"The US company has not fulfilled the contract obligations and not tried to achieve the financial closure within the stipulated time. In order to avoid further delay, we have decided to terminate the contract and encash the bank guarantee which was offered for the project," a senior KIOCL official said.

"In fact, Globtrotters was in the process of arranging funds from a Japanese company for implementing the 60 mw liquid fuel-based power venture in Kudremukh," he added.

KIOCL, however, will go ahead with the power venture. "The pulling out of the venture by the US firm has forced the iron ore mining company to invite overseas bids for engineering, procurement and construction (EPC) contract to complete the project," headded.

He said the power purchase agreement (PPA) with Globtrotters signed last year had entitled the company to set up the plant on a BOOM basis and has a built-in penalty clause which compels the company to commence generation of power within 20 months beginning January 1, 1998.

As contradictory to its earlier decisions, the company will set up the power plant its own for which it is in talks with leading financial institutions and banks. KIOCL is also looking at internal resources for funds. It is yet to finalise the debt-equity ratio of the Rs 250 crore venture.

Industry experts said earlier Globetrotters was planning to float a global bid for an EPC contractor for implementing the plant. With the pull out of the venture, the company is unlikely to have any further participation with KIOCL. However, Globtrotters officials were not available for comment on the issue.

The proposed plant will take care of 75 per cent of the power requirements of the company's mining facility in Kudremukh. KIOCL hasbeen facing a severe shortage of power at its mining facility which is a highly automated set up and power intensive.

The company's expenditure on fuel and power has recorded a consistent increase with tariff levels going up to the tune of 33-40 per cent. KIOCL has had to incur an additional expenditure of almost Rs 5 crore per month during the current fiscal owing to this increase.

It had achieved an improvement in iron ore pellet production at its facility in Mangalore owing to the installation of two DG sets of 9.6 MW each. A third DG set is also likely to be installed at the premises.

In order to utilise any surplus power that may be available from the DG sets from time to time, KIOCL has entered into a banking and wheeling agreement with the Karnataka Electricity Board (KEB) recently.