Lenders to the Dabhol Power Company have ruled out an equity sale, preferring to go ahead with an asset sale.

Additionally, arbitration proceedings between domestic lenders and the offshore lenders in the beleaguered DPC will be delayed by three weeks.

This follows the inability of the two sides to come to a consensus on the appointment of the chairman of the arbitration tribunal.

Financial institution officials confirmed that the two sides have sought an extension of 21 days to identify the chairman of the three-member arbitration tribunal.

The appointment was initially expected to be completed by June 28, whereby the three-member arbitration tribunal would have commenced proceedings by early July.

Now the entire process -- setting down a time-table, identifying a date when the claimant (off-shore lenders) files the claim and the respondents (domestic lenders) files the reply -- will not commence before mid July.

Domestic lenders -- Industrial Development Bank of India, ICICI Bank, IFCI and the State Bank of India -- appointed S P Bharucha, retired chief justice of the Supreme Court to fight their case in London.

This follows offshore lenders having sent a formal notice to domestic lenders on April 30, claiming damages to the tune of $ 546 million for breach of the inter-creditors agreement.

Foreign lenders appointed Red Fern, a seasoned arbitrator, to argue on their behalf, after they filed a notice of arbitration under rules of the United Nations Commission on International Trade Law.

Meanwhile, lenders to the power project have decided against an equity sale, which had initially been proposed by the offshore lenders.

FI sources said that sale of equity will have little value considering the fact that Enron, the original promoter of DPC, had already filed for Chapter 11 in the US.

"There is no point pursuing the sale of equity, which will have no value and no bidders," added sources.

Offshore lenders had proposed the sale of equity even as the arbitration proceedings had yet to commence.

It has now been decided to go ahead with an asset sale, with Rothschild having been appointed as consultant to prepare the package.

"We have asked Rothschild to prepare a model to identify the cost associated with the restarting of the project, and prepare the bid package to proceed with the asset sale," said FI sources.

The arbitration notice cropped up after domestic lenders chose to block the termination of the price purchasing agreement with an injunction obtained against the rights and wishes of the offshore lenders.

The offshore lenders had on April 3 instructed the Dabhol Power Company to proceed with the termination of the PPA with the Maharashtra State Electricity Board. This would have entailed the takeover of the project by MSEB and repayment to offshore lenders.