Cepa's new managing director Raymond Hill said: 'We have received no communication with regard to the project.

'As far as we are concerned it is alive and well.' He said preparation of the site continued and a great deal of effort and money had been spent on the project.

Cepa was to build eight 660-megawatt coal based thermal plants at Keti Bandar in Sindh province.

'There are no grounds for the government or the Wapda to terminate the project,' Cepa said.

'A failure to honour the agreement would clearly send the wrong message to the international investment community.' In 1995, Cepa signed a power purchase agreement for the first two of the eight plants, representing 1,320 MW of capacity.

Mr Khan was quoted saying the reason for the cancellation was 'the very high cost of the power from the planned project'.

Cepa disagreed, saying: 'the agreements and the tariff structure comply fully with the government of Pakistan's policy framework.' Cepa also said the minister's estimate of the extra cost per unit of electricity to build a 185 kilometre line to transmit the power was much higher than previous quotes received by the government for similar projects.

'The next step is clearly for the government of Pakistan to issue the tender for the transmission line project and wait to see if the cost is in that range,' Cepa said.

Cepa said it had offered to construct the line at a much lower cost.

A recent research note from brokerage Indosuez WI Carr noted that other factors could be behind the minister's decision.

'We believe the current anti-corruption campaign under way in Pakistan, from public outcries to the excesses of the Bhutto government, also played a significant role,' it said.

Cepa's original purchase agreement was signed when Ms Bhutto's government was in office, which was keen to attract private power investment into Pakistan.

Apart from Keti Bandar, Cepa has two other projects in the planning phase - in India and Shenzhen.