Rising costs put Saudi energy scheme on verge of collapse

21 December 2007

A Saudi scheme to build an independent power plant in Iran is close to collapse because of rising costs, says a source close to the project. Talk of its demise comes despite claims by Tehran that the project will go ahead. The 1,200MW power plant was due to be built by Saudi Arabia’s Xenel Company for Iran’s Power Generation, Transmission & Distribution Company (Tavanir) at Heris. Mohammad Ahmadian, Deputy Energy Minister for Power Affairs and Tavanir chairman, said in mid-December that Tavanir and Xenel had struck a e500m ($716m) deal.

He added that construction would begin in March 2008. But other Tavanir executives say Xenel has yet to sign a deal.

A source close to the scheme says: “The project is probably dead.”

The Heris plant has been under discussion since the late 1990s. However, rapidly rising engineering, procurement and construction costs mean the tariff that was initially proposed is no longer economically viable for Xenel.

The stand-off over Iran’s nuclear power programme has also made foreign investors very wary.
“In the current state of international relations, no one is willing to finance the project,” says the source. “I do not think anything is going to happen soon, except through local cash and banking.”

In 2005, the most recent figures available, Iran’s power generation capacity was 41,003MW. Tavanir says an additional 4,948MW is needed by 2019. Xenel could not be reached for comment.

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