Sanctions threaten Iranian plant

Tightening sanctions against Iran are threatening to hamper the country's first public private partnership.

Gas plants in Assalouyeh south of Tehran. Iran is seeking to shift some of the burden of funding its huge energy needs to alternative sources. Caren Firouz / Reuters

Global sanctions against Iran threaten to stall the building of a thermal power station under the country's first public-private partnership (PPP).

There were uncertainties about the impact of the sanctions on a licensing deal between the German engineering firm Siemens and a local company making parts for the 150 megawatt plant, said Walid Abdelwahab,a director of the Islamic Development Bank (IDB), which is acting as a private investor in the project.

"We are carrying out due diligence on the project to understand the impact of the sanctions on the capacity of the local company to still manufacture complete equipment," he said.

"The company has a licence from Siemens but we don't know what the situation is on that licence."

Nobody was available to comment from Siemens yesterday.

Tehran is seeking to shift some of the burden of funding its huge energy needs to alternative sources.

But tightening global efforts to curb the country's nuclear ambitions is slowly squeezing opportunities for global businesses in Iran.

In 2010, Siemens pledged to withdraw from Iran and not pursue new business.

But Peter Loscher, its chief executive, said in April the conglomerate would honour existing contracts to avoid facing fines from Tehran. Until Siemens stopped bidding for new contracts, the firm won a slew of lucrative long-term contracts.

In 2006 it won a €294 million (Dh1.3 billion) deal to provide 150 railway locomotives.

In the following two years it won several big orders to supply gas turbines and compressors for power plants.

Mr Abdelwahab said as long as the licensing agreement was still valid, the project could be launched before the end of the year. He declined to say where the plant would be sited.

IDB plans to put between US$80 million (Dh293.8m) and $100m of investment into the plant, with the rest of the funding coming from the government and Iranian banks.

Mr Abdelwahab added the investment would be supported by safeguards from the Iranian government.

"Normally, the government firm, the utility firm that is buying from the power plant in this case, is supported by a sovereign guarantee from the ministry of finance.

"In PPP you need a government guarantee as the biggest risk is the completion risk. If the project is able to be completed up to 95 or 99 per cent but cannot continue to go all the way with the plans, you as a financier are taking all the risk," he said.

While PPP is helping to finance a growing number of projects in the Middle East, the initiative is yet to take off in Iran because many international lenders are cutting their ties with the country.

But the IDB, based in Jeddah, supplies financing for Iran and its Islamic member nations.

Last year it approved a record $4.2bn in financing for projects around the world including power generation and road building.

"We are continuing our work in Iran as usual in public sector financing, as we are doing with other countries," Mr Abdelwahab said.

"Most of the work [in Iran] is in the social sector such as water, waste water, transport and agriculture."