IRAN - The Power Sector.

The state-owned power utilities Tavanir and Tehran Regional Electricity Company (TREC) are converting most thermal power plants from oil to gas. Total power generating capacity now is about 30,000 MW, which makes Iran by far the largest generator in the Middle East and North Africa - followed by Saudi Arabia, Turkey, Egypt and the UAE. Under a plan to 2022 launched in 1997 by the Energy Ministry, Iran's power generating capacity should reach 96,000 MW and this will require more than $40 bn in foreign currency investment. Of this target, 13,000 MW must be ready by mid-2002. If the projects involved are not completed on time, Iran would have serious blackouts from late 2001 as the country could be short of 2,000-3,000 MW capacity.

The problem is that nearly two-thirds of the 13,000 MW capacity targeted to be on stream by mid-2002 involve hydro-power plants, for which financing of the hard currency portions of costs remains very difficult to secure. Production and consumption of hydro-power since 1998 have been limited to 400,000 t/yoe, due to a drought. Production had come down from 700,000 t/yoe since the 1980s. The new hydro-power projects involve some of the biggest and most expensive river dams in the world.

Part of the new capacity targeted to be on stream by mid-2002 is the very expensive 1,000 MW nuclear power plant in the Gulf coastal town of Bushehr. This was first built but not completed by the Germans. It is being finished by the Russians. This project may not be completed before 2003 and the hard currency portion of its costs is said to exceed US$5 bn.

The Energy Ministry's plan means that every year 2,500 MW of new capacity must be installed, as power demand has been projected to grow by more than 6.5% per annum until 2022. Already, demand in 2000 grew by 7%. According to Energy Minister Habibollah Bitaraf, total energy use in Iran is growing so fast that it may shortly surpass the country's GDP growth.

The CEO of Tavanir, Mohammed Mallaki, was quoted in Aug. 1998 as saying that the strategy to 2022 called for greater reliance on gas and combined-cycle plants as well as IPPs. Minister Bitaraf has since said his ministry hoped to generate $500m per annum in foreign investment in plants to be built on BOT basis under a plan to 2005.

Of the new power plants to be built, four are IPP projects. In Iran an IPP venture must be based on a 20-year BOT deal with the Energy Ministry. Tavanir is the sole buyer of power from the IPP to be supplied under a 20-year contract. Tenders for and the operations of all IPPs are to be supervised by the Energy Ministry's Iran Power Development Co. (IPDC). The IPPs have to be built mainly by, and under the supervision of, the Energy Ministry's Iran Power Plant Projects Management Co. (Mapna). The four IPP projects are as follows:

* The 900 MW Perehsar venture, in which total investment is set at 600m euros ($553m), was awarded in late Feb. 2001 to a consortium led by Sondel of Italy (part of the Falck group). Its partners are Dillinger Stahl (DSD) of Germany and Mapna Int'l, a Dubai-registered unit of Mapna. With Sondel holding 50%, DSD has a 20% equity and Mapna Int'l holds 30% This first IPP to be executed in Iran will have a combined-cycle, gas-fired plant on the Caspian Sea coast near Rasht and 32 km from Bandar Enzeli. The IPP is capitalised at euro 155m ($140m). The plant is to start up by 2004. (The rival group which lost in the tender consisted of Saudi Oger of Lebanon's billionaire Prime Minister Rafik Hariri who has Saudi nationality, Nissho Iwai Corp. of Japan and International Power of the UK.

* The 1,000 MW Kerman project, originally planned to be the first IPP to be executed, has been delayed because of complications over a proposed soft-loan negotiated since 1999 between IPDC and the Jeddah-based Islamic Development Bank. Mapna has already begun civil works at the site of this plant, which is to be built in two phases: installation of gas turbines for a capacity of 1,000 MW; and addition of steam boilers for combined-cycle function.

* The 1,000 MW Jalal IPP near Tehran will be tendered at the end of 2001, according to Energy Ministry sources.

* The 1,000 MW Tabriz IPP in the capital of Azerbaijan province, in the north, is to be tendered at the end of 2001.

There are plans for thermal plants to add 3,000 MW capacity to the national system. A steam power plant for East Azerbaijan, involving two 325 MW units, is being built by Shanghai Electric Corp. and will be shipped before end-2001. Beijing has granted a $200m credit for them.