Korea Development Bank is expected to set up a private equity fund to take control of Dongbu Power Dangjin Corp. after talks to sell off the thermal electricity generation plant fell through last week, industry sources said Friday.

The bank, in charge of arranging the sale of the plant to help bail out cash-starved Dongbu Group, is likely to take the step after Samtan, an energy and coal mining company that was tapped as the preferred bidder early last month, walked away after making a down payment of 27 billion won ($26 million), insiders said.

The payment amounts to 10 percent of the sale price of the plant.

Observers said Samtan gave up its bid after the government confirmed that the new operator of Dongbu Power Dangjin must build a 30-kilometer-long reserve power line that would result in extra expenditure and even delay full-fledged operations at the plant, which is due to go online in 2018.

KDB can take a 60 percent stake in the power company by generating 270 billion won through the equity fund and seek a new buyer at a later date, after the reserve power line issue has been resolved.

The lender used this method before when it took over Dongbu Special Steel for 110 billion won.

The reserve line problem has come to the fore after the government called for precautionary measures to prevent another partial blackout like the one that affected the entire country in 2011. (Yonhap)