TAQA said to eye $12bn Turkey power plant cancellation

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(Photo for illustrative purposes only)

(Photo for illustrative purposes only)

Abu Dhabi National Energy Co (TAQA) may shelve a $12bn power project in Turkey amid a deteriorating economic outlook and increasingly difficult financing conditions, Turkish energy industry sources said on Monday.

The state-owned oil explorer and power supplier agreed in January with Turkey's state-owned Electricity Generation Co (EUAS) on a project to build several power plants using lignite coal reserves in Turkey's Afsin-Elbistan region.

The project was already challenging, Turkish energy sources said, given the low quality of coal in the area.

But a recent emerging market sell-off that sent Turkey's currency to record lows has dampened its growth outlook and the possibility of further capital outflows has concerned TAQA.

"What we have been picking up from them recently is that they are looking at an eventual pullout," an energy industry source said. "This was such a large-scale project, whose future was very much dependent on market conditions."

Appetite for emerging market investments has been hit by fears of higher global borrowing costs and a reduction in the flow of cheap cash as the US Federal Reserve prepares to rein in its monthly bond-buying programme.

Turkey is particularly vulnerable, being heavily dependent on foreign inflows to finance its current account deficit, which is running at over 7 percent of national output.

"It was never realistic to see this project as something that one company alone could carry out ...Now with the changing climate towards emerging markets and Turkey, investors question the return," one source said.

TAQA said it had decided to defer the investment decision in Afsin-Elbistan until 2014, citing "other spending priorities".

A TAQA spokesman declined to comment on the potential cancellation of the project.

Turkey's Afsin-Elbistan region holds about 4.4 billion tonnes of lignite, around 40 percent of Turkey's total reserves, and could provide up to 8,000 megawatts of power production capacity in southeast Turkey, if the coal potential is fully exploited, according to the Turkish energy ministry.

Construction of the TAQA project was originally scheduled to start in mid-2013 and was aiming to create a combined power generation capacity of up to 7,000 megawatts.

Sources also cited tensions between Turkey and Gulf Arab states as one potential reason behind the possible cancellation.

"Due to the very high investment cost, if the tensions in the region could have been eased, progress might have been possible," another energy industry source said.

Turkish Prime Minister Tayyip Erdogan's criticism of the ouster of Egypt's President Mohamed Mursi - which Turkey deems a coup - has antagonised some Gulf Arab states, which remain divided on the issue.

A spokesman at TAQA, 75-percent owned by the government of Abu Dhabi, declined to comment when asked if the delay could be linked to politics.

Turkey is keen to make the most of its own coal resources so it can reduce its dependence on imported natural gas. Lignite's role in power generation is set to expand alongside rapid growth expected in electricity demand.

The country was looking to issue an international tender for the Afsin-Elbistan region, a Turkish energy official said, once TAQA formally pulls out of the project.

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Posted by: Roger

Lignite (soft brown coal) is probably the most polluting fuel in the world and no new power plant should be allowed to burn this fuel. East Germany and Hungary has closed its USSR built plants due to EU environment restrictions. West Germany installed expensive pollution controls for NOX, SOX and particutes and if they continue to burn coal they will need to install very complex and expensive carb0n capture technology (as will the US).
Message to Turkey (and the middle east) DO NOT BURN COAL (Unless you want to pass China as the world's worst per capita polluter). Note that the per capita carbon footprint of the UAE exceeds all other regions. So why not add pollution to its sins.

Posted by: ahmad

If it was unrealistic, why TAQA has signed and intended to perform the project at the very beginning? Moreover TAQA's situation in stock market shows that company never had such a capacity to perform this project.

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