta picked up a 80 per cent share in CEPA. However, sources said that the new owners have assured the power ministry on their commitment to execute this project.

ICICI and Lahmeyer International, Germany, appointed for the tariff validation of this project have proposed a generation tariff of the order of 5.13 cents or Rs 1.79 per kilowatt hour, including a fixed charge of 4.28 cents and variable charge of 0.85 cents.

The recent benefits extended by the power ministry in the recent mega power policy is further likely to bring down the costs from this project, sources added.