Geelong-based engineering conglomerate Kempe Group has moved to quit its 50 per cent stake in the $150 million revival of Verve Energy's Muja AB coal-fired power station, just weeks from its new commissioning.

The resurrection of the 46-year-old mothballed plant began in 2009 in response to the Varanus Island gas explosion.

It was sold as a way to diversify the State's energy mix for 15 years while issues such as the carbon tax and domestic gas supplies were resolved. Verve was given a special allowance to breach its generating cap of 3000 megawatts, which was imposed under 2006 reforms to loosen Verve's grip on the local market and encourage new entrants.

Kempe pledged to invest up to $100 million in the venture and provide engineering expertise to upgrade the 240MW power station with pollution controls, at a fraction of the cost of a new project.

While a final budget for the venture has yet to be confirmed, it has suffered a delay of about a year on its initial end-2011 schedule, raising speculation the cost has blown out. In the interim, with slowing growth for electricity supplies the State has a surplus of power generating capacity, and recent changes to market rules have raised questions about how profitable Muja AB would be.

Investment banking sources told _WestBusiness _ that KordaMentha's advisory arm 333 Capital had been appointed to handle the sale, although a price was not clear.

It comes amid questions about Verve's ability to manage its big capital works program. Earlier this year the State-owned utility admitted that its new $273 million high-efficiency gas power plant in Kwinana would cost $26 million more than expected.

It is also understood to have missed a crucial start-up window that cost Verve about $20 million in so-called capacity payments that are paid for plants being online should they be needed.

In the May Budget, the State Government was forced to give Verve $44 million in "sustaining capital".

Muja AB is also at risk of missing out on some of these capacity payments if it is not ready to be started on October 1. New Verve chief executive Jason Waters told a parliamentary hearing last month only that "as it stands" the new units would be ready by October.

Energy Minister Peter Collier declined to comment.

However, Shadow Energy Minister Bill Johnston said Mr Collier had to explain whether taxpayers had gained from the transaction, given blowouts such as the solar feed-in tariff program on his watch.

Reflecting the sensitivity of coal, a group of lenders to Muja AB including ANZ, NAB and GE Capital had required Verve not to reveal their involvement for fear their reputations would be hit.

The West Australian

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