British power major PowerGen, as a fallout of its takeover by German major Eon AG, has now decided to exit the 655-mw Paguthan power project in Gujarat.

PowerGen will divest its residual 20 per cent holding in the project to the China Light & Power group of Hong Kong at an undisclosed price.

This is in line with Eon's decision to focus on the development of the utility business in the US and Europe and shift out PowerGen's remaining operations in Asia.

The China Light & Power group has already entered into an agreement with PowerGen UK for buying out its stake.

The deal was, however, subject to approval by lenders, sources at financial institutions said.

After the sale goes through, Gujarat Paguthan Energy Corporation, the company promoted for the project, will become a wholly owned subsidiary of the China Light & Power group.

A senior official of the lenders' consortium said: "PowerGen has written to the institutions requesting us to approve the sale of the FIs' equities to the China Light & Power group. The company has said this is line with Eon's policy of disengaging from Asia. We are yet to take a final decision on the issue."

Gujarat Paguthan Managing Director V P Sharma, who is also the Hong Kong group's representative in India, could not be reached for comment.

At present, the entire stake in Gujarat Paguthan is held by CLP PowerGen India, a Mauritius-based 80:20 joint venture between Gujarat Paguthan International and PowerGen UK Plc.

The present plan is to sell the balance 20 per cent equity to China Light & Power International.

China Light & Power entered the Paguthan project towards the end of 2000 when it worked out an arrangement with PowerGen for buying its 88 per cent stake in China Light & Power.

Under the deal, PowerGen's stake was transferred to CLP PowerGen India, which later bought out the Gujarat government's 12 per cent stake earlier this year, making Gujarat Paguthan its 100 per cent subsidiary.

PowergGen was then frustrated with the slow pace of power reforms in India and the constant flip-flop in government power policy.