Harvard originally planned to self MATEP to a financial holding company and lease it back. This arrangement would have allowed the new owners to take advantage of tax credits while the University retained control over the facility. But this plan fell through because of unprecedented high interest rates during the later years of the 1970s.

Earlier attempts at MATEP bond issues have also stalled, in part because the high interest rates would have put a large future burden on Harvard. In addition, existing laws did not allow the University to sell tax-free bonds for MATEP, since the plant earns profits.

But a 1982 IRS decision which categorized MATEP as a profitable entity owned by a "charitable institution" cleared a major roadblock which had prevented the bond issue in the past.

Before the sale can take place, however, the University must negotiate technicalities with the government involving MATEP's tax obligations and Harvard's right to generate electricity from the plant.

Community and environmental groups have protested the plant's emissions of nitrous oxide particles for many years, and it six diesel engines are now idle, pending a Department of Environmental Quality Engineering hearing later this year.

Carl Dierker, a lawyer for the state agency. said yesterday that the inquiry will remain on hold for at least three more months while Harvard conducts environmental testing on MATEP's generators.

The University is anxious to complete financing of the plant within the next six months in order to capitalize on a drop in interest rates that Putnam predicted will only last six months In addition. Putnam has expressed fears that state laws governing tax free bonds may change later this year.

"We're very concerned that this privilege will be taken away from us." Putnam said.

Although the University will owe investors more than half a billion dollars during the next 30 years, financial analysts outside Harvard expressed little concern over the size of the debt during interview this week.

"There's nothing wrong with an enduring institution being in debt, "said Sherwood E. Bain '45, a Boston investment banker who regularly writes about Harvard finances "When you're going to pay it off in cheaper dollars, so much the better," he added.