Ministry sources said the company's equity is bloated at Rs 488.85 crore, with a low earnings per share (EPS). "This may prove to be a deterrent in the disinvestment process," the sources added.

However, the final say in this regard will rest with the global advisor. Jardine Fleming has already received the mandate to oversee the part sell-off of government holding.

Sources said the ministry is yet to take up the issue with the global advisor and the proposal is expected to be forwarded shortly. The Balco board has already approved of paring the huge equity of the company by half.

"As the government has set itself a higher target of raising Rs 10,000 crore in the 1999-2000 fiscal from the disinvestment process, it is eager toget along with the Balco issue as quickly as possible," the sources said.

The ministry has also decided that Balco will go ahead with its Rs 1,000 crore-plus expansion plan which is to be funded entirely through internal generation.

The expansion programme consists of setting up a new 40,000 tonne per annum cold rolling mill, modernisation of the alumina refinery and hot rolling mill, and adding two more captive power plants of 70mw each.

A recent in-fighting in the ministry between cabinet minister Naveen Patnaik and minister of state Ramesh Bais had cast its shadow over the modalities of divestment of government holding in the aluminium company.

The sources pointed out that National Aluminium Co, in which the government wishes to divest its stake also, has already recast its equity base of Rs 1,288 crore by half.

A proposal that the inter-ministerial group had been studying, and has now rejected, was whether to put the expansion plan on the backburner. Some members had suggested that themanagement control of Balco be left to the strategic investor, who should have the final word on whether Balco should pursue the proposed expansion plan or not.

The disinvestment commission had originally proposed an initial reduction of government stake by 40 per cent, and later to 74 per cent, but the inter-ministerial group overruled it in favour of a 51 per cent dilution of government holding.

Balco, which has an integrated complex in Korba, Madhya Pradesh, has an installed capacity of 200,000 tonnes of alumina and a 100,000 tonne per annum smelter. The downstream facilities include 40,000 tonnes of rolled products, 35,000 tonnes of properzi rods, 7,000 tonnes of extrusions, and 18,000 tonnes of billets and slabs.

During the first nine months of the current fiscal, the company has produced 67,000 tonnes of primary aluminium as compared with 65,000 tonnes in the corresponding nine months of the previous fiscal.