"Having pulled out, Cogentrix has nothing to lose and everything to gain byholding out," said Aditya Trivedi, who heads the energy analysis division atthe Federation of Indian Chambers of Commerce and Industry (Ficci). "Theyare on a strong wicket and will try to derive the maximum advantage beforeannouncing a comeback."

Acting with remarkable alacrity, the cabinet approved the in-principle grantof a Central counter-guarantee on Wednesday for the 1,000-megawatt MangalorePower Project in Karnataka which Cogentrix and its Hong Kong partner ChinaLight and Power Ltd abandoned on December 9 due to delays caused bylitigation and bureaucratic wrangling.

There was no immediate comment from Cogentrix on the decision.

Reacting to the Cabinet decision on giving counter-guarantee to theCogentrix project, Karnataka chief minister S M Krishna said on Thursday inBangalore that the state would need to go into the counter-guarantee toensure whether the escrow cover was also included in it.

Krishna said the Deepak Pareikh committee asked to go into the escrow cover,would submit its report in a month's time. Then only the state could take adecision. The terms of reference for the committee would be decided withinthe next three days, he added.

But analysts noted that the guarantee for the foreign debt component of theproject will only cover the amount of foreign equity under new norms laiddown by the Bharatiya Janata Party (BJP)-led government last year.

Previous norms had provided a guarantee for the entire foreign debtcomponent, a facility enjoyed by such foreign power firms as Enron PowerCorp which Cogentrix also has demanded.

Ron Somers, managing director of the Mangalore Power Company, has gone onrecord saying he would recommend the revival of the project to Cogentrixheadquarters if the government agreed to abide by the norms specified in a1997 power purchase agreement (PPA) with Karnataka, which would have to beamended under the cabinet decision.

"They are asking for parity with Enron. After all, their project was one ofthe original eight fast-track projects which were promised fullcounter-guarantees," said Trivedi of Ficci. "Having pulled out why shouldthey now accept a partial guarantee."

He said the government may have no option but to offer it a full guaranteein due course to induce the North Carolina-based firm to revive theMangalore project.

A counter-guarantee is essential for a project to reach financial closureand make it viable.

The cabinet decision came quick on the heels of a Supreme Court decision toquash litigation alleging bribery in the project, which cleared one majorhurdle that had frustrated Cogentrix, whose pullout dealt a tremendoussetback to the capital-intensive power sector which needs an estimated $250billion in investments over the next two decades.

A major barrier for foreign investment in the sector has been the bankruptcyof state electricity boards (SEBs) and their inability to raise resources.These cast doubts over their ability to pay for the power they purchase fromindependent producers, leading investors to demand government guarantees.Analysts said Cogentrix, having waited seven years before deciding to pullout, should reconsider its move.

"They have already invested quite a lot and if they leave, millions ofdollars in investment will be lost. I think the temptation will be toreconsider," said economist DH Pai Panandikar.

"It is unfortunate that the government took such a long time to decide andthat only when faced with the threat of a pullout," he told IANS. "Thegovernment acts only when it is pressurised, that's the conclusion one candraw from this."

He described the delays in getting a project off the ground as "vexatiousfor the investor". "Things drag on year after year without anything concretegetting done. It causes terrible problems for investors."

TK Bhowmik, an expert at the Confederation of Indian Industry (CII), saidwhile the frustration of investors at the tardy progress of their projectswas understandable, such delays were natural in a democracy.

-- India Abroad news Service