The Federal Government has withdrawn funding for a proposed brown coal-fired power station in Victoria's Latrobe Valley.
In 2007, the Howard government allocated $100 million to power company HRL towards a coal drying and gasification plant.
But Federal Resources Minister Martin Ferguson today said the company had failed to meet conditions tied to the funding.
"The Government made it clear in February this year that it would grant one final extension until June 30 for HRL to meet the conditions," Mr Ferguson said.
"It has not done so and accordingly the funding agreement between HRL and the Australian Government will be terminated."
"We were hoping that the coal gasification process would actually get up in the Valley," he said.
"It's failed, yes, that is a disappointment, but from a Government perspective we're dealing with taxpayer's dollars and the proponents HRL had to demonstrate how they could meet our requirements because it's about public accountability and they have failed on this occasion."
The Victorian Government is also considering terminating its $30 million funding deal with the company.
The funding withdrawal has been welcomed by environment groups.
Environment Victoria campaign director Mark Wakeham says the HRL project would have used highly polluting and out-of-date technology.
"Environment Victoria challenged the EPA's approval of the project in VCAT last year, so we're extremely pleased with the outcome and we think there's potential for much cleaner power stations to replace our most polluting stations," he said.