The finance ministry has directed the Industrial Development Bank of India to enter a dialogue with the foreign lenders of the Dabhol power project to restructure their $272 million exposure.

"You have already been requested to constitute a task force to engage the foreign lenders with the objective of restructuring the unguaranteed debt. The process may be expedited," the finance ministry said in a letter to IDBI earlier in March.

The finance ministry's directive comes after the foreign lenders demanded they be repaid their $339 million exposure to the power project. In a strongly worded letter written to Finance Secretary S Narayan, foreign banks, led by ABN Amro, cited the delay in finding a solution to the Dabhol problem as the reason behind the demand.

ANZ Investment Bank, Bank of America, Citibank and Credit Suisse First Boston also signed the letter.

The demand by the foreign banks assumes importance because according to the inter-creditors' agreement they have veto rights and can block the domestic lenders' plan to restart the Dabhol power project.

The foreign lenders' $100 million exposure to the first phase of the Dabhol project is covered by the Centre's counter-guarantee. However, their $272 million exposure to the second phase enjoys no such cover.

The lenders are thus insisting that a comprehensive solution be found for the entire power project, and not just for the 740 mw first phase.

Meanwhile, the domestic lenders are keen on restarting the first phase and finding a solution to the second one on the way.

The Dabhol power plant has been idle since May 2001, when the Maharashtra State Electricity Board rescinded the power purchase agreement with the Dabhol Power Company.

The three offshore sponsors of the company -- Enron, General Electric and Bechtel -- then decided to exit the project.

Subsequently, Enron filed for bankruptcy under Chapter 11 in the US, and the domestic lenders took over the assets.