Industry sources disclosed that heads of these foreign banks met top officials of the power ministry on Monday and raised doubts over the security mechanism being worked out by the government as an alternative to counter guarantees.

At the meeting, the heads of these banks questioned the success of the power reforms at the state level besides the capitalisation plan drawn up by the government for strengthening the Power Trading Corporation (PTC).

"The government seems to be very confident over the success of power reforms at the state-level and also that the state electricity boards (SEBs) will turn financially viable in the next five to six years.

What we have asked the government is "to give guarantees till the SEBs' achieve reforms and once the boards turn financially strong, the Centre can withdraw these guarantees," said a top banker who attended the meeting.

"This is the least risk option we have suggested to the government when it talks about the success of reforms at the state level. But if the government itself is not keen on taking this risk, how can it ask us to do so," questioned this banker.

Sources said the bankers have refused to fund mega power projects based on `leap of faith'.

Banking sources informed that while appraising major loan proposals, credit committees of all these foreign banks insist on an in-principle government support in the form of such `guarantees', especially while funding big projects where foreign debt is to the tune of Rs 14,000 crore.

Termination guarantees cover foreign debt in the event of any default by a state electricity boards (SEB). Other than the Dabhol power project (stage-I), where both the domestic and the foreign debt is covered, under the government of India's counter guarantee, all other fast-track project have been given guarantees which cover foreign debt in the event of termination of the project. It is the same termination guarantees which the foreign banks are asking for financing the mega power projects, sources said.

Moreover, as per the capitalisation plan drawn for the PTC, the government plans to raise the authorised capital of the corporation from the present Rs 5 crore to Rs 5,000 crore over the next five years. The Centre plans to infuse Rs 500 crore in PTC and the balance is expected to be raised from other shareholders and financial institutions. "Capitalising PTC is a good move but from where will the capital come. Going by the equity structure of the corporation after its capitalisation, it will no more be an government-owned company and its credit rating will also become sub-sovereign. So there is no commitment from the government. Getting approvals from our respective credit committees for projects structured in such a manner is next to impossible," the bankers said.

This has put a big question mark on the fate of the Rs 20,000-crore Hirma mega power project (3,960 mw) being promoted jointly by Reliance Power and Southern Electric of the US, where foreign debt component alone is to the tune of Rs 14,000 crore.