Three companies, including US-based Sino Global International and Dubai-based Skyline Services Group and Samena Power & Energy, signed a memorandum of understanding with Dewa in February for the plant.

The memorandum was the first step towards a feasibility study into construction of the 2,000MW plant, which would use integrated gasification combined cycle (IGCC) technology.

Under the plan, synthetic gas (syngas) will be produced from coal through a gasification process carried out in the US. It will then be shipped to Dubai where hydrogen will be extracted from it.

The first 1,000MW will come on line in 2011 and the remaining 1,000MW will follow in 2012 (MEED 27:2:08). But according to Samena and Skyline, the plans are now being re-examined because the economics of the project are unsustainable.

Unable to guarantee a high enough return on investment, the developers argue they would find raising debt and equity for the scheme difficult. As a result, they say, they have turned their attention to other projects.

"The current status is that there is a rework on certain elements of the project from one of the partners," says a source at one of the local firms.

"I am not sure what is going to happen. It might be done under a government-to-government agreement rather than through private companies."

One senior executive at the other Dubai-based company confirms the changes to the scheme.

"At this moment, the project is under evaluation," he says. "The reason it has come under pressure is that we cannot effectively meet the rate of return using coal in that part of the world or in most others, unless those buying the electricity are willing to pay a much higher price for it.

"It would be sustainable if you were able to use some of the syngas to create saleable chemicals or fuel such as gasoline or fertilisers. That would subsidise the electricity you generate and you can earn a return. It becomes less economically sustainable the higher the percentage of syngas used to produce electricity."

One source at Dewa tells MEED the study for the IGCC plant is going ahead without the two companies. "Sino Global is staying in," says the source.

The US company will use Chinese technology to develop the plant and the project will now go ahead under a deal between the Chinese and Dubai governments.

"The other two companies were only contributing financially," says the Dewa source. "The guys who have the technological capabilities decided they did not need anyone to finance this. It is not at all uneconomical. After doing further studies, day by day it became more economical and Sino Global decided to abandon these two companies and go ahead itself."

Sino Global is developing a similar project in Louisiana.

"IGCC is ongoing and will only be abandoned when Dewa says so," says the Dewa source. "It is a very promising idea and it will solve a lot of our concerns."

The project is one of several coal-based power generation schemes planned in the Gulf. Alongside IGCC, Dewa is considering conventional coal-fired generation and Muscat is planning a 1,000-1,200MW coal-fired plant at Duqm.