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Page 1: Iran Power Generation Industry
Page 2: Iran Power Generation Industry

In The Name of GOD

Page 3: Iran Power Generation Industry
Page 4: Iran Power Generation Industry

In the name of God Rapid Social and economic developments in the Islamic Republic of Iran have resulted in improved financial and welfare conditions for the general population which in turn has highlighted the importance of production of electrical energy as the infrastructure necessary for the countries development.

Evidently, satisfaction of the increased demand for electrical energy has been speeded up through attraction of investments of the private and nongovernmental sectors of both internal and foreign origin. The recent, announcement of the policies according to article 44 of the constitution by the supreme leader of Iran and the availability of the relevant laws and regulations for effective participation of the private sector in all aspects, has resulted in increased interest of investors for participation in the field of electricity generation. Consequently it has become extremely important to provide the prospective investors with correct information with reference to the Iranian laws and regulations in this respect.

To this end, the Iranian Power Development Company as the body responsible for attraction and guidance of private sector investment for construction and development of power plants, whilst being aware of the importance of the subject, has prepared an information package for guidance of the private sector investors in the electricity generation industry of Iran, the results of which are presented to interested parties in a booklet together with a multimedia compact disc. Mohammad Behzad, Chairman and Managing Director Iran Power Development Company February 2008

Page 5: Iran Power Generation Industry
Page 6: Iran Power Generation Industry

Chapter 1- Outlook to Iran Power Generation Industry

Chapter 2- Iran Power Generation Industry, an International Perspective

Chapter 3- Why Investment in Iran Power Generation Industry?

Chapter 4- Iran Power Projects Risks Overviewed

Chapter 5- Supply Chain for Independent Power Production in Iran

Chapter 6- Cost Breakdowns for IPP Projects in Iran

Chapter 7- Private Sector Participation schemes In Iran Power Projects

Chapter 8- Iran Power wholesale Market

Chapter 9- Financing Power Projects

Chapter 10- Legal Framework for IPP projects in Iran

Chapter 11- Steps to invest in Iran Power Generation Industry

7

43

65

71

83

87

97

111

123

131

143

Page 7: Iran Power Generation Industry
Page 8: Iran Power Generation Industry

888

1414172020242

25272734353538

1-1 Introduction1-2 Current Generation Capacity1-3 Prediction of Power Demand in Coming Years1-4 Types and Capacities of Existing Power Plants in Iran

1-4-1) Different Types of Power Plants in Iran 1-4-2) Capacity of Existing Power Plants1-4-3 Geographical Distribution of Existing Power Plants

1-5 Underway Power Plants1-5-1) Different Types of Underway 1-5-2) Geographical Distribution of Underway Power Plants

1-6) General Indices of Electricity Generation in Iran1-7) Analysis of Electricity Consumption in Iran

1-7-1) Per Capita Energy Generation1-7-2) Consumers’ Combination1-7-3 Major Consumption Centers1-7-4) Power Consumption Patterns

1-8) performed plans with private sector participation

Chapter 1- Outlook to Iran Power Generation Industry 7

Page 9: Iran Power Generation Industry

8 Chapter 1

1-1 IntroductionElectricity generation industries of Iran,

containing a guaranteed consuming market and several legal incentives to private sector participation in electric power sector, are promising a safe investment alternative with desired efficiency. In this section, supplying related data to the industry, we try to present a clear delineation of the present situation of the industry. Therefore, this report tries to involve different concerning aspects of the industry for the investor.

1-2 Current Generation CapacityThe below Table is a summary of

installed and operational power generation capacity of Iran with distinction of private and public producer.

Regarding Table 1-2-1, few part of power generation capacity of Iran is currently devoted to private sector and this participation does not exceed some percents. However, there are several negotiations with different investors to construct power plants in future years which some are concluded and some are under construction. Status of these power plants is illustrated in a Table in section 1-8.

1-3 Prediction of Power Demand

in Coming YearsNowadays, electrical energy plays a

key role in industry and daily life such that almost all sections of industry are dependent to this energy and also any modern household is not assumable without electricity. Therefore, electrical industry is one of the most important infrastructures in any country. On the

other hand, Iran is a developing country and meanwhile life quality is an increasing factor. Obviously, development of industry and also life quality is not possible without qualitative and quantitative development of electrical industry. Thus, development of electrical industry is an imperative issue to supply reliable electricity for all consumption branches. Supplement of domestic and industrial requirements requires precise planning and thus sufficient information. Urgent information to this development is prediction of future consumption. Consumption demands involve supplied power for consumers, amount of blackout times, losses, and equivalent power to frequency drop, limitation on large consumers, exports and internal consumption of power plants. Therefore, consumption demand is a function of several factors which some are described below.

1-Population: one of the most important factors of the amount of consumption demand is population. Thus, prediction of future population of country is required to predict the consumption demand. This prediction is performed by the office for national statistics.

2-Consumption pattern: in addition to population, also the quality and quantity of energy consumption of people have direct effect on consumption demand. In recent years, with invention of modern technologies and use of new household appliance such as computer and audio and visual systems, heating and cooling systems ( gas cooler, air conditioner,…), new kitchen appliances (microwave, fryer,…) the amount of electricity consumption is increased day by day. Therefore, to predict the

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Page 10: Iran Power Generation Industry

9Iran Power Generation Industry

Investment Guide

(Table 1-2-1) Installed and Operational Power Generation Capacity of Iran

Description

MW

MK

Wh

%W

KW

h

Incr

emen

t of

Year

200

5 Year 2005

National GirdTotal Sum

Out of National

Grid Sum of the Grid

Large Industries

Private Sector

Ministry of Power

Year 2004

Percentage of

Annual G

rowth

2004 to 2005

Average A

nnual Grow

th 1994 to 2004

3703

3253

3154

15

37

3082

2986

3035

15201

327

14874

38038

34494

29897

770

329

29166

29200

30692

170737

7147

163590

1213

1067

302

302

252

2391

115

2276

1594

1380

470

1753

1525

1525

4524

171

4353

40845

36941

30669

770

329

31221

30977

32217

177652

7433

170219

158

113

85

85

85

85

419

7

412

41003

37054

30754

770

329

31306

31062

32302

178071

7440

170631

37300

33801

27600

755

292

28224

28076

29267

162870

7113

155757

9/9

9/6

11/4

2/0

12/7

10/9

10/6

10/4

9/3

4/6

9/5

6/2

5/7

6/8

22/6

7/0

7/4

7/8

7/0

7/8

-96

924

64

65

-1/1

-0/8

-0/7

-0/7

1/7

0/8

51

207

101

2074

2761

65/2

56/5

36/1

90/4

25/6

35/0

109/9

37/4

28/4

2074

2761

619/4

629/6

66/1

55/3

35/8

56/3

39/9

20/9

2074

2761

619/4

629/6

66/1

54/9

35/8

2170

1837

555/0

564/9

67/2

55/7

36/5

4/9

16/4

18/7

553

2414

1855

-4/4

50/3

11/6

11/5

-1/1

-0/8

-0/7

-0/7

1/7

0/8

9/2

8/6

5/5

25.0

8.7

9.0

0.6

0.5

4.7

6.2

5.4

4/2

18/1

19/5

604

2621

1956

Nominal Power of Power Plants

Average Actual Power

Maximum Generated Power

Maximum Imported Power

Maximum Exported Power

Maximum Supplied Load

Max. Supplied Load Simultaneous

with Maximum Modified Demand

Maximum Modified Demand

Gross Generation of Power Plants

Internal Consumption of

Power Plants

Net Generation of Power Plants

Imported Energy

Exported Energy

Maximum Daily Generated Energy

Maximum Daily Required Energy

Generated Power Factor

Operation Factor of Power plant

Average Efficiency of

Thermal Units

Per Capita Power

Per Capita Generation

Per Capita Consumption

Transmission and Sub

Transmission

Distribution

Total

Loss

Page 11: Iran Power Generation Industry

10 Chapter 1

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3977

1979

1197

3467

778

303

11701

589

74

12

21

211

10

907

11 / 9

0 / 6

12 / 5

6 / 8

1 / 9

8 / 7

22 / 1

0 / 3

22 / 4

3029 / 0

259 / 0

3288 / 0

459

325

- 511

709

14 / 5

2 / 0

0 / 8

59

1 / 1

- 0 / 02

271

141

- 0/ 1

- 0/ 1

18 / 6

0 / 3

61 / 9

0 / 55

48085

18329

17666

46590

9320

4608

144598

16989

749

138

152

2531

47

20559

305 / 6

12 / 1

317 / 7

226 / 9

31 / 4

258 / 3

339 / 0

23 / 2

362 / 2

49297

16945

66242

8393

6695

21883

53059

4981 / 4

138 / 2

93 / 4

6810

64 / 7

18 / 02

7033

2830

15 / 5

12 / 6

3222

17 / 6

939

1 / 98

44108

16350

16469

43123

8542

4305

132897

16400

675

127

131

2320

37

19652

293 / 7

11 / 5

305 / 2

220 / 1

29 / 5

249 / 6

316 / 9

22 / 9

339 / 8

46268

16686

62954

7934

6370

22394

52350

4966 / 9

136 / 2

92 / 6

6751

63 / 6

18 / 04

6763

2690

15 / 5

12 / 7

3203

17 / 3

878

1 / 43

9 / 0

12 / 1

7 / 3

8 / 0

9 / 1

7 / 0

8 / 8

3 / 6

10 / 9

9 / 1

16 / 0

9 / 1

27 / 0

4 / 6

4 / 1

5 / 4

4 / 1

3 / 1

6 / 4

3 / 5

7 / 0

1 / 3

6 / 6

6 / 5

1 / 6

5 / 2

5 / 8

5 / 1

- 2/ 3

1 / 4

0 / 3

1 / 5

0 / 9

0 / 9

1 / 7

- 0/ 02

4 / 0

5 / 2

- 0 / 5

- 1/ 1

0 / 6

1 / 9

7 / 1

38 / 5

6 / 6

10 / 2

11 / 8

7 / 3

1 / 1

8 / 9

7 / 3

4 / 7

7 / 9

14 / 0

9 / 7

4 / 7

33 / 9

4 / 8

6 / 3

4 / 8

6 / 2

4 / 1

7 / 2

4 / 4

7 / 3

2 / 3

6 / 9

6 / 5

2 / 6

5 / 3

- 1/ 38

4 / 8

4 / 2

6 / 2

3 / 0

4 / 4

5 / 1

2 / 3

1 / 8

1 / 3

- 0 / 4

0 / 4

1 / 9

6 / 7

Description

Residential

Public

Agricultural

Industrial

Other Consumption

Street Lighting

Total

Residential

Public

Agricultural

Industrial

Other Consumption

Street Lighting

Total

Overhead Medium Voltage

Underground Medium Voltage

Sum of Medium Voltage Grid

Overhead Low Voltage

Underground Low Voltage

Sum of Low Voltage Grid

Number of Overhead Transformers

Number of Underground Transformers

Total Sum of Distribution Transformers

Capacity of Overhead Transformers

Capacity of Underground

Transformers

Total Capacity of Distribution

Transformers

Number of Medium Voltage

Distribution Feeders

Number of Street Lights

Employees of Distribution Companies

Total Number of Electrified Villages

Total Number of Electrified Rural

Households

Length of Rural Medium Voltage Lines

Length of Rural Low Voltage Lines

Capacity of Rural Power

Grid Transformers

Number of Rural Power Grid

Transformers

Distribution Grid Losses

Average Consumption of Customers

Average Consumption of Residential

Customers

Average Length of Medium Voltage

Distribution Lines per Customer

Average Length of Low Voltage

Distribution Lines per Customer

Average Distribution Grid Transformer

Capacity per Customer

Average of Distribution Grid

Transformer Number per Customer

Customer Number per Employee

Blackout Time per Customer

Increment in Year 2006

Year 2006 Year 2005 Percentage of Annual Growth 2005 to 2006

Average Percentage of Annual Growth 1995 to 2005

Million KWh

Thousand Costumer

Thousand Kilometers

Thousand sets

Mega Volt Amperes

Set

Thousand sets

Employee

Ene

rgy

Sal

e

X 1000

1000 Km

MVA

1000 sets

%

KWh

M/costumer

W/Costumer

Sets/ 1000 Costumer

Minute/day

Ele

ctric

ity C

ostu

mer

sD

istri

butio

n Fa

cilit

ies

Rur

al E

lect

rifica

tion

Indi

ces

(Table 1-2-2) Outlook of Distribution Status of Electrical Industry in Year 2006

Page 12: Iran Power Generation Industry

11Iran Power Generation Industry

Investment Guide

future consumption demand, not only the index of population but also the change of consumption pattern must be considered.

3-Industrial activities: a considerable part of generated electricity is consumed by industry. Obviously, with development of industry, this part needs more electrical energy. The rate of economic growth is determined in country development plans.

4-Economic activities: increasing economic activities in society, the amount of electrical energy consumption is also increased.

5-Gross Domestic Product (GDP): Gross Domestic Product is an index of economic capabilities of any country. Evidently, the economic capability is effective on electricity consumption.

6-Power exchange with neighboring countries: as will be mentioned in continue, our country, similar to other countries, has electrical energy (load) exchange with its neighboring countries. Obviously, variation in import and export directly affects the consumption demand. Thus, to predict the consumption demand, it is necessary to know the trend of import-export and also the warranties which are given to neighboring countries to supply electricity. With precise prediction of consumption demand, it is possible to decide to power plant construction

and development of transmission and distribution lines.

To predict the consumption demand several methods may be employed. A method is evaluating the trend of consumption increment in previous years and to generalizing it to the future. This method is not enough precise for, the trend of consumption increment is different for several years. Furthermore, as mentioned before, increment of electrical energy consumption is a function of population growth, and growth of industrial and economical activities. Thus, using the prediction of these statistics which are performed by concerning organisms, consumption of future years is predictable. Obviously, this method is more precise but anyway is not error free, because growth statistics of other indexes which are assumed as independent variables may have error, furthermore, the relation between consumption growth and other indexes is not exactly linear, for instance, not only population growth is effective on the consumption growth, but also consumption pattern of the society has a considerable effect on the electricity consumption.

It is worth noting the trend of increment in electricity consumption in Iran. The growth rate of electricity consumption in Iran in several time periods is shown in below Table.

Page 13: Iran Power Generation Industry

12 Chapter 1

As Table 1-3-1, the demand for electrical energy has been different for several time periods. According to existing statistics, during years 1967 to 1978, average annual growth of electricity consumption was almost 22.9%. This large amount of growth rate was originated from economic evolutions as a result of extension of urbanity and development of industrial structures. During years 1979 to 1988, growth rate of electricity consumption was decreased to 9.5% .during this period, as a result of revolution and imposed war, the trend of development of industry is stopped and even decreased, but growth trend of urbanity and electrification and extension of national grid continued. During years 1989 to 1994, encountering first economic, social development plan, electricity consumption in the country was increased and average growth rate reached almost 9.8%. During 1995 to 2001, i.e. during second development plan and beginning of third development plan, electricity consumption growth reached around 6.7% which indicates decrement of growth rate in this time period compared with three former periods. Therefore, concerning the extension of national grid in previous years and its developing trend and many new customers of electrical industries, stabilization or slowing trend of electricity consumption growth in electricity system might be possible and the issue must be investigated more precisely. Prediction of consumption demand is performed by load prediction office a subset of production planning deputy. For prediction, different scenarios are assumed. In each scenario one or two independent variable is employed and using statistical methods the prediction is performed. Finally, the final prediction

is presented as a weighted combination of all predictions. In statistics, it is proved that the combination method has the less error.

The prediction of consumption demand till year 1403 which is the end of Iran’s 20-year vision document, using the complex methods and considering mentioned assumptions, has been presented as follows. Obviously, as time progresses, the precision of prediction is dropped. However, obtaining an approximation of consumption demand at the end of this period is considered and so the mentioned method seems accurate enough.

The below assumptions are considered to predict the consumption demand till year 1404:

1-Growth of Grass Domestic Product (GDP) based on forth development plan is predicted to be 8%.

2-Population growth is assumed to be 1.4% (based on forth development plan)

3-It is assumed that development parameters (GDP, population …) will be continued after forth plant till 1404.

4-It is assumed that there is no unpredictable event such as war and so forth.

5-The prediction is performed for load peak or maximum load in summer.

Total electricity generation shortage of Iran is also determined with distinction of dispatching centers, in production planning deputy of TAVANIR organization. To determine the electricity generation shortage, in addition to consumption demand, information of power plant construction is also needed. To predict the shortage, the power export have been considered, also constant 10% reserve margin is assumed and only the capacity of certain power plants is considered in calculations.

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22/9 9/5 9/8 6/7

(Table 1-3-1) Average Growth Rate of Electricity Consumption during Several Years

1967-1978Period of Time 1978-1988 1989-1994 1995-2001

Years of Birth of Economic Evolutions

Years of Revolution and Imposed War

Years to Rebuild the Country (First

Development Plan)

Years of Second Development Plan and First Years of Third

Development PlanDescription

Average of Growth Rate of Electricity Consumption

(Percent)

Page 14: Iran Power Generation Industry

13Iran Power Generation Industry

Investment Guide

1385

1386

1387

1388

1389

1390

1391

1392

1393

1394

34,074

37,053

40,189

43,762

47,501

51,484

55,797

60,157

64,842

69,473

1395

1396

1397

1398

1399

1400

1401

1402

1403

74,438

79,756

85,458

91,572

98,128

105,157

112,690

120,771

129,431

(Table 1-3-3) Prediction of Consumption Demand till Year 2025 (MW Capacity)

Year Demand Year Demand

(Table 1-3-2) Prediction of Consumption Demand with Distinction of Regional Electric Power Companies (MW Capacity)

1385

2,022

3,229

2,383

6,300

2,666

4,777

901

370

629

1,286

3,163

1,498

896

1,559

90

1,586

719

2,156

3,460

2,581

6,644

2,847

5,181

962

411

677

1,401

3,760

1,687

952

1,665

102

1,777

790

2,328

3,671

2,816

6,985

3,042

5,696

1,038

453

732

1,543

4,260

1,810

1,024

1,806

115

1,990

880

2,501

3,910

3,055

7,416

3,285

6,264

1,120

511

793

1,683

4,763

2,087

1,097

1,941

135

2,229

972

2,683

4,082

3,358

7,853

3,639

6,877

1,203

564

858

1,953

5,189

2,245

1,177

2,179

147

2,429

1,065

2,889

4,325

3,683

8,238

3,939

7,579

1,293

606

933

2,073

5,814

2,495

1,264

2,383

160

2,648

1,162

3,275

4,591

3,996

8,739

4,222

8,354

1,384

651

1,070

2,269

6,245

2,684

1,347

2,587

172

2,886

1,325

3,707

4,778

4,400

9,025

4,506

9,079

1,468

692

1,250

2,459

6,692

2,925

1,460

2,850

185

3,146

1,535

3,961

5,186

4,664

9,926

4,827

9,787

1,588

738

1,363

2,619

7,182

3,144

1,574

3,058

199

3,379

1,647

4,233

5,501

4,944

10,646

5,170

10,551

1,719

787

1,458

2,789

7,708

3,380

1,697

3,281

213

3,629

1,767

4,523

5,836

5,240

11,417

5,539

11,374

1,860

840

1,560

2,970

8,273

3,634

1,829

3,521

229

3,897

1,896

4,833

6,190

5,555

12,243

5,933

12,261

2,012

896

1,669

3,163

8,879

3,906

1,972

3,778

245

4,186

2,035

5,164

6,567

5,888

13,130

6,355

13,217

2,177

956

1,786

3,369

9,529

4,199

2,125

4,054

263

4,496

2,183

5,518

6,966

6,241

14,082

6,808

14,248

2,356

1,019

1,911

3,588

10,227

4,514

2,291

4,350

282

4,828

2,343

5,897

7,389

6,616

15,104

7,293

15,359

2,549

1,087

2,045

3,821

10,976

4,853

2,470

4,667

302

5,186

2,514

6,301

7,838

7,013

16,202

7,812

16,557

2,758

1,160

2,188

4,070

11,780

5,217

2,663

5,008

324

5,569

2,697

6,733

8,315

7,434

17,378

8,368

17,849

2,984

1,237

2,341

4,334

12,643

5,608

2,870

5,373

347

5,982

2,894

7,195

8,820

7,880

18,642

8,964

19,241

3,228

1,320

2,505

4,616

13,570

6,029

3,094

5,766

372

6,424

3,105

7,688

9,356

8,353

19,996

9,602

20,742

3,493

1,408

2,680

4,916

14,564

6,481

3,335

6,186

399

6,900

3,332

1386 1387 1388 1389 1390 1391 1392 1393 1394 1395 1396 1397 1398 1399 1400 1401 1402 1403

Azarbaijan

Isfahan

Bakhtar

Tehran

Khorasan

Khuzestan

Zanjan

Semnan

Sistan and Baluchistan

Gharb

Fars

Kerman

Gilan

Mazandaran

Kish Free Zone

Hormozgan

Yazd

Regional Electric Co.

Page 15: Iran Power Generation Industry

14 Chapter 1

1-4 Types and Capacities of Existing Power Plants in Iran

1-4-1) Different Types of Power Plants in Iran

At first, different types of power plants and their general characteristics will be mentioned in this section. Different classifications of power plants based on their fuel types and technology are as follows:

1. Thermal power plants 2. Hydro power plants3. Wind power plants 4. Nuclear power plants 5. Solar thermal power plants All types of power plants except solar

thermal ones are operational in Iran. Afterwards a brief description about these power plants will be followed.

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Indu

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140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

1385

1387

1389

1391

1393

1395

1397

1399

1401

1403

(Diagram 1-3-2) Prediction of Consumption Demand in Iran till Year 1403

Dem

and

(MW

)

Year

1390 1391 1392 1393 1394 1395 1396 1397 1398 1399 1400-

-

-

-

-

-

-

569

-

-

-

927

-

-

-

261

679

-

478

-

1907

-

-

-

736

1332

-

1651

-

2651

-

-

-

1016

1799

-

2641

628

3423

-

496

-

1315

2294

415

3703

1250

4251

280

905

-

1634

2818

783

4840

1916

5141

1256

1345

396

1975

3377

1173

6063

2631

6096

2307

1817

861

2339

3970

1587

7377

3399

7121

3441

2325

1359

2729

4599

2026

8788

4223

8223

4663

2871

1892

3145

5268

2491

10306

5107

9403

5981

3458

2463

3590

5979

2985

11933

6057

10673

7402

4087

3075

4065

6732

3510

13683

7076

12034

8934

4766

3731

4573

7533

4066

15561

8170

13497

10585

5493

4432

5116

8383

4655

(Table 1-3-4) Total Generation Capacity Shortage in Iran with Distinction of Dispatching Centers (MW)

1401 1402 1403Tehran

South

South-East

South-West

North

North-East

North-West

West

Central

Dispatching Center

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15Iran Power Generation Industry

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0/0

0/

0

0/0

0/

0

0/1

0/

1

0/1

0/

1

0/3

0/

6

1/3

1/4

1/4

1/4

1/5

1/6

2/0

2/

2

2/9

3/4

3/6

4/

0

4/5

4/9

5/5

5/

6

6/5

9/0

1

4/6

2

1/4

Diagram 1-4-a Share of Nominal Power of Each Province to Total Nominal Power of Country in 2006 (Percent)

Ilam

Zanj

anG

oles

tan

Kohg

iluye

h an

d Bo

yer-A

hmad

Sem

nan

Cha

har M

ahaa

l and

Bak

htia

riAr

dabi

lLo

rest

anKh

oras

an, S

outh

Bush

ehr

Azar

baija

n, W

est

Sist

an a

nd B

aluc

hist

anKe

rman

shah

Kurd

istan

Yazd

Qom

Khor

asan

, Nor

thH

amad

anM

arka

ziKe

rman

Azar

baija

n, E

ast

Gila

nQ

azvin

Maz

anda

ran

Khor

asan

, Raz

avi

Hor

moz

gan

Fars

Isfa

han

Tehr

anKh

uzes

tan

10000

8000

6000

4000

2000

0

Diagram 1-4-b Nominal Power of Regional Electric Power Companies at the End of 2006

Zan

jan

Sem

nan

Kish

Yaz

d S

istan

Gha

rb K

erm

an G

ilan

Aza

rbai

jan

Maz

anda

ran

Bak

htar

Hor

moz

gan

Khu

zest

an F

ars

Isfa

han

Kho

rasa

n T

ehra

n P

rivat

e Se

ctor

Lar

ge In

dust

ries

Steam

Gas

Combined Cycle

Diesel

Wind

(MW

)

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16 Chapter 1

Thermal Power Plants The most conventional power plants

in Iran and all over the world are thermal ones. In these plants steam pressure is used to move Turbine shaft and as a result electricity is produced. The major dilemma of these types of power plants is green house gas emission. In these types of power plants a huge amount of CO2, N2O3, and SO2 ... are released to the atmosphere and pollute the environment.

Evidently some excessive heat may be produced in these types of power plants. This excessive heat may be used as valuable heat in so-called CHP (Combined Heat and Power) plants.

There are two basic classifications for thermal plants:

1. According to primary fuel used for steam production

2. According to type of technology used to rotate electrical generators

Thermal power plants are categorized according to primary fuel type as follows:

•Nuclear power plants •Fossil fuel power plants (for example

Gas, Mazot, Gas oil …)•Geo thermal power plants•Plants which use the excessive

or emitted heat of other industrial processes

•Renewal energy (users) power plants The other classification of power plants

which is based on type of their prime mover installed is as follows:

•Steam power plants which use the energy of pressurized steam to move the

turbine blades.•Gas power plants in which the heat

produced by gas combustion moves the turbine.

•Combined cycle power plants are a combination of two previous types of power plants. This combination considerably improves the total efficiency.

•The power plants motivated by reciprocating motors are used for small places including official buildings and hospitals. The main fuels of these plants are Gas oil, fuel oil and gas.

To signify the importance of thermal power plants, a brief description about other type power plants is provided here.

Hydro Power PlantsConstruction of hydro power plants

requires existence of rich rivers (with abundant flow) and technology of making dams. Consequently it is not feasible to construct these types of power plants in any location. Hydro power plants produce less environmental pollution than fossil fuel power plants and are used in places with mighty rivers like Canada.

Wind Power PlantsThese plants are installed in places with

heavy and permanent winds. The most important advantage of this type of power plant is its cleanness. Although these types of power plants are environment friendly but their initial construction costs are high and their nominal power is low. In developed countries the construction

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17Iran Power Generation Industry

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rate of these types of power plants is increasing.

Nuclear Power PlantsConstruction of nuclear plants has

been started from early 50’s in the world. There were only 437 nuclear power plants in 1990 which produced more than 300 thousands MW electricity. The increase of nuclear wastes of these power plants (e.g. cesium 137 radio isotopes, strontium 90, and polonium 239…..) is the primary environmental impact of nuclear power plants; therefore disposal of nuclear waste is the major issue for these type power plants.

Exhaustibility of fossil resources and their increasing cost magnify the importance of nuclear power plants. Nowadays more than 70% of electrical power produced in France is by nuclear power plants.

Also in Iran, respect to key role of nuclear power plants in the future energy equations of the world some attempt is devoted to construction and operation of nuclear power plants. Bushehr nuclear power plant is one of these activities which will be operational in near future and is constructed with participation of Russia.

Solar Thermal Power PlantsIn these plants solar panels (a group

of connected solar cells) convert the energy of sun light into electric energy. As far as the produced electricity is DC (Direct Current); for transmission to the consumers it should be converted to AC (alternative Current).

1-4-2) Capacity of Existing Power Plants

Based on the statistics issued by ministry of power in 2004, the capacity and different characteristics of power plants in Iran are discussed.

It should be mentioned that installation and operation of each type of mentioned power plants depend on different environmental and economic conditions. The following data could be utilized as

a guide to distinguish more feasible power plants based on these conditions and governmental strategies.

Hydrothermal (Steam) Power Plants

Due to statistics of year 2004, there are 82 operational units in 23 steam power plants with 15554 MW nominal powers. Compared to statistics of year 2003, it has increased by 325 MW which means 2.1% increase rate. The steam power plants production share is 37.9% of total production of power plants. In 2004 the average operational power of steam power plants and also their gross generation were 15187 MW and 93383 KWH respectively.

Gas Power PlantsThere were 189 operational units in

28 gas power plants and 7 Gas-Steam power plants till the end of 2004 in Iran. The cumulative nominal power of these plants was 9709 MW, which had an increase rate of 26 %, compared to previous year. This increase was due to utilization of 13 new units in Damavand, Hormozgan and Foolade-mobarake power plants.

In recent years, there is more consideration to gas power plants because most of required equipments for these plants are manufactured in domestic factories. Also, these type power plants have the possibility to convert to combined cycle power plants in future to increase the efficiency of production.

According to statistics of year 2004, these types of power plants are 26.3% of all operational plants of Iran. The minimum operational (effective) power of these plants in summer and the maximum operational power of them in winter are 6769 and 7682 MW respectively. Also, the gross generation of these power plants in the same year was 24979 million KWH which had an increase of 41.2% compared to its previous year statistics (2003).

Combined Cycle Power Plants:

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In 2004, there were 57 operational combined cycle power units with 6832 MW nominal power in Iran. Compared to the year before the generated power was fixed .These 57 units were in 6 pure combined cycle power plants and 2 plants which were a combination of combined cycle and hydrothermal (steam) units.

These power plants are considered due to their high efficiency, low environmental

impacts and optimal use of fuel. The generated power of these plants was 18.3% of total installed nominal power. In 2004, the average actual power generation was 5996MW and their gross generation was 36250 million KWh that shows 10.2% and 27% growth respectively. Of course during this period, no new combined cycle unit has added to the existing units.

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1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

Total

11

13

12

12

11-16

16

14

13

13

2

1

1

14

14

1

2

1

2

1

15

11

6-20

12

11

15

160

159

159

159

159

738

159

159

159

159

159

159

159

264

264

159

159

159

3492

161

161

322

9/9

10

250

9 / 0

9 / 0

0 / 3

0 / 3

250

519

159 / 0

159 / 0

159 / 0

159 / 0

738 / 0

159 / 0

159 / 0

159 / 0

159 / 0

250 / 0

161 / 0

161 / 0

159 / 0

159 / 0

9 / 0

9 / 0

0 / 3

0 / 3

250 / 0

159 / 0

263 / 8

9 / 9

263 / 8

159 / 0

159 / 0

159 / 0

4342

85 / 01 / 31

85 / 20 / 01

85 / 02 / 20

85 / 03 / 02

85 / 03 / 11

85 / 30 / 18

85 / 04 / 09

85 / 04 / 13

85 / 04 / 14

85 / 04 / 17

85 / 04 / 26

85 / 05 / 06

85 / 06 / 08

85 / 06 / 15

85 / 06 / 17

85 / 06 / 21

نيمه

نيمه

85 / 07 / 29

85 / 08 / 09

85 / 09 / 15

ط نه ما

8 / 11 / 24

85 / 11 / 28

85 / 11 / 29

85 / 12 / 09

Table 1-4-1 Installed Capacity and Operation Date of New Power Plant Units

Power Plant Name

Unit Number

Nominal Power of Electricity Network

Steam Gas Combined Cycle Hydro Power Wind PowerTotal Operation

Date*

Reference: IGMC* Synchronization Date ** In year 2006 only 100MW is transferred from Mobin Petrochemical Company to electricity network of Iran

Parand

Sanandaj

Shirvan

Parand

Mobin Petrochemical**

South Isfahan

Sanandaj

Parand

Shirvan

Karun 3

Salimi

Yazd

Parand

Shirvan

Taleghan

Taleghan

Darre-Takht 1

Darre- Takht 1

Karun 3

Parand

Rood Shoor

Binalood

Rood-shoor

Urmia

Shirvan

Parand

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Hydro Power Plants:71 units of 26 hydropower plants with

capacity of 5012 MW were in service at the end of year 2004. This value had 592 MW increase compared to previous year statistics, which is due to installation of 6 new units in Pol Kaloo I, Maron, Koohrang and Karun III power plants. Hydro power plants have 13.4% shares of total electric power generation in Iran. In recent years with regard to water potential of homeland, construction of new hydropower plants are considered.

No need for fossil fuels, no environmental impacts, easy operation, negligible internal consumption of the plant, high commitment maneuvering, high speed response to frequency variation of network, low maintenance and overhaul costs and 70% availability of spare parts in country are advantages of these hydropower plants. The evidences show that the developing trend of these plants will be continued in future years. The main obstacle for development of these plants is that flowing waters are slight and concentration of water resources is in exceptional areas.

Wind Power Plants:Using renewable energy in recent years

such as wind energy has been initiated to

•Access to different energy resources •Consider environmental issues •Replace fossil fuels The operational project of 600KW

wind turbines performed by Ministry of Energy and Power with the aim of designing proper wind turbines for different continental climate, achieving the production of turbines with 1MW power and technology improvement, is an instance of this strategy.

At the end of year 2004, total wind power plants of country reached to 56 units (50 wind turbines of Atomic Energy Organization of Iran and 5 wind turbines of Binalood) with total capacity of 25 MW that shared about 0.07% of total power generation.

Diesel Power Plants: Almost 50 diesel power plants

with nominal power of 493 MW are currently in operation that share the 1.3% of total power generation of Iran. Gross generation of these plants is 252 million KWh which is a negligible share of total electricity generation of country. Hydrothermal power plants approximately have half of total actual power generation (44 %) but the share of diesel power plants is negligible.

011313/4

40/8

18/3

26

Steam Gas Combined Cycle Hydro Wind Diesel

Diagram 1-4-1: Nominal Power Generation Percentage of

Each Type of Power Plant to Total Power Generation

Diagram 1-4-2: Actual Power Generation Percentage of

Each Type of Power Plant to Total Power Generation

10/1

13/6

17/7

23/6

44

Steam Gas Combined Cycle Hydro Wind Diesel

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1-4-3 Geographical Distribution of Existing Power Plants

The maximum installed powers in Iran, belongs to two provinces, Tehran and Khuzestan, with actual generation of 6761.8 and 6702 MW respectively.

Also, Zanjan province with no power generation and Semnan province with just 15.5MW power have the low rank of power generation in Iran.

Across the country two province of Zanjan and Semnan with Yazd, Sistan & Baluchistan and west provinces (Kermanshah, kurdistan, Ilam) have actual power generation less than 1000MW. Considering these provinces and knowing the high generations of Khouzistan and Tehran, the rest of provinces have a capacity of 1000 to 3000 MW. Diagrams 1-4-5 and 1-4-6 show the similarities between generation and consumption patterns of Iran which indicates proportional distribution of installed capacities. In Diagram 1-4-7

these two patterns can be precisely studied.

However, current electricity consumption in Iran does not indicate the real electrical energy demand and amount of real demand is more than currently consumed amount, such that existing power plant capacity is not sufficient for total existing requirement. This is the result of some local blackouts.

1-5 Underway Power PlantsThis section will present a complete

statistical view of underway power plants or those which are scheduled or under studying. The importance of this section is clarification of generation capacity in near future for investors.

The information about these power plants clarifies that whether electricity demand of any area is satisfied by existing projects. Power plants or plant units which are classified in uncertain group are currently under study.

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(MW

)

9000

8000

7000

6000

5000

4000

3000

2000

1000

0

8000

7000

6000

5000

4000

3000

2000

1000

0

Aza

rbai

jan

Isfa

han

Bak

htar

Te

hran

K

hora

san

Khu

zest

an

Zanj

an

Sem

nan

Sis

tan

and

Bal

uchi

stan

G

harb

Fa

rs

Ker

man

G

ilan

Maz

anda

ran

Hor

moz

gan

Yazd

K

ish

Indu

strie

s

Diagram 1-4-4: actual power generation of regional electricity company of each province (2005)

Diagram 1-4-3: nominal power generation of regional electricity company of each province (2005)

(MW

)

Aza

rbai

jan

Isfa

han

Bak

htar

Te

hran

K

hora

san

Khu

zest

an

Zanj

an

Sem

nan

Sis

tan

and

Bal

uchi

stan

G

harb

Fa

rs

Ker

man

G

ilan

Maz

anda

ran

Hor

moz

gan

Yazd

K

ish

Indu

strie

s

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21Iran Power Generation Industry

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35000

30000

25000

20000

15000

10000

5000

0

-5000

Generation Consumption

Diagram 1-4-7 comparison of generation and consumption patterns in Iran

(Mill

ion

KW

h)

35000

30000

25000

20000

15000

10000

5000

0

30000

25000

20000

15000

10000

5000

0

Diagram 1-4-5 Total Energy Consumption of Each Province

Diagram 1-4-6 Net Generation in Different Areas of Iran

(Mill

ion

KW

h)

Aza

rbai

jan

Isfa

han

Bak

htar

Te

hran

K

hora

san

Khu

zest

an

Zanj

an

Sem

nan

Sis

tan

and

Bal

uchi

stan

G

harb

Fa

rs

Ker

man

G

ilan

Maz

anda

ran

Hor

moz

gan

Yazd

Aza

rbai

jan

Isfa

han

Bak

htar

Te

hran

K

hora

san

Khu

zest

an

Zanj

an

Sem

nan

Sis

tan

and

Bal

uchi

stan

G

harb

Fa

rs

Ker

man

G

ilan

Maz

anda

ran

Hor

moz

gan

Yazd

(KW

h)

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Out

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to Ir

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1390

1389

1388

1385

1389

1385

1386

1385

1388

1386

1385

1386

1384

1387

1384

1385

1386

1387

1386

1385

1386

1384

1385

1385

1386

1390

1387

1389

1386

1385

1388

1385

1385

1384

1387

1385

1385

1384

1385

1384

1384

1385

1384

1385

1385

1385

1387

1386

1384

1386

1384

1386

1384

1385

1385

1386

1384

1385

1386

1384

1385

1385

1386

1389

1387

1388

1386

1384

1388

1385

1385

1384

1387

1384

1385

1384

8

4

7

1

5

3

3

1

3

4

3

2

1

4

1

2

1

1

4

2

4

3

1

5

4

1

1

2

4

2

2

1

1270

916

1218

161

1200

480

644

161

416

584

862

284

149

563

325

564

870

1230

1864

576

423

834

1000

4

1000

386

1000

480

14

1500

1000

3

3

26

1000

48

100

5

Table 1-5-1 Underway power plant projects (Finalized Plan)

Type Regional Electric Co.

Dispatching Region

Capacity (MW)

Number of Units

First Stage of Operation

Final Stage of Operation

C.C.

C.C.

C.C.

C.C.

C.C.

C.C.

C.C.

C.C.

C.C.

Gas

Gas

Gas

Gas

Gas

Steam

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Nuclear

Hydro

Hydro

Hydro

Hydro

Hydro

Hydro

Hydro

Hydro

Hydro

Hydro

Hydro

Hydro

Hydro

Hydro

Hydro

Fars

Gharb

Tehran

Mazandaran

Khorasan

Fars

Kerman

Yazd

Yazd

Azarbaijan

Tehran

Sistan and Baluchistan

Hormozgan

Khorasan

Azarbaijan

Azarbaijan

Khorasan

Fars

Tehran

Zanjan

Zanjan

Isfahan

Fars

Isfahan

Khuzestan

Bakhtar

Mazandaran

Gharb

Mazandaran

Khuzestan

Isfahan

Isfahan

Isfahan

Isfahan

Khuzestan

Tehran

Fars

Isfahan

South

West

Tehran

North

North-East

South

South-East

South-East

South-East

North-West

Tehran

South-East

South-East

South-East

South-West

South-West

South-East

South

Tehran

Tehran

Tehran

Center

South

Center

South-West

West

North

West

North

South-West

Center

Center

Center

Center

South-West

Tehran

South

Center

Name

Jahrom (Combined Cycle)

Sanandaj (Combined Cycle)

Damavand (Combined Cycle)

Shahid Salimi (Combined Cycle)

Shirvan (Combined Cycle)

Kazerun (Combined Cycle)

Kerman (Combined Cycle)

Yazd (Combined Cycle)

Yazd (Solar Cycle)

Ardabil

Parand

New Chabahar

Hormozgan (Combined Cycle)

Qaen (Gas)

Sahand

Urmia

Tus Development

Asaluye Development

Rood Shoor

Zanjan

Zanjan

South of Isfahan

Bushehr (Nuclear)

Pol Kaloo 2

Masjed Soleiman Development

Roodbar Lorestan

Siyah Bishe

Simare

Shahid Rajaei

Karun 3

Karun 4

Karik 2

Karik 3

Koohrang

Gatvand

Lavark

Molla Sadra

Manj

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1387

1388

1387

1388

1387

1387

1387

1387

1387

1387

1388

1390

1388

1387

1387

1386

1388

1386

1386

1386

1388

1386

1392

1386

1385

1388

1388

1390

1386

1386

1391

1387

1388

1387

1388

1387

1387

1387

1387

1387

1387

1388

1390

1388

1387

1387

1386

1388

1386

1386

1386

1388

1386

1392

1385

1385

1388

1388

1390

1386

1386

1391

4

3

3

4

4

3

2

1

1

1

1

1

1

4

4

1

1

1

2

1

1

4

1

1

5

1

1

1

1

1

1

1001

877

425

888

826

964

461

465

279

1678

253

1330

810

571

903

1534

289

316

574

574

489

617

438

452

939

145

439

408

863

903

912

Table 1-5-2 Underway power plant projects (In Study)

Total Production Capacity

Type Regional Electric Co.

Dispatching Region

Number of Units

First Stage of Operation

Final Stage of Operation

Name

Parre sar C.C.

Tabriz C.C.

Jalal C.C.

Shirvan C.C.

Fars C.C.

Ali Abad

Gonave & Deilam

Qom C.C.

Eslam Abad

Isfahan

Ilam

Bakhtar

Tehran

Bistoon Development

Khorram Abad

Khuzestan

Dogonbadan

Ramsar

Zanjan

Zanjan

Sarakhs

Semnan

Sistan & Baluchistan

Asaluye

Ali Abad

Qeshm

Kashan

Kerman

Kahnooj

Hormozgan

Yazd

C.C.

C.C.

C.C.

C.C.

C.C.

Gas

Gas

C.C.

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Gas

Parre sar C.C.

Tabriz C.C.

Jalal C.C.

Shirvan C.C.

Fars C.C.

Ali Abad

Gonave & Deilam

Qom C.C.

Eslam Abad

Isfahan

Ilam

Bakhtar

Tehran

Bistoon Development

Khorram Abad

Khuzestan

Dogonbadan

Ramsar

Zanjan

Zanjan

Sarakhs

Semnan

Sistan & Baluchistan

Asaluye

Ali Abad

Qeshm

Kashan

Kerman

Kahnooj

Hormozgan

Yazd

South

South-West

Tehran

South-East

South

North

South

Tehran

West

Center

West

West

Tehran

West

West

South-West

South-West

North

Tehran

Tehran

South-East

Tehran

South-East

South

North

South-East

Center

South-East

South-East

South-East

South-East

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45%55%

Combined Cycle Hydro

29%71%

Combined Cycle Hydro

Diagram 1-5-4 The capacity of underway power plants based on their types (2011)

Diagram 1-5-3 The capacity of underway power plants based on their types (2010)

19%

67%

14%

Hydro Gas Combined Cycle

55%45%

Combined Cycle Hydro

Diagram 1-5-2 The capacity of underway power plants based on their types (2009)

Diagram 1-5-1 The capacity of underway power plants based on their types (2008)

1-5-1) Different Types of Underway Power Plants

Have a glance to development trend and power plant development plans of Iran in coming years, may result in useful information.

The status of underway power plants shows that investments will be directed on hydro and combined cycle ones from 2008. Combined cycle power plants will gradually be the major plants for

investment.These facts are illustrated in Diagrams

1-5-1 to 1-5-4.

1-5-2) Geographical Distribution of Underway Power Plants

Main investments during 2006 and 2007 have been in Tehran, Fars and Khuzestan. The provinces Semnan, Gilan, Hormozgan and Sistan & Baluchistan have gained the minimum

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more in gas power plants and then in combined cycle ones.

Combined cycle plants have the maximum efficiency with average of 46% among all other types of power plants in Iran. Moreover, gas power plants have the highest thermal efficiency among others with average thermal efficiency of 3102 Kilo Calorie. (Thermal efficiency(%)= generated output(power)(W) /[fuel heat value(J/kg) * fuel consumption(kg/s)]*100(1)) which indicates the lowest efficiency of these power plants compared with other types, i.e. gas units consume 1.5 times fuel amount per KWH more than combined cycle units.

However, the overall efficiency of power plants in Iran is Low. Although the extracted statistics are not in standard

of development plan. According to certain development plans, there is no accomplished power plant project in next 5 years in Gilan and Semnan.

1-6) General Indices of Electricity Generation in Iran

In any power plant, not only generation capacity is an effective factor, but also some parameters such as fuel and thermal efficiency are important indexes, thus this section is devoted to statistical study of power plant indices.

Several fuel types of gas, gas oil and fuel oil are used in power plants of Iran. Fuel oil is just used in hydrothermal power plants. Also, hydrothermal power plants use gas more than other types of power plants as their fuel .Gas oil is used

42573

2

107

5736143

0

0

17437740

7175845

7182849

38174

1455100

607693

78176

Table 1-6-1 Total amount of fuel and water consumption of different types of power plants in Iran (2005)

Consumed Water(thousand cubed meter)

*Consumed fuel 1000

Fuel oil (Liter) Gas (Liter) Gas (Cubed eter )

Steam

Gas

Combined Cycle

Hydropower

Wind

Diesel

Page 27: Iran Power Generation Industry

26 Chapter 1

Diagram 1-6-2 Gas Consumption Percentages of

Each Type of Power Plants (2005)

23%

23%

54%

Steam GasCombined Cycle

Diagram 1-6-3 Gas oil Consumption Percentages of Each Type of Power

Plants (2005)

28%

4%

66%

2%

GasCombined CycleDieselSteam

0/26/5

Diagram 1-6-4 Share of Generation of Each Type of Power Plants in

Overall Generation Capacity of Country

22/3

14/9

54/4

Steam HydroCombined CycleGasDiesel

Out

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to Ir

an P

ower

Gen

erat

ion

Indu

stry

Ste

am

Gas

Com

bine

d C

ycle

Die

sel

50

45

40

35

30

25

20

15

10

5

0

Diagram 1-6-1 Efficiency of Different Types of Power Plants in Iran

Page 28: Iran Power Generation Industry

27Iran Power Generation Industry

Investment Guide

and calibrated conditions, but based on the same statistics, for instance efficiency of combined cycle plants has considerable difference with its expected amount (around 60%); also in gas units the expected efficiency around 38% can be the comparison reference for efficiency of existing gas unit. This considerable difference can be observed from two perspectives. Firstly, by efficiency improvement in existing power plants a significant amount of energy requirement of country is fulfilled without the need to any investment in this area. So, by transferring the ownership of existing power plants to private sector, it is expected that the problem is solved to some extent.

The electricity production cost will be lowered by boosting the efficiency of power plant and consequently energy subsidies will be decreased.

1-7) Analysis of Electricity Consumption in Iran

1-7-1) Per Capita Energy GenerationPer capita power is an index of people

access to electrical energy, assuming that other facilities are provided. The ideal condition is that with population growth the per capita energy remains constant and even increased, i.e. the power generation increases proportional to power growth or with higher rate. This may result in better social and economic condition of country.

In 2004, the installed per capita power generation was 553 W which had an increase of 6.8% compared to its previous year (2003). The generated power in 2004 was 2367.806 KWh per capita which had an increase of 8.86% compared to its previous year amount (2174.976 KWh).

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Status Comparison of Regional Electricity Companies in Year 2005-2006

Description

Electrical Energy Sell Million KWh

Million KWh

Percent

Percent

Percent

Percent

Percent

Percent

Thousand Costumer

Thousand Costumer

Kilometer

Set

Mega Volt Ampere

Village

Household

Kilometer

Kilo Volt Ampere

Capita

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Energy sell from Total

Customers

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Customer number from Total

Medium Voltage Distribution (Urban And Rural)

Low Voltage Distribution (Urban And Rural)

Share of Regional Distribution Grid Length from Total

Number of Medium Voltage Feeders

Capacity of Distribution Transformers

Share of Regional Distribution Transformers Capacity from Total

Rural Electrifying

Number of Electrified Villages

Number of Electrified Rural Households

Length of Rural Medium Voltage Lines

Length of Rural Low Voltage Lines

Capacity of Transformers of Rural Grid

Personnel of Electricity Distribution Companies

Loss

Distribution Loss

Total Loss

General Indices

Share of Residential Costumers

Share of Industrial Costumers

Azarbaijan Isfahan Bakhtar

2006 2005 Growth rate 2006 2005 Growth rate 2006 2005 Growth rate

7896

3432

981

610

2014

573

286

5 / 9

2004

1666

45

14

14

265

5

10 / 2

31171

24161

10 / 0

470

4110

6 / 5

82

1075

145

51

2315

2699

13 / 14

13 / 39

43 / 5

25 / 5

11 / 0

6 / 1

13 / 0

13 / 4

12 / 9

8 / 9

49 / 3

0 / 1

4 / 0

3 / 5

12 / 8

10 / 3

15 / 1

4 / 9

17 / 6

- 0/ 1

3 / 2

3 / 7

0 / 0

7 / 9

6 / 1

0 / 1

17 / 0

- 0/ 93

- 1/ 16

- 1/ 9

0 / 4

15884

3270

1016

2131

8419

640

408

11 / 0

1745

1440

45

19

23

218

10

8 / 5

23867

22442

8 / 0

649

5412

8 / 2

6

92

9

3

290

1624

11 / 85

8 / 18

20 / 6

53 / 0

15031

3176

955

2154

7764

591

391

11/3

1662

1379

42

18

22

201

10

8 / 5

22857

21611

8 / 0

612

5103

8/1

6

87

1

5

315

1756

10/05

7/42

21/1

51/7

5 / 7

3 / 0

6 / 4

- 1/ 1

8 / 4

8 / 3

4 / 4

-0 / 3

5 / 0

4 / 4

7 / 0

7 / 0

6 / 4

8 / 3

5 / 3

0 / 0

4 / 4

3 / 8

0 / 0

6 / 0

6 / 1

0 / 1

- 7/ 5

1 / 8

0 / 76

- 0/ 5

1 / 3

9784

2323

734

1557

4494

293

383

6 / 8

1265

1083

35

11

10

126

6 / 2

25391

17763

7 / 5

628

4279

6 / 5

35

533

55

14

875

1544

18 / 93

10 / 9

23 / 7

45 / 9

9311

2074

698

1442

4476

265

355

7 / 0

1217

1044

33

10

9

120

6 / 2

24809

17250

7 / 6

594

4078

6 / 5

20

429

77

11

675

1615

18 / 06

9 / 92

22 / 3

48 / 1

5 / 1

12 / 0

5 / 1

8 / 0

0 / 4

10 / 6

7 / 8

- 0/ 2

4 / 0

3 / 7

6 / 3

7 / 8

12 / 9

4 / 9

0 / 0

2 / 3

3 / 0

- 0/ 1

5 / 7

4 / 7

0 / 0

- 4/ 4

0 / 87

0 / 98

1 / 5

- 2/ 1

8766

3640

1109

692

2274

624

427

6 / 1

2084

1724

51

15

16

278

6

10 / 1

32155

25054

9 / 9

507

4361

6 / 6

113

1424

251

78

3075

3158

12 / 21

12 / 23

41 / 5

25 / 9

Page 30: Iran Power Generation Industry

29Iran Power Generation Industry

Investment Guide

28147

10953

4999

862

6907

3553

872

21 / 2

5020

4125

264

4

23

604

25 / 6

22011

36210

10 / 5

1832

13242

21 / 0

2

40

2

1

200

3806

13 / 65

14 / 43

38 / 9

24 / 5

5 / 5

4 / 5

4 / 8

12 / 4

4 / 8

8 / 0

11 / 7

- 0/ 6

4 / 7

1 / 3

15 / 9

0 / 0

41 / 0

21 / 4

0 / 0

3 / 1

4 / 2

0 / 0

1 / 9

3 / 4

- 0/ 4

- 5/ 8

0 / 13

0 / 32

-0 / 4

- 0/ 2

12686

3451

1125

4268

2681

676

485

8 / 8

1999

1683

56

10

14

236

10

9 / 7

40970

24039

11 / 3

664

4866

7 / 3

51

703

96

33

1625

2143

11 / 08

13 / 17

27 / 2

21 / 1

11673

3180

983

3905

2492

613

500

8 / 8

1920

1612

57

10

13

228

3

9 / 8

37611

23143

11 / 0

621

4517

7 / 2

51

1025

200

51

2300

2173

12 / 41

13 / 79

27 / 2

21 / 3

8 / 7

8 / 5

14 / 5

9 / 3

7 / 6

10 / 3

- 3/ 0

0 / 0

4 / 1

4 / 4

- 1/ 2

0 / 0

9 / 4

3 / 3

257 / 1

0 / 0

8 / 9

3 / 9

0 / 3

6 / 9

7 / 7

0 / 2

- 1/ 4

- 1/ 33

- 0/ 62

0 / 0

-0 / 2

16383

5922

2163

558

6814

638

288

11 / 3

976

835

25

3

4

109

6

4 / 7

19805

14048

5 / 9

637

7838

11 / 8

53

847

67

35

4700

2105

38 / 05

27 / 64

36 / 1

41 / 6

14723

5029

2008

532

6329

554

271

11 / 1

930

796

23

3

4

104

6

4 / 7

19130

13610

5 / 9

601

7479

11 / 9

92

1383

52

46

7050

2111

37 / 22

24 / 92

34 / 2

43 / 0

11 / 3

17 / 8

7 / 7

4 / 9

7 / 7

15 / 2

6 / 2

0 / 2

4 / 9

4 / 9

8 / 7

0 / 0

0 / 0

4 / 8

0 / 0

0 / 0

3 / 5

3 / 2

0 / 0

6 / 0

4 / 8

0 / 0

- 0/ 3

0 / 83

2 / 72

2 / 0

- 1/ 4

29709

11450

5239

969

7238

3839

974

20 / 5

5254

4178

306

4

33

733

25 / 6

22696

37719

10 / 5

1866

13687

20 / 7

4

256

17

11

575

3587

13 / 78

14 / 75

38 / 5

24 / 4

Description

Electrical Energy Sell Million KWh

Million KWh

Percent

Percent

Percent

Percent

Percent

Percent

Thousand Costumer

Thousand Costumer

Kilometer

Set

Mega Volt Ampere

Village

Household

Kilometer

Kilo Volt Ampere

Capita

2006 2005 Growth rate 2006 2005 Growth rate 2006 2005 Growth rate

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Energy sell from Total

Customers

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Customer number from Total

Medium Voltage Distribution (Urban And Rural)

Low Voltage Distribution (Urban And Rural)

Share of Regional Distribution Grid Length from Total

Number of Medium Voltage Feeders

Capacity of Distribution Transformers

Share of Regional Distribution Transformers Capacity from Total

Rural Electrifying

Number of Electrified Villages

Number of Electrified Rural Households

Length of Rural Medium Voltage Lines

Length of Rural Low Voltage Lines

Capacity of Transformers of Rural Grid

Personnel of Electricity Distribution Companies

Loss

Distribution Loss

Total Loss

General Indices

Share of Residential Costumers

Share of Industrial Costumers

Tehran Khorasan Khuzestan

Status Comparison of Regional Electricity Companies in Year 2005-2006

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Status Comparison of Regional Electricity Companies in Year 2005-2006

Description

Electrical Energy Sell Million KWh

Million KWh

Percent

Percent

Percent

Percent

Percent

Percent

Thousand Costumer

Thousand Costumer

Kilometer

Set

Mega Volt Ampere

Village

Household

Kilometer

Kilo Volt Ampere

Capita

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Energy sell from Total

Customers

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Customer number from Total

Medium Voltage Distribution (Urban And Rural)

Low Voltage Distribution (Urban And Rural)

Share of Regional Distribution Grid Length from Total

Number of Medium Voltage Feeders

Capacity of Distribution Transformers

Share of Regional Distribution Transformers Capacity from Total

Rural Electrifying

Number of Electrified Villages

Number of Electrified Rural Households

Length of Rural Medium Voltage Lines

Length of Rural Low Voltage Lines

Capacity of Transformers of Rural Grid

Personnel of Electricity Distribution Companies

Loss

Distribution Loss

Total Loss

General Indices

Share of Residential Costumers

Share of Industrial Costumers

Zanjan Semnan Sistan and Baluchistan

2006 2005 Growth rate 2006 2005 Growth rate 2006 2005 Growth rate

3984

905

307

558

1981

141

92

3 / 0

561

473

21

4

6

57

2 / 9

11885

8301

3 / 6

341

1913

3 / 0

2

21

7

1

75

622

16 / 03

14 / 94

22 / 7

49 / 7

16 / 1

3 / 2

16 / 8

20 / 2

21 / 2

10 / 1

17 / 8

0 / 2

4 / 4

4 / 0

5 / 8

22 / 0

9 / 1

5 / 1

0 / 0

3 / 4

2 / 2

0 / 0

4 / 4

6 / 4

0 / 0

- 3/ 2

- 2/ 98

- 2/ 93

- 2/ 5

2 / 2

1980

324

163

455

897

71

70

1 / 4

215

172

9

2

4

28

1

1 / 0

5710

3339

1 / 6

121

843

1 / 3

5

25

0

2

150

317

10 / 88

10 / 04

16 / 4

45 / 3

1846

324

143

428

805

69

76

1 / 4

205

165

8

2

3

27

1

1 / 0

5526

3103

1 / 6

117

784

1 / 2

3

66

21

2

200

342

10 / 66

8 / 74

17 / 6

43 / 6

7 / 3

0 / 0

14 / 1

6 / 2

11 / 5

2 / 5

- 8/ 3

0 / 0

5 / 0

4 / 2

13 / 9

33 / 3

17 / 6

4 / 1

0 / 0

0 / 0

3 / 3

7 / 6

0 / 0

3 / 4

7 / 5

0 / 0

- 7/ 3

0 / 22

1 / 3

- 1/ 2

1 / 7

2505

1140

613

213

227

159

153

1 / 7

398

340

12

4

1

41

1 / 9

16531

8068

4 / 3

175

1524

2 / 3

105

3568

516

129

9675

30 / 07

29 / 17

45 / 5

9 / 1

2151

976

513

169

211

151

131

1 / 6

374

321

11

3

1

38

1 / 9

15372

7596

4 / 1

156

1365

2 / 2

249

5831

817

240

17850

30 / 52

29 / 71

45 / 4

9 / 8

16 / 5

16 / 8

19 / 6

25 / 9

7 / 6

5 / 4

16 / 5

0 / 0

6 / 3

6 / 0

10 / 1

29 / 0

-16 / 7

6 / 8

0 / 0

7 / 5

6 / 2

0 / 1

12 / 2

11 / 6

0 / 1

- 0/ 45

- 0/ 54

0 / 1

- 0/ 7

4626

933

359

671

2400

155

108

3 / 2

585

492

22

5

6

60

2 / 8

12290

8480

3 / 6

356

2035

3 / 1

9

89

17

2

175

602

13 / 05

12 / 01

20 / 2

51 / 9

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31Iran Power Generation Industry

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Status Comparison of Regional Electricity Companies in Year 2005-2006

Description

Electrical Energy Sell Million KWh

Million KWh

Percent

Percent

Percent

Percent

Percent

Percent

Thousand Costumer

Thousand Costumer

Kilometer

Set

Mega Volt Ampere

Village

Household

Kilometer

Kilo Volt Ampere

Capita

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Energy sell from Total

Customers

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Customer number from Total

Medium Voltage Distribution (Urban And Rural)

Low Voltage Distribution (Urban And Rural)

Share of Regional Distribution Grid Length from Total

Number of Medium Voltage Feeders

Capacity of Distribution Transformers

Share of Regional Distribution Transformers Capacity from Total

Rural Electrifying

Number of Electrified Villages

Number of Electrified Rural Households

Length of Rural Medium Voltage Lines

Length of Rural Low Voltage Lines

Capacity of Transformers of Rural Grid

Personnel of Electricity Distribution Companies

Loss

Distribution Loss

Total Loss

General Indices

Share of Residential Costumers

Share of Industrial Costumers

Gharb Fars Kerman

2006 2005 Growth rate 2006 2005 Growth rate 2006 2005 Growth rate

3865

1732

691

392

700

196

154

2 / 9

905

782

20

7

5

92

3

4 / 6

20431

11333

5 / 7

336

2550

4 / 1

16

349

35

16

750

1053

16 / 86

12 / 94

44 / 8

18 / 1

11 / 3

9 / 9

14 / 6

9 / 9

11 / 1

11 / 7

14 / 9

0 / 0

5 / 3

5 / 1

10 / 0

14 / 3

0 / 0

5 / 7

0 / 0

0 / 0

2 / 8

2 / 1

- 0/ 1

8 / 3

4 / 3

0 / 0

- 14/ 8

- 1/ 48

- 0/ 41

- 0/ 6

0 / 0

11084

4436

1484

2535

1722

582

325

7 / 7

1370

1142

38

27

10

153

6 / 7

30915

20290

8 / 9

809

6228

9 / 4

54

972

129

51

3550

1644

19 / 41

19 / 01

40 / 0

15 / 5

10025

3893

1239

2537

1527

510

320

7 / 5

1308

1093

34

26

9

145

6 / 7

30383

19605

9 / 0

774

6039

9 / 6

69

1210

181

67

4650

1746

20 / 95

20 / 24

38 / 8

15 / 2

10 / 6

14 / 0

19 / 8

- 0/ 1

12 / 7

14 / 2

1 / 6

0 / 1

4 / 7

4 / 5

12 / 1

2 / 7

12 / 4

5 / 2

0 / 0

1 / 8

3 / 5

- 0/ 1

4 / 5

3 / 1

- 0/ 2

- 5/ 8

- 1/ 54

- 1/ 23

1 / 2

0 / 3

6829

1332

1467

2179

1543

186

122

4 / 7

647

555

8

7

3

64

5

3 / 1

23398

15684

6 / 8

383

3082

4 / 7

208

4725

319

237

16935

923

15 / 54

15 / 87

19 / 5

22 / 6

5915

1235

930

1992

1324

180

254

4 / 5

621

534

17

7

3

61

4

3 / 2

22343

15213

6 / 8

363

2923

4 / 6

129

2912

156

184

13050

948

18 / 75

18 / 43

20 / 9

22 / 4

15 / 5

7 / 9

57 / 7

9 / 4

16 / 6

3 / 3

- 52/ 0

0 / 4

4 / 2

3 / 9

5 / 9

0 / 0

0 / 0

4 / 9

25 / 0

0 / 0

4 / 7

3 / 1

0 / 1

5 / 5

5 / 4

0 / 0

- 2/ 6

- 3/ 21

- 2/ 56

- 1/ 4

0 / 2

4300

1903

792

431

778

219

177

3 / 0

953

822

22

8

5

97

3

4 / 6

21002

11566

5 / 7

364

2660

4 / 0

13

218

33

6

600

897

15 / 38

12 / 53

44 / 3

18 / 1

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Status Comparison of Regional Electricity Companies in Year 2005-2006

Description

Electrical Energy Sell Million KWh

Million KWh

Percent

Percent

Percent

Percent

Percent

Percent

Thousand Costumer

Thousand Costumer

Kilometer

Set

Mega Volt Ampere

Village

Household

Kilometer

Kilo Volt Ampere

Capita

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Energy sell from Total

Customers

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Customer number from Total

Medium Voltage Distribution (Urban And Rural)

Low Voltage Distribution (Urban And Rural)

Share of Regional Distribution Grid Length from Total

Number of Medium Voltage Feeders

Capacity of Distribution Transformers

Share of Regional Distribution Transformers Capacity from Total

Rural Electrifying

Number of Electrified Villages

Number of Electrified Rural Households

Length of Rural Medium Voltage Lines

Length of Rural Low Voltage Lines

Capacity of Transformers of Rural Grid

Personnel of Electricity Distribution Companies

Loss

Distribution Loss

Total Loss

General Indices

Share of Residential Costumers

Share of Industrial Costumers

Gilan Mazandaran Hormozgan

2006 2005 Growth rate 2006 2005 Growth rate 2006 2005 Growth rate

2917

1418

336

28

713

253

168

2 / 2

811

650

30

3

5

123

5

4 / 1

6879

15302

4 / 0

220

1746

2 / 8

27

690

55

45

1400

750

13 / 7

7 / 89

48 / 6

24 / 4

5 / 4

6 / 6

7 / 7

17 / 9

- 1/ 4

4 / 7

19 / 0

- 0/ 1

3 / 7

3 / 5

6 / 7

33 / 3

0 / 0

3 / 3

0 / 0

0 / 0

1 / 9

1 / 9

- 0/ 1

7 / 7

5 / 4

0 / 0

- 4/ 3

0 / 35

0 / 51

0 / 5

- 1/ 6

6410

2910

669

206

1778

504

343

4 / 4

1482

1236

53

13

11

169

7 / 2

16900

21399

6 / 6

489

4139

6 / 2

1

17

4

1

25

1278

16 / 12

11 / 03

45 / 4

27 / 7

5771

2659

583

189

1601

458

282

4 / 3

1403

1173

48

11

10

161

7 / 1

16388

20607

6 / 7

445

3852

6 / 1

5

117

26

6

450

1360

14 / 86

10 / 83

46 / 1

27 / 7

11 / 1

9 / 4

14 / 8

9 / 0

11 / 1

10 / 0

21 / 6

0 / 1

5 / 6

5 / 4

10 / 4

18 / 2

10 / 0

5 / 0

0 / 1

3 / 1

3 / 8

0 / 0

9 / 9

7 / 5

0 / 1

- 6/ 0

1 / 26

0 / 2

- 0/ 7

0 / 0

6600

2767

704

231

2598

292

8

4 / 6

341

283

13

3

1

41

1 / 7

11161

6468

3 / 1

359

2063

3 / 1

28

590

135

36

4450

866

18 / 39

10 / 02

41 / 9

39 / 4

6032

2409

674

165

2488

268

28

4 / 5

320

267

12

2

1

38

0

1 / 6

10734

6347

3 / 1

317

1950

3 / 1

30

745

115

53

6440

904

17 / 67

9 / 59

39 / 9

41 / 2

9 / 4

14 / 9

4 / 4

40 / 3

4 / 4

9 / 0

- 71/ 1

0 / 0

6 / 6

6 / 0

8 / 3

50 / 0

0 / 0

7 / 9

0 / 0

0 / 0

4 / 0

1 / 9

0 / 0

13 / 2

5 / 8

0 / 0

- 4/ 2

0 / 72

0 / 43

2 / 0

- 1/ 9

3074

1511

362

33

703

265

200

2 / 1

841

973

32

4

5

127

5

4 / 1

7008

15589

3 / 9

237

1840

2 / 8

11

364

19

30

825

718

14 / 05

8 / 4

49 / 2

22 / 9

Page 34: Iran Power Generation Industry

33Iran Power Generation Industry

Investment Guide

Status Comparison of Regional Electricity Companies in Year 2005-2006

Description

Electrical Energy Sell Million KWh

Million KWh

Percent

Percent

Percent

Percent

Percent

Percent

Thousand Costumer

Thousand Costumer

Kilometer

Set

Mega Volt Ampere

Village

Household

Kilometer

Kilo Volt Ampere

Capita

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Energy sell from Total

Customers

Residential

Public

Agriculture

Industrial

Others

Street Lighting

Share of Regional Customer number from Total

Medium Voltage Distribution (Urban And Rural)

Low Voltage Distribution (Urban And Rural)

Share of Regional Distribution Grid Length from Total

Number of Medium Voltage Feeders

Capacity of Distribution Transformers

Share of Regional Distribution Transformers Capacity from Total

Rural Electrifying

Number of Electrified Villages

Number of Electrified Rural Households

Length of Rural Medium Voltage Lines

Length of Rural Low Voltage Lines

Capacity of Transformers of Rural Grid

Personnel of Electricity Distribution Companies

Loss

Distribution Loss

Total Loss

General Indices

Share of Residential Costumers

Share of Industrial Costumers

Yazd Kish

2006 2005 Growth rate 2006 2005 Growth rate

3274

616

180

505

1746

123

105

2 / 5

370

304

10

2

6

48

1 / 9

7391

5633

2 / 3

135

064

1 / 7

12

476

75

5

425

509

10 / 01

8 / 12

18 / 8

53 / 3

10 / 1

6 / 7

10 / 9

6 / 0

12 / 7

5 / 7

10 / 5

0 / 0

4 / 9

4 / 6

10 / 0

0 / 0

16 / 7

4 / 2

0 / 0

3 / 0

3 / 7

0 / 0

10 / 4

8 / 3

0 / 0

- 6/ 3

0 / 07

- 0/ 85

- 0/ 6

1 / 3

365

113

132

55

44

21

0 / 3

18

14

3

1

0 / 1

280

572

0 / 1

233

0 / 4

6 / 89

6 / 89

31 / 0

15 / 1

336

97

130

44

45

19

0 / 3

17

13

2

2

0 / 1

277

570

0 / 2

231

0 / 4

7 / 18

7 / 18

29 / 0

13 / 2

8 / 7

16 / 1

1 / 5

24 / 2

- 2/ 2

9 / 9

0 / 0

3 / 4

7 / 7

25 / 0

- 50/ 0

0 / 0

1 / 1

0 / 4

0 / 0

0 / 9

- 4/ 1

- 0/ 29

- 0/ 29

2 / 0

1 / 9

3604

657

199

535

1967

130

116

2 / 5

388

318

11

2

7

50

1 / 9

7614

5841

2 / 3

149

1152

1 / 7

13

100

12

5

575

477

10 / 08

7 / 27

18 / 2

54 / 6

Page 35: Iran Power Generation Industry

34 Chapter 1

1-7-2) Consumers’ CombinationThere are six main categories in

electrical power consumers, which are arranged based on the amount of their consumption:

•Residential •Industrial •Agricultural •General services •Business •Street lightening

Residential and Industrial consumers have consumed 40863.147 and 40489.347 million KWh respectively .These two are the main power consumers in Iran.

Subsequent to Tehran province which has the most power consumption, mine & Industry section of Khuzestan province stand in second position with 6026.751 million KWh consumption. In this province oil and petrochemical industries are the main consumers.

Out

look

to Ir

an P

ower

Gen

erat

ion

Indu

stry

Res

iden

tial

Pub

lic

Agr

icul

ture

Indu

stria

l

Com

mer

cial

Stre

et L

ight

ing

45

40

35

30

25

20

15

10

5

0

تساع

لو

كي

ليامي

40

35

30

25

20

15

10

5

0

تساع

لو

كي

ليامي

Diagram 1-7-1 Consumer Combination in 2004Diagram 1-7-2 Consumer Combination in 2005

Res

iden

tial

Pub

lic

Agr

icul

ture

Indu

stria

l

Com

mer

cial

Stre

et L

ight

ing

Page 36: Iran Power Generation Industry

35Iran Power Generation Industry

Investment Guide

Diagrams 1-7-1 and 1-7-2 illustrate the power consumer combination in 2004 and 2005; the consumers follow an almost similar pattern in these two years.

1-7-3 Major Consumption CentersTo measure the amount of power

demands in different areas of country it is essential to have inclusive information about consumption pattern of each area; also, it is vital to identify the major consumption areas.

Regarding the consumption pattern the following points are considerable:

1-Among all the provinces Tehran is the major residential consumer and then with a large gap, Khuzestan and Fars are

at the next steps.2-Tehran Business sectors

consumption (42%) is approximately equal to cumulative business sector consumption of all other provinces.

3-Kerman, Fars and Khorasan provinces have the most agricultural power consumption respectively.

4-With respect to the above mentioned points, Tehran with 25350.793 million KWh and Khuzestan with 13929 million KWh power consumption are the first and second power consumers.

1-7-4) Power Consumption PatternsIt is obvious that the consumption

pattern would be changed during different

Figure 1-7-1 Electricity Consumption in Different Areas of Iran

KHORASAN

SEMNANMAZANDARAN

GILAN

ARDEBIL

east

AZARBAYEJAN

west AZARBAYEJAN

ZANJANTEHRAN

ISFAHAN

YAZD

KERMAN

SISTAN oBALUCHESTAN

HORMOZGAN

TABRIZBUSHEHR

KUZESTAN

LORESTANILAM

KERMANSHAH

QUOMMARKAZI

HAMEDAN

CHAHR MAHAL

BOYER AHMAD

KUWAIT

SAUDI ARABIA

IRAQ

TURKEY

ARMENIAAZERBAIJAN

PAKISTAN

OMAN

QATAR

BAHRAIN

Page 37: Iran Power Generation Industry

36 Chapter 1

months of year. The pick of power consumption is in hot months and thus in summer. 10% of annual consumption is in August while 7% of it is in April. These facts are shown in Diagram 1-7-9.

As can be observed from Diagram 1-7-1 the three leading consumption areas are Tehran, Isfehan and Khuzestan. It should be considered that for instance Isfahan area is associated with Isfahan, Chahar mahaal & Bakhtiari and Kohgiluyeh & Boyer-Ahmad provinces. If we study each province consumption separately Tehran will be the first and Khorasan the second foremost power consumers.

18%

4%4%6%3%

3%1%

2%

5%

15%

5% 15%

11%

AzarbaijanYazd Hormozgan Mazandaran GIlan Kerman Fars Gharb Sistan and Bluchistan Semnan Zanjan Khuzestan Khorasan TehranBakhtar Isfahan

Diagram 1-7-7: business consumption percentages to overall business

consumption (2005)

3%

3%7%

7%5%

2%6%

2%2%1%2%

7%

7% 42%

AzarbaijanIsfahan Bakhtar TehranKhorasanKhuzestanZanjanSemnanSistan and Bluchistan GharbFarsKermanGIlanMazandaranHormozganYazd

Diagram 1-7-8: Industrial consumption percentages to overall Industrial

consumption (2005)

12%

12%

34%

6%4%

32%

Diagram 1-7-4) Percentages of Different Consumers in 2004

Residential Street Lighting Commercial Industrial Agriculture Public

Diagram 1-7-5: Residential Consumption Percentages to Overall Residential

consumption (2005)

6%

3%3%

9%

4%2%1%2%

11% 7%

26%

5%

7%8%1%5%

Yazd Hormozgan Mazandaran GIlan Kerman Fars Gharb Sistan and Bluchistan Semnan Zanjan Khuzestan Khorasan TehranBakhtar Isfahan Azarbaijan

Out

look

to Ir

an P

ower

Gen

erat

ion

Indu

stry

3%

3%13%

8%

5%

24%3%

4%2%

14%

16%

1%

Yazd Hormozgan Mazandaran GIlan Kerman Fars Gharb Sistan and Bluchistan Semnan Zanjan Khuzestan Khorasan TehranBakhtar Isfahan Azarbaijan

Diagram 1-7-6: agricultural consumption percentages to overall agricultural

consumption (2005)

Page 38: Iran Power Generation Industry

37Iran Power Generation Industry

Investment Guide

7%8%

9%

9%

9%

10%8%

8%

8%

8%

8%

8%

Diagram 1-7-9: Percentage of Power Demand Distribution during

Months of a Year (2005)

AprilMayJune JulyAugustSeptemberOctober November DecemberJanuaryFebruaryMarch

30000

25000

20000

15000

10000

5000

00

گا

م

Diagram1-7-10: Average Peak Power Consumption during Different Months of a Year (2005)

Apr

il

May

June

July

Aug

ust

Sep

tem

ber

Oct

ober

Nov

embe

r

Dec

embe

r

Janu

ary

Febr

uary

Mar

ch

600000

400000

200000

00

تساع

گا

م

Diagram 1-7-11: Maximum Consumption Requirement during Different Months of a Year (2005)

Apr

il

May

June

July

Aug

ust

Sep

tem

ber

Oct

ober

Nov

embe

r

Dec

embe

r

Janu

ary

Febr

uary

Mar

ch

Page 39: Iran Power Generation Industry

38 Chapter 1

contracts, the investor has to transfer the facility to the government after an operation time period. At present, B.O.T. plans gain appropriate legal beds for foreign investor participation in power plant projects of Iran.

Table (1-8-1) shows completed or under way projects performed by private sector investor under B.O.O. method. In table (1-8-2) the status of completed or under way B.O.T. plans is presented.

1-8) performed plans with private sector participation

Two specific methods have been considered for private sector participation in electricity generation of Iran. Law beds and different aspects of these two methods will be described in concerning sections.

Briefly, in B.O.O contracts, the investor is required to finance and administer a project in its entirety and at its own risk and has no duty to transfer the ownership to government, whereas in B.O.T.

Out

look

to Ir

an P

ower

Gen

erat

ion

Indu

stry

290 / 00

128 / 00

954 / 00

528 / 00

1900 / 00

24 / 00

60 / 00

55 / 00

26 / 00

24 / 00

130 / 00

210 / 00

108 / 00

20 / 00

40 / 00

252 / 00

70 / 00

585 / 00

738 / 00

2342 / 00

45111 / 50

145 / 00

32 / 00

159 / 00

264

600 / 00

12 / 00

60 / 00

55 / 00

26 / 00

12 / 00

26 / 00

70 / 00

108 / 00

10 / 00

40 / 00

63 / 00

23 / 33

117 / 00

123 / 00

745 / 33

2

4

6

2

14

2

1

1

1

2

5

3

1

2

1

4

3

5

6

37

290 / 00

102 / 00

840 / 00

500 / 00

1732

16

115

115

10 / 5

15

95

150

90

14

30

160

50

100

100

1060 / 50

40368 / 03

290 / 00

102 / 00

780 / 00

440 / 00

1612

16

115

115

10 / 5

10

65

150

90

14

30

160

50

100

100

1025 / 50

37955 / 22

15 / 230

11 / 230

15 / 75 / 230

6 / 3 / 230

10 /5 / 230

10 /5 / 230

10 /5 / 230

15 / 230

15 /7 / 230

1354-1371

1357-1377

1384-85

1385

1349

1357

1357

1354

1356

1356

1370

1383

1362

1372

1376

1384

1385

specifications of thermal power plants of private sector and large industries in year 2006 (Megawatt)

Operation yearTurns ration of

transformer total Capacity of unitUnit number winter summer

Nominal power Actual power

Specifications of units

Private sector

Large industries

Total sum of country

Power plant name

(Zargan (Steam Units

(Zargan (Gas Turbine Units

(Chelsotoon (Jonoob Isfahan

Total of private sector

(Traktorsazi (Gas

(PetroshimiTabriz(Gas

(Zob Aahan (steam

(Zob Aahan(Gas

(Foolad Mobarakeh(steam

(Foolad Mobarakeh(Gas

(Petroshimi Razi(Gas

(Petroshimi Fajr(Gas

(Petroshimi Mobin(Gas

(Mes Sarcheshme(steam

(Sarcheshmeh(Gas

(Chadormaloo(Gas

Total of Large Industries

Page 40: Iran Power Generation Industry

39Iran Power Generation Industry

Investment Guide

96

87

559

742

98

0

180

90

219

230

11

41

0

869

33350 / 3

1372342

444465

3595837

73914

5486558

791440

29687

1252173

522738

1830825

539851

103320

439580

480

5510094

100401

23040

17157

592

141190

61351

120

88062

1798

391687

5400

8206

10214

5

566842

7771004

7 / 3

5 / 2

0 / 5

0 / 8

2 / 6

7 / 8

0 / 4

7 / 0

0 / 3

21 / 4

1 / 0

7 / 9

2 / 3

1 / 0

10 / 3

4 / 0

1271941

421425

3578680

73322

5345368

730089

29567

1164111

520941

1439138

534451

95114

429366

475

4943252

184762968

290

102

735

420

1547

12

60

120

13

190

100

190

500

600

12 / 75

80 / 38

30

1908 / 13

40732 / 5

290

128

954

528

1900

20

70

139

26

210

108

252

585

738

24

130

40

2342

45111 / 4

54 / 0

49 / 7

55 / 8

2 / 0

40 / 5

75 / 3

26 / 1

75 / 2

59 / 7

0 / 0

41 / 8

10 / 3

92 / 5

62 / 4

0 / 2

33 / 0

54 / 0

Private sector

Total sum of country

nominal power, gross generation and internal consumption of power plants of private sector and large industries at the end of year 2006

Average actual power

(MW)

Maximum generatedl power at grid peak

load (MW)

Gross generation

(MWh)

Internal consumption

(MWh)

Internalconsumption

(percent)

Netgeneration

(MWh)

Operation of actual capacity of power

(plant (percentPower plant name

Nominal power (MW)

(Zargan (Steam Units

(Zargan (Gas Turbine Units

(Chelsotoon (Jonoob Isfahan

Total of private sector

(Traktorsazi (Gas

(PetroshimiTabriz(Gas

(Zob Aahan (steam

(Zob Aahan(Gas

(Foolad Mobarakeh(steam

(Foolad Mobarakeh(Gas

(Petroshimi Razi(Gas

(Petroshimi Fajr(Gas

(Petroshimi Mobin(Gas

(Mes Sarcheshme(steam

(Sarcheshmeh(Gas

(Chadormaloo(Gas

Total of Large Industries

Large industries

Page 41: Iran Power Generation Industry

40 Chapter 1

Out

look

to Ir

an P

ower

Gen

erat

ion

Indu

stry

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

2000

-

-

-

636

160

-

-

636

-

-

500

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

500

500

318

-

-

-

318

-

-

-

500

500

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

250

-

-

-

-

-

-

-

500

-

-

-

-

-

-

500

1000

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

500

-

-

-

500

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Table 1-8-1: completed or under way projects performed by private sector on B.O.O. basis

Name of investor Name and total capacity of power plantDate and capacity of synchronization

2005 2006 2007 2008 2009

Rood shoor (2000MW)

Chabahar (250MW)

Shahrood (500MW)

Asalooyeh (500MW)

Mashad (954MW)

Qeshm (160MW)

Semnan (120 MW)

Qom (330 MW)

Ali Abad (954 MW)

Zanjan1(500 MW)

Zanjan2(500 MW)

Zanjan3(500 MW)

Zanjan4(500 MW)

Khorramabad1

Khorramabad2

Sarakhs (500 MW)

Kashan (500 MW)

Asalooyeh (1000 MW)

Khoozestan (1000 MW)

Hormozgan (500 MW)

Hormozgan (500 MW)

Khuzestan (500 MW)

Kerman (1500 MW)

Yazd (1000 MW)

Isfahan (2000 MW)

Bakhtar MW)

Tehran (1000 MW)

Sistan (500 MW)

Others (5*300 MW)

Arian mahtab gostar

Azaraab

Sarmaye gozari tamin ejtemayee

Sherkate Melli Sakhteman

Mapna

Hirbodan

-

-

Mapna

Satkab

-

Snat Energy Tamin

Sarmaye gozari Bank Melli

Azaraab

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

610 122

735

890

1000

828

Table 1-8-2: completed or under way projects performed by private sector On B.O.T. basis

1

2

3

4

5

Name of investor

Jonoob Isfahan (832 MW)

Fars (735 MW)

Pareh sar (890 MW)

Haris (1000 MW)

Zanjan (827 MW)

Name and total capacity of power plant2005 2006 2007 2008 2009 2010 2011

Date of synchronization

Mapna International-IHAG

Mapna International-Quest Energy Middle East

Mapna International

Zenel

SKS

Page 42: Iran Power Generation Industry

41Iran Power Generation Industry

Investment Guide

851 / 4

2570 / 2

633 / 9

582 / 0

6 / 7

1063 / 8

72 / 3

103 / 8

248 / 1

1 / 2

528 / 7

247 / 8

44 / 2

448 / 2

117 / 9

21 / 5

7542

4 / 9

14 / 4

12 / 0

72 / 2

894 / 6

4 / 0

1578 / 7

190 / 2

0 / 0

420 / 1

14 / 6

385 / 8

304 / 0

110 / 4

141 / 2

261 / 3

4 / 4

4408

2 / 8

479 / 7

0 / 0

0 / 0

94 / 3

0 / 0

527 / 9

0 / 0

0 / 0

108 / 7

279 / 1

341 / 0

221 / 9

26 / 7

1275 / 6

383 / 4

32 / 5

3771

2 / 4

6909

3466

760

2373

299

17066

263

104

2190

874

45227

15563

294

3115

12145

4161

114808

74 / 2

328 / 3

2471 / 6

0 / 0

4409 / 6

0 / 0

1065 / 8

0 / 0

0 / 0

2184 / 8

433 / 5

693 / 5

3021 / 7

59 / 6

0 / 0

6317 / 0

540 / 0

21525

13 / 9

8412

7875

1754

8674

1389

21288

802

329

4499

1740

48218

20014

942

4248

19208

5292

154684

100 / 0

6 / 4

10 / 6

5 / 4

10 / 3

5 / 9

17 / 2

2 / 9

1 / 2

0 / 7

2 / 4

12 / 5

7 / 8

3 / 2

6 / 2

4 / 1

3 / 2

100 / 0

6 / 0

3 / 0

0 / 7

2 / 1

0 / 3

14 / 9

0 / 2

0 / 1

1 / 9

0 / 8

39 / 4

13 / 6

0 / 3

2 / 7

10 / 6

3 / 6

100 / 0

1 / 5

11 / 5

0 / 0

20 / 5

0 / 0

5 / 0

0 / 0

0 / 0

10 / 1

2 / 0

3 / 2

14 / 0

0 / 3

0 / 0

29 / 3

2 / 5

100 / 0

5 / 4

5 / 1

1 / 1

5 / 6

0 / 9

13 / 8

0 / 5

0 / 2

2 / 9

1 / 1

31 / 2

12 / 9

0 / 6

2 / 7

12 / 4

3 / 4

100 / 0

blackout of regional electric power company in year 2005 (Megawatt)

Blackout

reason Transformer outage

Line outage

Voltage drop

Total shortage resulted of transmission

Event in grid

Total sum of blackout

Percentage of regional generation to total generation

Percentage of transmission to total

transmission

Percentage of regional event to

total event

Percentage of region to total grid

Regional Electric Company

Azerbaijan

Isfahan

Bakhtar

Tehran

Khorasan

Khuzestan

Zanjan

Semnan

Sistan o baloochestan

Gharb

Fars

Kerman

Guilan

Mazandaran

Hormozgan

Yazd

Total

Percentage Of total

Page 43: Iran Power Generation Industry

42 Chapter 1

Out

look

to Ir

an P

ower

Gen

erat

ion

Indu

stry

%74

%14

%0 %12

Share of different reasons in national grid blackouts in 2006

Because of transmissionIncident in grid Because of generation except for fuel Lack of fuel

22%

8%

64%

6%

Share of different reasons in national grid blackouts in 2005

Because of transmission, Because of generation except for fuel Incident in grid Lack of fuel

60000

50000

40000

30000

20000

10000

0

Because of generation except for fuel Lack of fuel Because of transmission Incident in grid

Blackouts of regional electric companies with distinction of reasons in year 2006

(KW

h)

Sem

nan

Zanj

an

GIla

nK

hora

san

Gha

rbB

akht

arM

azan

dara

nS

ista

n an

d B

luch

ista

n Ya

zdIs

faha

nA

zarb

aija

nTe

hran

Hor

moz

gan

Ker

man

Khu

zest

anFa

rs

Page 44: Iran Power Generation Industry

44454547505252545555575859596062

4445

50

59

52

62

2.1 Introduction2-2 International Electricity Tariffs

2-2-1 Electricity Sale Tariffs and Their Codification in Iran2.2.2. International Electricity Tariffs

2-3 International Price of Energy Carriers2.4) Comparing Per Capita Generation of Electrical Energy

2.4.1) Per Capita Generation of Electrical Energy in Different Countries

2-4-2 Composition of Costumers2-4-3 Studying Other Specifications of Mentioned Countries2-4-3-1 Regional Countries2.4.3.2 Other Countries2-4-4- Generation of Various Types of Power Plants

2-5- Universal Visions of Electrical Industry2-5-1 Prediction of Consumption Requirement 2-5-2 Prediction of Generation Capacity and Fuel Prices

2-6 Worldwide Electricity Market

Chapter 2- Iran Power Generation Industry, an International Perspective

43

Page 45: Iran Power Generation Industry

44 Chapter 2

Iran

Pow

er G

ener

atio

n In

dust

ry, a

n In

tern

atio

nal P

ersp

ectiv

e

2.1 IntroductionFor investment in electrical industry of

Iran, comparing the current situation of Iran with other countries is a key point.

This subject prepares a perspective of the industry future for the investor. The electricity consumption market of Iran

Indu

stry

Con

sum

ptio

npe

r Cap

ita

Hou

seho

lds

Ope

ratio

n In

dex

Net

Gen

erat

ion

per C

apita

Cap

acity

pe

r Cap

ita

Ele

ctric

ity

Impo

rt

Ele

ctric

ity

Exp

orts

Net

Ele

ctric

ity

Con

sum

ptio

n

Net

Ele

ctric

ity

Gen

erat

ion

Inst

alle

dC

apac

ity

Pop

ulat

ion

$/KWH

No.

٪KWHWatt(TWH)(GW)(106 person)

Country

U.S.

China

Japan

Russia

India

Germany

Canada

France

Brazil

U. K.

Italy

Spain

Korea, S.

Ukraine

Australia

Mexico

S. Africa

Iran

Sweden

Taiwan

Turkey

Poland

Argentina

Norway

Indonesia

Thailand

Saudi Arabia

Netherlands

Venezuela

Romania

Pakistan

Egypt

Switzerland

Kazakhstan

Finland

Czech Rep.

Malaysia

Philippines

Austria

Belgium

0.051

n.a.

0.122

0.029

n.a.

0.065

0.047

0.045

0.037

0.055

0.147

0.054

0.051

n.a.

0.054

0.063

0.019

-

n.a.

n.a.

0.099

0.056

0.025

0.046

n.a.

n.a.

n.a.

c

0.028

0.067

n.a.

n.a.

0.081

0.015

0.065

0.056

n.a.

n.a.

n.a.

n.a.

0.087

n.a.

0.186

n.a.

0.040

0.176

0.061

0.127

0.079

0.116

0.186

0.137

0.074

n.a.

0.082

0.091

0.048

-

n.a.

n.a.

0.106

0.095

0.037

0.089

n.a.

n.a.

n.a.

0.194

0.055

0.073

n.a.

n.a.

0.133

0.026

0.112

0.085

n.a.

n.a.

0.152

n.a.

47.88

57.84

46.49

46.27

54.10

53.57

56.62

54.60

49.65

57.15

44.02

48.29

65.63

36.75

50.30

51.50

60.89

51.77

46.01

59.36

48.00

54.70

36.15

45.25

48.47

52.15

59.58

49.78

49.58

29.39

49.25

58.61

41.28

40.24

55.11

55.21

53.91

38.97

45.10

63.36

12,597.25

1,295.34

7,184.44

5,480.96

532.09

6,333.43

16,263.86

7,174.09

2,041.93

5,811.39

5,177.09

5,700.80

6,284.38

3,206.82

10,134.33

1,847.02

4,470.18

1,987.10

14,990.00

6,828.38

1,837.36

3,137.69

2,249.64

23,283.81

422.24

1,656.59

5,316.79

6,268.39

3,370.94

2,085.29

461.54

1,072.53

7,466.61

3,556.00

15,235.73

5,512.13

2,976.16

551.53

7,432.42

7,731.13

30.390

2.975

0.000

8.240

1.748

46.800

23.582

6.200

38.200

5.100

51.500

9.500

0.000

6.936

0.000

0.390

8.294

1.489

24.300

0.000

1.200

5.000

7.650

13.400

0.000

2.479

0.000

20.800

0.000

0.962

0.000

0.153

30.100

3.506

11.900

10.100

0.000

0.000

18.900

14.650

3,195.97

276.08

1,896.80

1,482.98

120.36

1,452.29

3,564.49

1,859.08

452.98

1,240.71

1,198.59

1,441.64

1,175.28

1,107.97

2,473.14

441.76

910.06

469.15

3,618.72

1,412.02

467.57

762.87

718.72

5,846.03

106.93

381.82

1,095.42

1,287.29

834.61

909.91

115.02

227.00

2,343.89

1,134.53

3,183.65

1,576.91

678.61

173.74

1,839.35

1,378.59

13,403.89

1,398.97

7,725.21

6,010.71

570.40

6,815.36

17,679.58

8,892.70

1,970.02

6,211.23

4,621.70

6,097.81

6,757.40

3,566.94

10,897.13

1,993.08

4,854.24

2,127.54

14,583.95

7,342.34

1,966.19

3,655.20

2,276.02

23,171.62

454.02

1,744.18

5,716.98

5,613.46

3,624.66

2,342.38

496.28

1,165.45

8,476.56

3,999.38

15,370.12

7,626.29

3,204.83

593.04

7,267.33

7,652.11

23.972

10.339

0.000

24.000

0.058

47.200

29.320

72.200

0.006

3.000

0.500

8.300

0.000

12.200

0.000

1.070

10.263

0.919

11.500

0.000

0.600

15.100

2.500

5.500

0.000

0.296

0.000

3.800

0.000

3.046

0.000

1.000

33.200

5.975

7.000

26.300

0.100

0.000

13.400

8.300

3657.517

1,672.92

913.97

792.47

558.53

521.86

523.81

431.97

371.70

349.23

300.41

229.27

302.92

152.86

199.97

191.57

198.84

133.43

134.46

154.34

125.14

121.12

87.15

106.07

99.18

104.81

133.75

101.69

83.11

46.67

72.06

80.14

55.56

53.72

79.29

56.51

68.73

46.67

60.67

79.87

3,891.720

1,806.758

982.758

869.066

598.754

561.574

569.408

535.453

358.607

373.262

268.181

245.238

325.722

170.030

215.022

206.719

215.926

142.859

130.822

165.959

133.916

141.101

88.175

105.556

106.647

110.356

143.820

91.069

89.365

52.423

77.483

87.081

63.078

60.421

79.992

78.178

74.009

50.183

59.321

79.053

927.925

356.558

241.301

214.418

126.344

119.666

114.802

111.940

82.458

74.560

69.550

57.979

56.651

52.815

48.800

45.818

40.481

31.502

32.461

31.916

31.846

29.449

27.844

26.631

25.117

24.158

27.557

20.884

20.577

20.364

17.958

16.961

17.442

17.140

16.569

16.165

15.671

14.702

15.014

14.242

290.34

1,291.50

127.21

144.59

1,049.70

82.40

32.21

60.21

182.03

60.09

58.03

40.22

48.20

47.67

19.73

103.72

44.48

67.15

8.97

22.60

68.11

38.60

38.74

4.56

234.89

63.27

25.16

16.22

24.65

22.38

156.13

74.72

7.44

15.11

5.20

10.25

23.09

84.62

8.16

10.33

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

Table 2-1 General Statistics of Iran Electrical Industry in Comparison with Other Countries in Year 2004

Page 46: Iran Power Generation Industry

45Iran Power Generation Industry

Investment Guide

No.

Thermal plants

Net

Per

C

apita

Ele

ctric

ity

cons

umpt

ion

Europe

N. America

Asia/Oceania

S&C.America

Africa

Eurasia

Middle East

World

Iran

Iran world’s Share

441.388

818.161

791.251

80.067

80.667

237.883

105.433

2,554.851

29.890

1.170

1

2

3

4

5

6

7

8

9

10

Description

138.550

111.608

76.020

3.025

1.800

37.453

0.000

368.456

0.000

0.000

201.420

180.348

207.326

129.114

21.277

67.022

6.505

813.012

4.420

0.544

781.358

1,110.118

1,074.598

212.206

103.744

342.358

111.938

3,736.319

34.310

0.918

3,439.93

4,795.40

5,103.04

881.43

505.44

1,307.27

566.60

16,599.09

155.71

0.94

3,217.47

4,464.58

4,748.39

819.63

469.59

1,194.80

526.80

15,441.26

145.14

0.94

584.72

430.62

3,572.39

443.22

872.11

287.36

182.28

6,372.70

67.50

1.06

5,883.06

11,135.94

1,428.47

1,988.68

579.56

4,549.22

3,108.39

2,604.72

2,306.71

5,502.60

10,367.72

1,329.19

1,849.26

538.46

4,157.84

2,890.03

2,423.03

2,150.17

Nuclear plants

Other plants Total (109 KWH)

Population(106Person) (KWH) (KWH)

Net

Per

C

apita

Ele

ctric

ity

Gen

erat

ion

Pop

ulat

ion

(106

Pers

on)

Ele

ctric

ityco

nsum

ptio

n

Net

ele

ctric

ityG

ener

atio

n

Description

is a developing (and not developed) one, thus some variables of the market are not easily predictable. For instance, the consumption requirement amount for far future is not predictable, because in addition to consumption amount, consumption pattern is also a variable parameter. This issue was underscored in the section of load prediction.

A method to overcome this problem is comparison of Iran statistics with other countries. In this way, some concerning questions are discussable, such as: what perspective of Iran electrical industry is assumable? How is the trend of changes in electricity tariffs? How much increment in consumption requirement is assumable? What is the effect of economic and industrial development on demand rate? On the other hand, one can

compare other potentially considerable countries for power plant projects with Iran with respect to supply and demand balance and thus investment incentives. Tables (2-1) and (2-2) show some general indices of electricity in Iran and compared with other countries.

2-2 International Electricity Tariffs

2-2-1 Electricity Sale Tariffs and Their Codification in Iran

Independent power producer can directly sell electricity to costumers via bilateral agreements. Thus, for competition considerations, direct electricity sale prices have to be in a relative balance with the electricity supply prices of the government for

Table 2-2 Per Capita Generation and Consumption Requirement in Iran in Comparison with Other Countries Year 2004

Page 47: Iran Power Generation Industry

46 Chapter 2

600

550

500

450

400

350

300

250

200

150

100

411

331

195176142

2000 2001 2002 2003

533

444

265

205

191 191226

258

436

477

394

337

284263221

2004

587

473

277223

200Iran

Pow

er G

ener

atio

n In

dust

ry, a

n In

tern

atio

nal P

ersp

ectiv

e

subsidized prices, the cost of electricity in year 2004 has been calculated to be 301 Rials per KWh. As illustrated in Diagram 2-2-1, in recent years this cost has had a decreasing trend which indicates the efficiency improvement in Iran electrical industry. Meanwhile, the averaged end-use price of electricity in 2004 has been set equal to 148 Rials per KWh, i.e. 153 Rials per KWh subsidy has been paid. The subsidy is distributed over different consumers based on policies and priorities of the government.

The subsidies of each sector have been alocated due to specifications of it and among different consumption sectors the most subsidies have been paid to residential and agricultural consumers. For instance, in residential sector, defining consumption pattern, more subsidies have been devoted to low income households which have lower consumption (Diagram 2-2-2).

As an example of electricity tariffs, due to electricity tariffs of year 2005 which have no increment compared to year 2004, the average end-use price for different costumers is as bellow: Residential consumers 102.3, public consumers 163.8, agricultural consumers 21, industrial consumers 200.6 and others 423.3 Rials per KWh.

costumers. So, pricing structure and how to set electricity tariffs in Iran might be interesting for the investor.

The electricity bills of the costumers are a function of some tariffs which are codified in three steps:

•Costing•Pricing•TariffCosting process in Iran is performed

by long run marginal cost method. In summary, long run marginal cost involves:

•Capacity cost involving:-Capital cost (Generation, Transmission

and Distribution)-Fixed operation and maintenance cost

(O&M cost) (Generation, Transmission and Distribution)

-Fuel savings-Unserved energy cost-Power losses cost (transmission and

distribution)•Energy cost involving-Fuel cost-Variable O&M cost-Energy losses in transmission and

distribution grid

Averaged end-use electricity pricesConsidering fuel cost based on

Diagram 2-2-1 Average end-use Price of electricity (Different Tariffs) at the End of 2000-2004 (Rials per KWh)

Residential Other Consumptions Agricultural Public Industrial

Page 48: Iran Power Generation Industry

47Iran Power Generation Industry

Investment Guide

500

400

300

200

100

0

-100

270

209164107

11

403

356

208

179

55

358

232188

141

25 10

106102

205

340292

242

120

21

-86

20042003200220012000

500

400

300

200

100

0

10

8

6

4

2

0

Aver

ageC

ents

per

Kilo

wat

thou

r

Res

iden

tial

Com

mer

cial

Indu

stria

lO

ther

8.46

7.86

4.88

6.73

Res

iden

tial

Indu

stria

l A

gric

ultu

ral

Pub

lic

Oth

ers

Diagram 2.2.3) Electricity Tariffs in 2004 and 2005

Diagram 2.2.4) Average International Electricity Price in 2002

Aver

ageC

ents

per

Kilo

wat

thou

r2.2.2. International Electricity TariffsAlthough residential consumers are the

biggest group of consumers in Iran, but due to government subsides, electricity price is the least for them.

Meanwhile, international statistics, statistics of developed countries such as U.S. or some neighboring countries like Turkey show that in these countries residential consumers spend the most for the consumed electricity.

Price of electricity in Iran is much less than international average, such that the price of residential electricity in Iran is 102.3 Rials per KWh and the price of industrial electricity 200.6 Rials per KWh, but in international markets, by average, the price of residential electricity is 84.6 cents per KWh (which is about 778 Rials) and the price of industrial electricity is 76 cents per KWh (723.1 Rials).

This issue is illustrated in following Diagrams.

Residential Agricultural Public Industrial Other Consumptions

Diagram 2-2-2 Average Amount of Subsidies to Differ-ent Tariffs at the End of 2000-2004 (Rials per KWh)

Page 49: Iran Power Generation Industry

48 Chapter 2

Cen

ts P

er K

ilow

atth

our

Residential SectorCommercial SectorIndustrial SectorTransportation(Average)All Sectors (Average)

14

12

10

8

6

4

2

01960 1965 1970 1975 1980 1985 1990 1995 2000

Diagram 2.2.5) Average Electricity Price in the U.S.

Iran

Pow

er G

ener

atio

n In

dust

ry, a

n In

tern

atio

nal P

ersp

ectiv

e

It is worthy of attention that residential electricity prices in the U.S. are quite different for different states and the price fluctuation is between 5 to 16.73 cents per KWh. (Diagram 2.2.6)

Page 50: Iran Power Generation Industry

49Iran Power Generation Industry

Investment Guide

Comparing international electricity prices with prices inside Iran, obvious dissimilarities are observable. These dissimilarities are not only between Iran and some pioneering economies such as U.S., but also, such differences are seen in comparison with prices in neighboring countries. For instance, we mention two neighboring countries, Turkey and Kazakhstan. In both of these countries electricity prices for residential consumers are higher than industrial ones; also in these two countries the costumers spend higher cost compared to Iran. For instance, electricity price for

Diagram 2-2-6) Residential Aver-age Prices in the U.S. with Distinc-tion of the States

residential consumers in 2003 in Turkey and Kazakhstan was 10.6 and 2.6 cents per KWh (equal to 971.5 and 242.9 Rials per KWh). But as mentioned before, residential consumers in Iran were to pay 102.3 Rials per KWh. Also industrial electricity price was 9.9 and 1.5 cents per KWh for Turkey and Kazakhstan respectively (about 891 and 135 Rials), while in Iran industrial electricity price was about 200 Rials per KWh. With respect to these two examples, there are obvious differences between prices in Iran and Turkey, but Iran and Kazakhstan have almost similar costs.

Page 51: Iran Power Generation Industry

50 Chapter 2

2-3 International Price of Energy Carriers

The major consuming fuels of Power plants in Iran are gas oil, gas and fuel oil that natural gas is the most common power plant fuel and gas oil is the least. Below Diagram shows amount of consumption of each fuel during year 2004.

Meanwhile, the most common worldwide used major fuels of power plants are coal, oil and natural gas respectively. It means that, in Iran, gas oil consumption is much higher than international averages and on the other hand, coal is not considered as a power plant fuel. This is because of Iran’s natural sources of oil and gas which makes it easy to use them as power plant fuel. For instance, in China and Eastern Europe countries, coal is the major fuel source of power plants. The average international price of each fuel during 12 years is shown in below Diagram.

35000

30000

25000

20000

15000

10000

5000

0

Litte

r (G

as o

il)

Met

er C

ubed

(Gas

) Li

tter (

Fuel

Oil)

Diagram 2.3.1 Amount of Consumed Fuel of Power Plants in Iran (million)

Iran

Pow

er G

ener

atio

n In

dust

ry, a

n In

tern

atio

nal P

ersp

ectiv

e

Cen

ts P

er K

ilow

atth

our

Cen

ts P

er K

ilow

atth

our

6

5

4

3

2

1

0

2002

2003

2004

2005

2002

2003

2004

2005

25

20

15

10

5

0

Industrial

Residential

Diagram 2.2.7 Residential and Industrial Electricity Prices in Kazakhstan

Diagram 2.2.8 Residential and Industrial Electricity Prices in Turkey

Industrial

Residential

Page 52: Iran Power Generation Industry

51Iran Power Generation Industry

Investment Guide

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

300

250

200

150

100

50

0

(Cen

ts /

10 6

Btu

)

Diagram 2-3-2 Average International Price of Power Plant Fuels with Distinction of Year

Due to Diagram 2-3-2, fuel costs have had almost a flat trend with low fluctuation till year 2003, but in 2003 and 2004, the prices had sudden variations. These changes are more obvious for natural gas (Diagram 2.3.3). International fuel prices had a severe increase in 2005 and 2006.

It is important to mention that according to rich sources of gas and oil in Iran, these fuels are available for power plants with many subsidies and very low prices. However, according to coal sources existed in Tabas area, the construction of some power plant units with consuming fuel of coal in this area is planned.

700

600

500

400

300

200

100

01990 1995 2000 2005

(Cen

ts /

10 6

Btu

)

Natural Gas Oil Coal

Diagram 2.3.3) International Price of Power Plant Fuels with Distinction of Fuel Type and Year

Page 53: Iran Power Generation Industry

52 Chapter 2

2.4) Comparing Per Capita Generation of Electrical Energy

2.4.1) Per Capita Generation of Electrical Energy in Different Countries

For a better understanding of Iran’s situation in power generation, it is important to study the generation rate, per capita generation and consumption pattern of different countries such as regional countries, developing countries and also developed countries.

In general, Iran has a good ranking of generation among regional countries. Kazakhstan has the greatest generation rate in neighboring countries which is about 3805.18 KWh per capita; meanwhile, Afghanistan has a negligible per capita generation rate because of its social conditions (34.77 KWh per capita).

Among the neighboring countries of Iran, the countries formed after USSR collapse, have more per capita generation

than eastern and western neighboring countries. The minimum generation is in Afghanistan and Pakistan and then in Iraq. Diagram 2-4-1 illustrates per capita generation of regional countries.

Investigation of generation and consumption of countries which are economically comparable with Iran is a proper method for analyzing different social and cultural parameters’ role in the countries.

For this purpose, countries of Turkey, Turkmenistan, Brazil, Egypt and Saudi Arabia are considered. Among them, Egypt has the least per capita generation which is about 1216.66 KWh per capita and Saudi Arabia has the highest per capita generation which is about 6434.99 KWh per capita. One reason for such a high per capita generation rate in Saudi Arabia is the considerable rate of residential consumption.

Diagrams of consumption pattern and composition of consumers in each of these countries are represented at the

4000

3000

2000

1000

0

فرر ن

ت بساع

لو

كي

Diagram 2-4-1 Per Capita Electrical Energy Generation of Some Regional Countries in 2005

Arm

enia

A

fgha

nist

an

Iran

Aze

rbai

jan

Pak

ista

n Ta

jikis

tan

Turk

men

ista

n Tu

rkey

Ira

q K

yrgy

zsta

n K

azak

hsta

n

Iran

Pow

er G

ener

atio

n In

dust

ry, a

n In

tern

atio

nal P

ersp

ectiv

e

Page 54: Iran Power Generation Industry

53Iran Power Generation Industry

Investment Guide

7000

6000

5000

4000

3000

2000

1000

0

فرر ن

ت بساع

لو

كي

Diagram 2-4-2 Per Capita Electrical Energy Generation in Some Countries

Compared to Iran (2005)

Iran

Bra

zil

Turk

men

ista

n Tu

rkey

S

audi

Ara

bia

Egy

pt

end of this section. Diagram 2.4.2 shows the per capita generation rate of countries aligned to Iran in international level.

In comparison with advanced economies, per capita generation rate of Iran is so scanty. For example, per capita

generation rate is 17903.93 KWh per capita in Canada and 13613.77 KWh per capita in the U.S.

This per capita generation rate is a considerable one compared to the per capita generation rate of Iran which is about 2114.77 KWh. United Kingdom and Germany do not have a high generation

20000

15000

10000

5000

0

فرر ن

ت بساع

لو

كي

Aus

tralia

U

.K.

Iran

Ger

man

y U

.S.

Can

ada

Diagram 2-4-3 Per Capita Electrical Energy Generation in Some Developed

Countries Compared to Iran (2005)

Page 55: Iran Power Generation Industry

54 Chapter 2

rate compared to the U.S. and Canada, and Australia has a middle rank between them.

2-4-2 Composition of CostumersBelow Diagrams show the composition

of costumers for the countries mentioned above. Considering Diagram 2-4-4, it is obvious that in developed countries, generated power is mainly distributed among residential, industrial and

Iran

Pow

er G

ener

atio

n In

dust

ry, a

n In

tern

atio

nal P

ersp

ectiv

e

19%

0%

33%36%

12%

31% 32%

0%

37%

Consumption pattern of Iran

Commercial Transportation Residential Industrial Agricultural

Commercial Transportation Residential Industrial

Consumption pattern of the U.S.

0%

3%

1%

28%

3%

34%

34%71%

Commercial Transportation ResidentialIndustrial Agricultural

Residential Others IndustrialAgricultural

Consumption pattern of the U.K.Consumption pattern of Azerbaijan

31%32%

23%14%

25%33%

36%

9%

Residential Others Industrial Agricultural

Residential Others Industrial Agricultural

Consumption pattern of Kyrgyzstan Consumption pattern of Turkmenistan

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business costumers. In studying regional countries, agricultural costumers gain a more important role.

2-4-3 Studying Other Specifications of Mentioned Countries

2-4-3-1 Regional CountriesRegional countries are of great

importance in this argument. Therefore all of their statistics and affairs should be analyzed.

Among regional countries, Iran has the highest electricity consumption. After

Iran, Turkey is the biggest consumer of electricity with a total consumption of

124880 million KWh. But from per capita consumption viewpoint, countries of Kazakhstan, Azerbaijan, and Tajikistan are the largest consumers, and then Iran with per capita consumption of 1963.116 KWh per capita is in next ranking.

Diagram 2-4-6 illustrates the electricity consumption rate in regional countries and Diagram 2-4-7 shows the per capita consumption in these countries.

Some information of the import-export rate of these countries is provided in continue of the section.

Due to statistics of year 2004, the most rates of electricity import and export is

45%

30%

12% 25%

1%

23%48%

3%Commercial Transportation Residential Industrial Agricultural

Commercial Transportation Residential Industrial Agricultural

Consumption pattern of Turkey Consumption pattern of Pakistan

11%4%

11%

38%

28%

2%14%

56%

Diagram 2.4.4 Consumption pattern in some countries

Commercial Residential Others Industrial Agricultural

Consumption pattern of Egypt Consumption pattern of Saudi Arabia

Commercial ResidentialIndustrial Agricultural

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5000

4000

3000

2000

1000

0

Arm

enia

A

fgha

nist

an

Iran

Aze

rbai

jan

Pak

ista

n Ta

jikis

tan

Turk

men

ista

n Tu

rkey

Ira

q K

yrgy

zsta

n K

azak

hsta

n

Diagram 2-4-8 Electricity Import in Some Regional Countries (2004)

{Mill

ion

KW

h}

7000

6000

5000

4000

3000

2000

1000

0

Arm

enia

Af

ghan

ista

n Ira

n Az

erba

ijan

Paki

stan

Ta

jikis

tan

Turk

men

ista

n Tu

rkey Iraq

Kyrg

yzst

an

Kaza

khst

an

Diagram 2-4-9 Electricity Export in Some Regional Countries (2004)

Mill

ion

KW

h

140000

120000

100000

80000

60000

40000

20000

0

Arm

enia

A

fgha

nist

an

Iran

Aze

rbai

jan

Pak

ista

n Ta

jikis

tan

Turk

men

ista

n Tu

rkey

Ira

q K

yrgy

zsta

n K

azak

hsta

n

Diagram 2-4-6 Electricity Consumption in Some Regional Countries (2005)

Mill

ion

KW

h

3500

3000

2500

2000

1500

1000

500

0

Arm

enia

A

fgha

nist

an

Iran

Aze

rbai

jan

Pak

ista

n Ta

jikis

tan

Turk

men

ista

n Tu

rkey

Ira

q K

yrgy

zsta

nK

azak

hsta

n

Diagram 2-4-7 Per Capita Electricity Consumption in Some Regional Countries (2005)

KW

h pe

r cap

ita

Iran

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4000

3500

3000

2500

2000

1500

1000

500

0

U.S

. U

.K.

Iran

Bra

zil

Sau

di A

rabi

a C

anad

a E

gypt

Diagram 2-4-10 Electricity Consumption of Some Countries (2005)

Thou

sand

Mill

ion

KW

h

35

30

25

20

15

10

5

0

Diagram 2-4-13 Electricity Export in Some Countries (2005)

Thou

sand

KW

h pe

r cap

ita

U.S

. U

.K.

Iran

Bra

zil

Sau

di A

rabi

aC

anad

a E

gypt

40

35

30

25

20

15

10

5

0

Diagram 2-4-12 Electricity Import in Some Countries (2005)

U.S

. U

.K.

Iran

Bra

zil

Sau

di A

rabi

aC

anad

a E

gypt

Thou

sand

KW

h pe

r cap

ita

18

16

14

12

10

8

6

4

2

0

U.S

. U

.K.

Iran

Bra

zil

Sau

di A

rabi

a C

anad

a E

gypt

Diagram 2-4-11 Electricity Per Capita

Consumption in Some Countries (2005)

Thou

sand

KW

h pe

r cap

ita

dedicated respectively to Tajikistan with 4600 million KWh and Kyrgyzstan with 6000 million KWh.

However, along with statistics of electricity export, also the statistics of electricity import must be considered. Obviously, net import-export is more proper parameter in any investigation.

2.4.3.2 Other CountriesFor management of electricity and

energy consumption in Iran, having information of electricity consumption and export in some similar countries and also in pioneering economies might be useful. In previous sections, statistics of consumption pattern in different countries have been provided and a perspective of organization and management in developed countries is presented.

Generally, the electricity consumption is very high in the U.S. Also Canada is the top of per capita generation as well as per capita consumption Table of the world countries. Below Diagrams show respectively electricity consumption and per capita consumption in some countries.

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20.2

23.2

4.1

2.5

0

0

0

12.3

0

6.8

1.3

83.3

30.5

27.0

0

15.9

59.6

17.0

70.6

73.7

8.4

67.0

72.7

100.0

84.1

26.7

82.8

Table 2-4-1 Share of Different Types of Power Plants in Some Countries

U.S.

U.K.

Brazil

Pakistan

Turkey

Saudi Arabia

Kazakhstan

Canada

Egypt

Generation (%)

Thermal Hydro Nuclear

Iran

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In most of under study countries like Iran, Saudi Arabia, U.S., Great Britain, Canada and Egypt there is a relative balance between import and export, but the county of Brazil, without any electricity export, is at the top of electricity importers. Also, Canada is the first highest electricity exporter in the world.

2-4-4- Generation of Various Types of Power Plants

Table 2-4-1 shows the percentage share of different types of power plants (thermal, hydro and nuclear) in total electricity generation in some countries.

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Therefore, total energy consumption of the world in year 2030 will reach 30,116 milliard KWh, which will be twice the total consumption of the world in year 2003 (14,781 milliard KWh).

2-5- Universal Visions of Electrical Industry

For the purpose of this section, the statistics issued by “Organization for Economic Co-operation and Development” (OECD) are used. OECD is an international organization of thirty four countries. The mandate of the OECD is very broad, as it covers all economic, environmental and social issues. All OECD activities are backed-up by statistics, and given the variety of OECD activities, it is a very good source of comparable statistics. These statistics are valid and in frequent use by different information resources.

2-5-1 Prediction of Consumption Requirement

Among non-member countries of OECD, an average annual growth of 3.9% during 2003 till 2030 is predicted in electricity consumption. Meanwhile, these averaged statistics show annual growth of 1.5% for members of OECD, among them Mexico gains the greatest annual consumption growth. Considering the average statistics of all world countries, total consumption of the world has 1.88% annual growth.

20,000

15,000

10,000

5,000

01980 1990 2003 2010 2020 2030

History Projeotions

OECD

Non-OECD

Diagram 2-5-2 Electricity Consumption of World with Distinction of Country Types during 1980 to 2030

Bill

ion

Kilo

wat

thou

r35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

History Projeotions

2003

2010

2015

2020

2025

2030

14.7

81

19.0

4521

.699 24

.371

27.1

33

30.1

16

Diagram 2-5-1 Prediction of Electricity Consumption of World till Year 2030

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Residential Commercial Industrial Transportation

Bill

ion

Kilo

wat

thou

r

10,000

8,000

6,000

4,000

2,000

0

200320152030

Diagram 2-5-3 Consumption Prediction of Con-sumers in OECD Member Countries till Year 2030

Residential Commercial Industrial Transportation

Bill

ion

Kilo

wat

thou

r

10,000

8,000

6,000

4,000

2,000

0

200320152030

Diagram 2-5-4 Consumption Prediction of Consum-ers in OECD Member Countries till Year 2030

Iran

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In year 2003, almost 60% of total consumed energy in member countries of OECD is in residential and commercial sectors and the rest, except for 1% consumption in transportation sector, is consumed in industrial sector.

Based on this prediction, in other countries residential consumption of

electricity is reached 30% in year 2030 from 23% in year 2003. Along with this growth, the industrial sector will impose with 13% decrement in consumption from 61% to 54% which indicates more growth rate of consumption in residential sector than industrial one (Diagrams 2-5-3 and 2-5-4)

2-5-2 Prediction of Generation Capacity and Fuel Prices

Generation capacity of total world in year 2003 has been 3710 GW which is predicted to reach 6329GW in year 2030, i.e. 2% annual growth is expected. Diagram 2-5-5 shows the predicted variations based on existing types of power plant fuel.

Obviously, during almost 30 years, the price of power plant fuels will vary permanently. This variation is more for

some fuel types and less for some others. For instance, nuclear fuels and coal will impose few price fluctuations, while the price of fossil fuels, after a sudden drop, will leap gradually. Diagram 2-5-6 affirms this issue. However, the predictions are for year 2003. The cost of fossil fuels is sorely dependent on international policy and Middle East security. As seen during two recent years, the price of oil derivatives has a severe incremental trend.

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Nuclear

Natural GasPetroleum

Coal

10

8

6

4

2

0

History Projeotions

1995

-203

0 (2

004

dolla

rs

Per m

illio

n B

tu)

1995 2004 2010 2015 2020 2025 2030

Diagram 2-5-6 Prediction of Power Plant Fuels till Year 2030

Gig

awat

ts

8,000

6,000

4,000

2,000

0

2003

OilNuclearRenewablesNatural GasCoal

2010

2015

2020

2025

2030

Diagram 2-5-5 Prediction of Worldwide Electricity Generation with Distinction of Power Plant Fuel Type

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2-6 Worldwide Electricity MarketThe implication of private sector

participation in energy projects is considered in many countries, such that in these liberalizing electricity markets and foundation of competitive energy markets are of the purposes of governments.

The earliest introduction of market concepts and privatization to electric power systems took place in Chile in the late 1970s. A key event for electricity markets occurred in 1990 when the UK Government privatized the UK Electricity Supply Industry. The process followed by the British was then used as a model or at least a catalyst for the deregulation of several other Commonwealth countries.

Nowadays, buy and sell of electricity in many countries of the world (almost all European countries, major parts of the

U.S. and Canada) is performed through electricity market.

The rest of this section is devoted to brief introduction of British electricity market and the buy and sell pattern in it. Since, U.K. is a vanguard of the trend and also is an industrial country, these descriptions and also discussion on challenges and opportunities might be effective on the improvement trend of Iran electricity market.

British Electricity MarketIn important respects, the British

wholesale electricity market, in the form it operated from 1990-2001, was highly successful. The supply of electricity was entirely secured over these 11 years and prices to consumers stable, albeit significantly too high. However, in 1997, the Power Pool, the spot market

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that was meant to be the centre point of the wholesale market, providing the market for significant proportion of power sales and price signals for the contract market, was judged by the Regulator and government to have failed and was replaced by New Electricity Trading Arrangements or ‘NETA’ in March 2001.

British Electricity Market before NETA

The basic design of the original British wholesale electricity market is well known. Demand is forecast for each 30-minute period 24 hours ahead by the System Operator and bids are received for plants that their owners wish to operate. Essentially, the bids are sorted by price and the highest successful bid needed to just meet demand in that 30-minute period sets the Pool Price. This Pool Price is paid to all successful bidders. In addition, successful bidders are paid a capacity charge that only becomes significant if supply is only just sufficient to meet demand. Wholesale buyers (and any large consumers that choose to buy directly from the Pool) must buy all their output from the Pool and they pay the Pool Price including the capacity fee and charges for ancillary services. However, while all buying and selling must nominally go through the Pool, bilateral contracts are allowed which effectively bypass the pricing arrangements. In practice, power bought and sold that is covered by such contracts have accounted for more than 90 per cent of electricity consumption.

NETAAs with the Power Pool, NETA is settled

every 30 minutes and buyers and sellers are allowed to sign bilateral contracts that

remain entirely commercially confidential on any terms they choose. However, there the similarities end. At 24 hours before the period of demand in question, open-access Power Exchanges (PXs) are opened and buyers and sellers are able to place bids to buy or sell power to balance their needs. Deals are concluded bilaterally at the price posted. At four hours before the period of consumption, generators inform the System Operator of the plant they intend to operate and retail suppliers inform the System Operator of the amount of power they expect their consumers to consume. The System Operator then determines whether the supply and demand that the companies have forecast matches their (more accurate) demand forecast and it asks for bids from generators to supply additional power or reduce output in the so-called Balancing Market. The System Operator buys any difference between expected and actual sales by generators to wholesalers, and between wholesalers and their consumers for the companies in the Balancing Market. The system operator also deals with any congestion problems and other ancillary services in this four-hour period and passes the cost on to retail suppliers.

Electricity Market in IranIran’s national electricity market was

launched 23 October 2003 with 23 sellers (14 Regional Electricity Companies, 7 Regional Water Companies, Water and Power Company and Water and Electricity Organization of Khuzestan) and 16 major buyers (Regional Electricity Companies).

The heart of the market is generally in the form of power pool. All generators bid

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in this pool, and all the regional electricity companies, are entitled to forecast their hourly demands and purchase from it. The bids are sorted by price and then the cheapest and the most proper generation arrangement of power plant units is calculated and the results are delivered to National Dispatching Center. Payment to sellers follows the model of “pay as bid”.

Development of Iran electricity market provides a proper bed for private sector participation in generation and distribution sectors with more reliability.

Iran electricity Market involves three major sectors, which are discussed briefly in the following:

a)Selling In this section, sellers bid their prices

considering below factors:1-Prediction of per hour consumption

requirement of next day2-Average per hour accepted price of

previous day3-Cost of fuel, consumed materials and

depreciation4-Technical constraints of generation5-Constraints of transmission gridIncome of sellers is consisted of two

major parts: Capacity fee and Energy fee. These factors are discussed in Chapter 8.

b)Transmission ServicesTransmission grid in Iran is in authority

of Government and there is no plan to privatizing it. The producers have sign agreement with the Iran Grid Management Company (IGMC) for transit services.

Two kinds of services are provided for the producer to use the transmission grid:

1-Selling to the wholesale electricity market, the producer, without any payment, may use the services proportional to its capacity.

2-In the case of bilateral contract between producer and independent consumer, the services are provided with a cost proportional to the amount of transmitted energy/capacity.

c) Buying Albeit any other major consumers

can also record their buy demand in wholesale electricity market and fulfill their consumption requirement, currently, the only buyers in Iran electricity market are Regional Electricity Companies.

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3.1 Why investment in electricity industry of Iran?3.2 Future Demand and Investment Perspectives

3.2.1 Forecast for demand in Coming Years.3.2.2 Costs of the electricity3.2.3 How much investment needed?3.2.4 Capacity increase by the state-owned sectors

Chapter 3- Why Investment in Iran Power Generation Industry? 65

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3.1 Why investment in electricity industry of Iran?

Generation of electric power in Iran is not in that firm level to support all the demand of the country with the attention to the peak/emergency conditions. So in the following years the process of development in power plants should happen with a higher rate. But in one hand the governmental resources for this part are less than sufficient and on the other hand the government strategically is more tending to reach capacity targets by the support and presence of the private sector.

For example in the budget act of FY2005-2006 the budget for power industry was predicted about 70,000 Billion Rials of which, approximately 50,000 billion Rials was from the income, loan and public intending, but for the remaining 20,000 billion Rials no clear resources had been allocated meaning that it was expected the gap to be filled by presence of the private sector. This amount actually was the investment needed to leverage the generation capacity to its intended targets.

So by true understanding of these necessities, great activities have been done in the recent years, especially in the legislation in the foreign investment and attracting the active private sector for infrastructure projects, these efforts can be seen in the budget act in the years FY 2003-2004 and 2004-2005. These laws insist on promotion of investments by private sector in power industry. These laws have made the government to supply 12000 MW thru non governmental investment.

Until now there have been 4 methods that government follows to reach this object:

1.Issuing bonds for power plant projects.

2.Promoting private sector to invest in Iran power industry on the basis of BOO and BOT

3.Demonstration of the joint stock investment companies with support of the government (e.g. demonstration of the power plant investment company of Iran {SANA} with a capital of about 400 billion Rials) for investment in Iran power generation industry.

The BOO and BOT approaches are considered as an entrance door for the private sector to enter this industry. And also some clear regulations are codified in order to attract the private sector in a competitive environment. Buying generated electricity from the investor is guaranteed by the law and TAVANIR Co in Ministry of Energy is responsible to do this. The experience in BOT based contracts has proved to be of more interest to foreign investors according to facilitations and protections backed by FIPPA.

In the BOO and BOT, IPDC is mainly responsible to guide the investors chase up with contracts step by step on behalf of TAVANIR Co.

In BOT arrangements the non-state investor starts the operation of the power plant after its financing and construction and sells the generated electricity to TAVANIR for a time period (concession period) and through a contract, after finishing of the period, he/she transfer back the power plant to TAVANIR

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2004-2003

2005-2004

2006-2005

2007-2006

2008-2007

2009-2008

2010-2009

2011-2010

2012-2011

2013-2012

2014-2013

2015-2014

27107

29267

32217

34269

36890

39801

42944

46334

49991

53933

58182

62760

2016-2015

2017-2016

2018-2017

2019-2018

2020-2019

2021-2020

2022-2021

2023-2022

2024-2023

2025-2024

2026-2025

67695

73015

78746

84923

91581

98756

106489

114824

123809

133495

143937

67Iran Power Generation Industry

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year Demand year Demand

Table 3-2-1) a Forecast of demand for power up to the year 2025 (MW)

whereas in the BOO the power plant will be yet under the ownership of the private sector, no need to transfer it back.

In the cases that TAVANIR doesn’t purchase the generated electricity the capacity fee will be paid to the owner of the power plant, this will recompense majority of the construction and investment costs (Take or Pay Guarantee).

In these contracts according to the choice of investor the responsibility of supplying fuel is by TAVANIR although because of restrictions of fuel distribution directed by government, the contracts are actually of energy conversion type, and TAVANIR or IGMC by accepting the related risks of supplying of fuel, sign the fuel supplying contracts with investor.

Details related to these contracts will be

explained in chapter 8 and the associated procedure to sign such contracts will be explained in chapter 11. In this part we are just trying to show that necessities of the investment of the private sector have made TAVANIR Co smooth the road for presence of the investors and offer many incentives in this regard.

3.2 Future Demand and Investment Perspectives

3.2.1 Forecast for demand in Coming Years.

Demand for power in the country is increasing with a high rate, and will be doubled in the next decade and increasing with this rate in the next 20 years it will be quadrupled in comparison to the current amount. The following table shows a

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301 308 313 335 261Averaged Cost

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Table 3-2-2) Averaged Costs of electricity in last years (Rial/KWh)

recent years the cost of electricity is decreasing, this trend shows an increase in productivity in electricity industry.

3.2.3 How much investment needed?

Power demand in the country for the next 20 years was discussed in the previous part and the percentage of each type of power plants contribution in power generation throughout the country

is reported in the 1st chapter. To make an estimation of the necessary investment in the electricity industry to fulfill the demand, amount of investment is needed for each type of power plants. Also determination of the types of power plants that are going to be built in the following years is of need. Type of power plants that are going to be built in the following years is dependant on some factors most importantly state energy policies.

forecast for demand in the next years till 2025-2026.

3.2.2 Costs of the electricityThe price of the electricity that covers

generation, transmission and distribution costs is codified annually by the bureau of economical and tariffs studies in

TAVANIR Co. To do this the cost of end-use electricity is being calculated every year. The cost of electricity in the FY 2004-2005 has been 301 Rials per KWh. Table 3.2.2 shows the costs in the years 2000-2001 to 2004-2005.

As you can see in table 3.2.2 in the

Table 3.2.2 Investment needed for each type of power plant

Kind of power plant steam Combined cycle gas

37.9

6.115.000

16.7

47.94.000

29.4

3.200.500

year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

Percent of electricity generation in power plants

The necessary investment (R/KW)

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So assuming that in the following years the power generation industry is going to expand with the existing pattern, the necessary investment can be calculated.

According to the figures in table 3.2.2 and estimation of the power demand in the next years, an estimation of needed capital could be made. In the following table, capacity and necessary investment until 2025-2026 is shown.

As you saw the necessary investment upto 2025 is nearly 60 billion dollars.

Current policies of the government that is insisted on by the socio-economic 5-year development plans, state budget laws and other related regulations insist that increase in capacity of electricity generation should be accomplished

through private sector participation. The declaration of the supreme leader of the Islamic Republic of Iran about the article 44 of the constitution also shows that government is doing its best to facilitate the activities of private sector in infrastructure projects, all of these facts prove that an important role for the private sector and also foreign investment is considered in this regard.

3.2.4 Capacity increase by the state-owned sectors

TAVANIR Co as the proctor of the electricity generation in country, often is confronted by the lack of budgetary for capacity increase. Up to now this company has referred to loans and other similar mechanisms to fill the gap. In

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addition the capacity margin shows a slight decrease by years that insist more on necessities of urgent investments in this sector.

On the other hand the policies of the government in privatization have led to legislations that don’t permit TAVANIR to directly invest in the power plant projects

in the future.These all prove that the government

of Islamic Republic of Iran is so serious in privatization of this industry and smoothing the roads for investors of the private sector in this arena.

So in the following years the demand for power has to be pursued by the private sector and this calls for an attractive market for investors.

Demand (MW)

Needed increase in installed capacity

Acumulated needed capital (M Rial)

year 2006-2007 2011-2012 2016-2017 2021-2022 2025-2026

Table (3.2.3) Investment needed to fulfill the power demand in the next 20 years

34269

--

--

49991

15722

76.000.000

73015

38746

187.000.000

106489

72220

349.000.000

143937

109688

530.000.000

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7272

4-1 Introduction4-2 Risk Classification

4-2-1 Risks of Bidding Stage4-2-1-1 Risk of Losing the Bid4-2-1-2 Risk of High Bid Price

4-2-2 Construction & Completion Risks4-2-2-1 Incompletion Risk4-2-2-2 Completion Delay Risk4-2-2-3- Cost Overrun Risk4-2-2-4 Risk of Non Standard Construction4-2-2-5 Risk of Project Site Unavailability4-2-2-6 Force Majeure Risk4-2-2-7 Capabilities and Related Experiences of Contractor4-2-2-8 Power Plant Location (Insufficient Transportation Facilities)

4-2-3 Operation Risks4-2-3-1- Substandard Technical Specifications during Operation4-2-3-2 Extension of licenses4-2-3-3 Force Majeure Risks4-2-3-4 Experience and qualifications of O7M Contractor4-2-3-5 Maintenance4-2-3-6 Tampering and theft of energy4-2-3-7 Delay in Construction of Distribution Infrastructures 4-2-3-8 Long Term Equipment Failure during Operation

4-2-4 Performance Risks4-2-4-1 Fuel Supply Risk4-2-4-2 Risk of Technology Capabilities4-2-4-3 Management Risk4-2-4-4 Existing Infrastructures4-2-4-5 Risk of Rivalry4-2-4-6 Import Limitation of Power Plant Equipment

4-2-5 Market Risks4-2-5-1 Risk proper Estimatiion of Electricity Price in the market4-2-5-2 Risk of True Estimation of Demand for Produced Electricity4-2-5-3 Risk of Proper Technology Selection

4-2-6 Commercial Risks4-2-6-1 Risk of Currency Convertibility4-2-6-2 Risk of Currency Transferability4-2-6-3 Devaluation Risk4-2-6-4 Availability Risk4-2-6-5 Interest Rate Risk4-2-6-6 Internal Inflation Risk4-2-6-7 Liabilities Risk4-2-6-8 Decrease in Tariffs for Competition4-2-6-9 Fuel Price Fluctuations

4-2-7 Environmental & Political Risks4-2-7-1 Expropriation Risk4-2-7-2 Regulatory Risk4-2-7-3 Corruption4-2-7-4 Delay in issuing Acts and Permissions4-2-7-5 Risk of Breach of Investment Agreements4-2-7-6 Other Political Risks4-2-7-7 Environmental issues

Chapter 4- Iran Power Projects Risks Overviewed 71

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4-1 IntroductionIn any infrastructure project, risk

identification, risk classification and risk management are intensively important. Thus, before any contract, all partners including electricity buyer and governmental organizations, investor, operator and so on have to identify and classify all possible risks of project and also determine the risk management strategy.

In the laws related to private sector participation in Iran power industry, major part of the risks is taken by the government via TAVANIR Company or Iran Grid Management Company. However, a group of risks goes to the investor to preserve the competitive space between power producers. Of course, the investor might attempt to reduce the risks; for instance, choosing appropriate kind of contract among several forms of contracts offered by legislations to invest based on it or using insurance services.

It is worth noting that risk is inherent in any economic activity, thus discussion on the investment risks, without comparison to other activities, is meaningless. Always it should be questioned: “more risky than what?” In risk comparison, the different levels of risk appearance should be considered. As an example: investment in stock market is more risky than investment in the bank, investment in bank is more risky than buying government issued bonds even if the bank is a famous one. Any way, all the opportunities on investment have some risks, so the greatest risk is to loose the opportunity.

4-2 Risk ClassificationAny economic agency will impose some

risks in any stage of its development. In this section, these risks are enumerated with special regard to power plant projects in Iran.

4-2-1 Risks of Bidding StageBidding process is not the only way

to present in Iran electricity market as a producer. If the investor prefer not to go into long term contract (PPA/ECA) with Tavanir, without bidding might sign agreement with Iran Grid Management Company and based on it, after completing power plant construction, sell his electricity in the wholesale power market. In this case, the cost of participation in bidding is eliminated and thus the below mentioned risks are avoided.

However, some important risks of bidding stage are as follows.

4-2-1-1 Risk of Losing the BidThe risks of bidding stage are worth

consideration because all costs of bidding involving feasibility study, bidding documents, technical and legal advice and so forth are on bidder and the host countries like Iran do not undertake them. Thus, the bidding cost in these types of projects is one of major parts of project cost. Obviously, if the bidder loses, may suffer some costs.

It is worth noting that to promote investors to participate in IPP (Independent Power Producer) projects in Iran, TAVANIR Company performs some feasibility studies for power plant projects before tendering and thus reduces the bidding costs for bidders.

4-2-1-2 Risk of High Bid Price The risk is notable for the investor,

because in the case of high bid price the whole bid might be withdrawn which imposes the investor to some costs. An

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unexpectedly high bid price could result from a variety of reasons, including:

-Bidder collusion; -Defective specifications;-Unclear or unreasonable contract

terms;-Changes in market conditions;-Inadequate competition.

4-2-2 Construction & Completion Risks

The highest level of risk exists during the construction phase of a project while construction delays and cost overruns can have serious consequences to a project’s success. It is during this phase that investors require the highest return on their capital to compensate for the risk, thus the higher cost of capital. Normally, the government and also the lenders do not undertake the construction & completion risks and thus these are put to investors and construction contractors.

4-2-2-1 Incompletion RiskIncompletion of the project may result

in waste of assets spent to construct the project, thus the host government and

projects lenders may request completion warranties from the investors. The project might be incomplete for various reasons such as design and technical faults, management problems and financial problems.

4-2-2-2 Completion Delay RiskIn the case of delay in completion of

the project, the interest cost is increased and thus the cost of project exceeds the predicted and fulfilled costs. Therefore, long delays in construction might waste financial resources of the project and harm the asset return.

4-2-2-3- Cost Overrun RiskThe most common risk in completion

of projects is cost overrun risk which occurs in many infrastructure projects. If actual cost exceed over budget, this may affect the asset rate of return rate and if there is no additional finance, even the project may be stopped.

4-2-2-4 Risk of Non Standard Construction

After project completion, the project

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has to be evaluated for required standards. Adhering to these standards is vitally important to the survival of project. For example, if a power plant has not the required efficiency, not only by decreasing electricity generation the revenue is decreased, but also may be fined or at least dispossessed of some energy efficiency awards. This risk is generally allocated to the project company.

However, it is necessary to specify procedure and responsibility of required evaluations and tests and also certificates of completion in any EPC contract of power plant construction.

4-2-2-5 Risk of Project Site Unavailability

The risk that the project land will be unavailable or unable to be used at the required time, in the manner or at the cost anticipated, or that the site will generate unanticipated liabilities, with the result that the contracted service delivery and/or projected revenues are adversely affected.

4-2-2-6 Force Majeure RiskForce majeure is a common clause in

contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as war, strike, riot, crime, act of nature (e.g., flooding, earthquake, volcano) prevents one or both parties from fulfilling their obligations under the contract. However, force majeure is not intended to excuse negligence or other malfeasance of a party, as where non-performance is caused by the usual and natural consequences of external forces (e.g., predicted rain stops an outdoor event),

or where the intervening circumstances are specifically contemplated. In some cases, it is possible to cover the unpredicted events by insurance, but in other cases the only issue is sharing the risk between parties of the contract.

4-2-2-7 Capabilities and Related Experiences of Contractor

The past experiences to perform similar projects by the Project Company and also technical and engineering capabilities during construction period are the risks of this period. Possessing these two characteristics is helpful of reducing all risks of construction period.

4-2-2-8 Power Plant Location (Insufficient Transportation Facilities)

Insufficient transportation facilities for bad location of power plant will impose the project with construction risk because of incapability to deliver the services at anticipated cost. Of course, for feasibility studies of enacted projects in Iran, availability of transportation facilities is one of the considered parameters. Also, in power plants proposed by the investor, the issue can be checked.

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4-2-3 Operation RisksGenerally, operation risks are

undertaken by investors and Project Company. It is possible to transfer these risks to O&M contractor via an O&M agreement. Some operation risks are mentioned below.

4-2-3-1- Substandard Technical Specifications during Operation

How to operate and use the grid are specified via some standards in TAVANIR Company which are necessary to be regarded by the investor.

Furthermore, substandard quality and quantity specifications might adversely affect the project itself and impose it with operational problems in future. Thus, to prevent this risk, it is necessary to give enough consideration to O&M agreements.

4-2-3-2 Extension of licensesIn the process of signing a contract for

setting up a plant and its operating, the investor needs to be granted a number of licenses which are granted upon well defined procedures by the authorities. Several problems may arise that cause the investor to ask for extension of licenses. In the case of any problem in extension of validity periods, the investor imposes some major risks. Thus, the investor is required to follow the legal procedures and guidelines provided by Ministry of Energy for investment to prevent these types of risks.

4-2-3-3 Force Majeure RisksImposing any extraordinary event or

circumstance beyond the control of the parties such as war, strike, riot, crime, act of nature (e.g., flooding, earthquake, volcano) which occurs in power plant

location during operation period, might result in damaging the work, plant and stuff. The consequences of these risks are necessary to be regarded in agreement (energy conversion or energy sell). In some cases, it is possible to cover the unanticipated events by insurance, but in other cases the only issue is sharing the risk between parties of the contract.

4-2-3-4 Experience and qualifications of O7M Contractor

The capabilities and experiences of project manager or O&M contractor (in the case of any O&M agreement) directly affect the efficiency of the project. These capabilities and experiences might result in realization of initial projected incomes for the project.

4-2-3-5 MaintenanceMaintenance costs are the major part of

operation costs in a power plant. In chapter 6, an approximation of maintenance cost for a power plant regarding its capacity is discussed.

Proper estimate of maintenance cost during plant life is an important issue in project evaluation.

4-2-3-6 Tampering and theft of energy

If the investor is also responsible for power distribution, might impose with problems such as theft of energy, i.e. there might be some illegal connections to the grid which are not detected by the project investor.

Of course, currently in Iran, transmission and distribution is not on the investor and the produced electricity of power plant is measured before delivery to transmission and distribution grid and the payment is based on this measurement.

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4-2-4 Performance RisksDuring project life, from construction

stage to operation stage, there are many issues which impose the project with problem. These problems may suffer the efficiency and income of the project.

Main performance risks are as follows.

4-2-4-1 Fuel Supply RiskNot obtaining a timely supply of the

appropriate fuel might stop the electricity generation of the power plant. Dependent on sell contracts, the producer might be fined by the buyer for any stop.

In long term energy conversion contracts, it is possible to allocate the risk to Grid Management Company or TAVANIR Company rather than the investor.

4-2-4-2 Risk of Technology Capabilities

In the case of employing old and non efficient technologies in the IPP projects, some problems are present for the investor and the host. This risk is specially considered in BOT contracts during operation after ownership transfer to the TAVANIR Company or Grid Management Company.

In current Laws of Iran Electricity Market, the investor gives no warranty about the technology type of the plant. However there are some encouraging policies to increase the efficiency of power plant employing modern technologies.

4-2-4-3 Management RiskPerformance risks are related to

management issues during all stages of project life. Management is a vital factor for project success.

Generally, the management is

Thus practically, there is no such risk for investment in Iran power plant projects unless the producer chooses to sell its electricity directly to a consumer. In such cases, regarding the existing laws, even free usage of the grid is possible for the producer and again IGMC is responsible for delivery of energy to consumer site, thus this risk goes to Iran Grid Management Company.

4-2-3-7 Delay in Construction of Distribution Infrastructures

Delay in construction of distribution and transmission infrastructures might threat the proper operation of power plant project. For instance, in bilateral contract for electricity sell to consumer, it is necessary for transmission and sub transmission lines to provide sufficient capacity to transmit the produced electricity to the customer, otherwise, the contract is not practical. However, in electricity sell to wholesale electricity market, Iran Grid Management Company undertakes a part of this risk and in the case of any fault in distribution and transmission grid, capacity fee is paid to the producer with regard to the claimed generation capability.

4-2-3-8 Long Term Equipment Failure during Operation

During operation period, any power plant equipment failure, specially imported ones, will result in financial harms in an interval of project operation. To reduce this risk, stocking some critical spare parts might be useful. Of course this increases costs. Having contribution agreement with other power plants to demonstrate one spare part stock might be a proper solution.

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discussible in two ways:a)Accepting the calculated risks of the

project In contracts which are concluded

traditionally, generally most of risks are on the buyer of electricity. But in current procedures for investment in Iran power plant projects, these risks are shared between electricity buyer (TAVANIR Company) and project investor.

In the case of Tendering, the project investors have to accept the risks they are able to undertake and also calculate the costs of accepted risks and apply them in their financial package.

b)Accepting host country as a Bona fide partner

Private sector investment in infrastructure projects such as electricity generation in Iran is a new issue and thus there are

probably deficiencies and problems in official procedures and even guidelines. Therefore, the investor, understanding the situation of the government, need to trust related state owned organization.

4-2-4-4 Existing InfrastructuresAny delay in construction of related

infrastructures of IPP projects like power transmission lines, may have adverse effect on the project operation. Especially, international project might be more perilous in the sense of existing infrastructures. Therefore, Grid Management Company or TAVANIR Company undertake major part of the risk, and pay for the claimed capacity of the power plant and thus reduce the damages caused by the risk for the investor. However, during power plant

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payment for capacity fee, the price risk is only observed in energy price which is a percentage of produced electricity price.

4-2-5-2 Risk of True Estimation of Demand for Produced Electricity

Change in the electricity demand in the future and prediction of the effective factors might affect the project incomes. Less correct estimate of demand amount affects the profit of the project and also the survival of the project during operation period.

4-2-5-3 Risk of Proper Technology Selection

Achieving an early success using a simple product line does not mean the ability to encounter the mighty rivals of the market. However, new technologies and new products and their development are the important resources of fast business growth.

In other words, if any success is the result of low importance privileging factors, which are accessible by any rival, then this success is perishable and changes to defeat by the same privileging factor.

Thus, technology selection has to be considered starting the investment.

4-2-6 Commercial RisksThese risks are generally arisen

from unpredicted fluctuations of macroeconomic variables related to financial activities and currency conversions. Obviously, identification of commercial risks in IPP projects is basic to determine the financing strategy of these projects.

The several commercial risks are surveyed in continue.

construction and plant locating decision the issue must be considered.

4-2-4-5 Risk of RivalryProper incentives for investment in

Iran Electrical Industries, provided by the government, might persuade many investors to invest in this area and thus more competitive environment may result in the future.

However, there are two factors that fade the existence of this risk:

-High consumption demands in Iran in future according to predictions; currently the power plants can not completely supply the existing demand.

- Payment of capacity fee to the producer in any case

4-2-4-6 Import Limitation of Power Plant Equipment

In power plant projects of Iran, it is required to import considerable part of equipments. Thus any change or limitation in import and Customs law might impose the project investor with risk.

4-2-5 Market RisksMarket risk involves demand risk and

commodity price risk. Demand risk is the degree of unreliability of electricity demand after project completion. Commodity price risk is the risk of changes in commodity prices (i.e. power).

4-2-5-1 Risk proper Estimatiion of Electricity Price in the market

Estimation of generated electricity price in competitive market is almost possible. To decrease the risk, the electricity price might be determined in the off-take agreement or the investor might prefer to sell the electricity based on daily prices of competitive market. In latter case, due to

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4-2-6-1 Risk of Currency Convertibility

In the case of no long term contracts(PPA/ECA) with Tavanir Co., and if the owner of the plant directly sells electricity to consumers, naturally, the income of operation period will be in currency of the host country which imposes the investor with the risk of Currency Convertibility.

4-2-6-2 Risk of Currency Transferability

The transferability of Currency to the abroad is a discussible issue of commercial sector. In many countries, governmental laws limit the transfer of currency from the host country. If the issue does not considered in contract, the investor imposes a risk during the operation period.

In the IPP projects of Iran, proper facilitations are designed for currency transferability and the right on investor to repatriate capital which may result from the sale of electricity or the proceeds from liquidation, the principal and the profit ( interest) of the financial facilities and any other foreign currency transfer within the context of the investment project is recognized and guaranteed by investment license.

4-2-6-3 Devaluation RiskThe income of the project is in currency

of the host country. The investor is obliged to pay the foreign lenders in foreign valid currencies, thus any devaluation of currency imposes the investor with considerable financial risks.

Also unpredicted growth of foreign currency rates might increase the exchange costs to import the required equipments, decrease the converted

income of project and finally decrease the value of asset rate of return (from international financial markets point of view).

4-2-6-4 Availability RiskThe currency of many developing

and third world countries is not easily convertible in international markets. Therefore, in most of IPP projects the investor needs to convert the currency inside the country and thus availability of foreign currency in host country is the risk that might be concerning the investor. Foreign exchange reserve of Iran and Foreign exchange incomes, reduces this risk in future and so encourages the investment in Iran.

4-2-6-5 Interest Rate RiskThis risk is important in the projects in

which the financing is by foreign financial resources. Interest rate risk is dependent on the conditions of the country which finances the project or interest rate in international markets and not in the host country.

Generally, in such projects the finance is in the form of long term loans with floating interest rates. If the risk of interest rate is not properly considered, financing based on initial suppositions of interest rate might adversely affect the project. Using interest rate structures composed of a constant rate and a variable rate (dependent on daily statues of financial markets) is a control strategy for these risks.

Also the risk is reducible by the international hedging agencies.

4-2-6-6 Internal Inflation RiskAn intensive and unpredicted inflation

condition decreases the total interest and

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interest.

4-2-6-9 Fuel Price FluctuationsDuring operation of the plant, the fuel

and its supplement is a concerning issue. Fuel (oil, gas, gas oil and coal) price fluctuations might severely affects the survival of the project.

In Iran, the price of power plant fuel has a considerable difference with the price of industrial fuel meaning it is subsidized by the state; TAVANIR Co. undertakes all the responsibilities of this difference and if the producer can not supply the fuel with power plant prices, the difference is paid to him. However, the risk of fuel price increment exists; TAVANIR Co. undertakes the risk by contracting energy conversion agreements.

4-2-7 Environmental & Political Risks

The political risks are the major obstacle of investment in developing economies. Political risk is a type of risk faced by investors, corporations, and governments. It is a risk that can be understood and managed with proper aforethought and investment. Broadly, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives. Political risk faced by firms can be defined as the risk of a strategic, financial, or personnel loss for a firm because of such non market factors as macroeconomic and social policies (fiscal, monetary, trade, investment, industrial, income, labor, and developmental), or events related

efficiency in two aspects: unreliable supply of initial materials as a consequence of intensive decrease in buying capability; and spending a part of previous extra incomes to compensate the extra costs (resulted by inflation).

If government controls the tariffs during operation period or any other contract specifies the tariffs, the inflation risk might threaten the survival of the project. This risk increases the price of stuff, raw materials, and staff costs during the project time and then. All the lender and shareholders of the project attempt to immunize themselves against this risk.

It is notable that inflation rate in Iran during most recent years has had a declining trend and as the forth development plan, the government policy is on reduction of inflation in future years.

4-2-6-7 Liabilities RiskIf the financial structure of the power

plant project is based on foreign debts, redeeming debts is an important risk.

This risk is intensively dependent on the other risks which result in unreliability in income rates.

4-2-6-8 Decrease in Tariffs for Competition

In a competitive market for electricity sell (and no contract between buyer and the investor), the investor is obliged to reduce the tariffs to compete the other electricity producers. In the case of governmental support for domestic producers, the risk is more important.

In Iran, payment of capacity fee to the producer decreases the risk and naturally the risk exists in the remaining part of electricity price (energy price) which involves variable costs of production and

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to political instability (terrorism, riots, coups, civil war, and insurrection). Portfolio investors may face similar financial losses. Moreover, governments may face complications in their ability to execute diplomatic, military or other initiatives as a result of political risk.

In the laws of IPP projects in Iran, there are two procedures to cover the political risks:

a)giving related guaranteesb)formulizing the internal rate of return

with respect to these risksSome important political risks are

mentioned below.

4-2-7-1 Expropriation RiskThe risk is occurred when the

government, without paying any logical reparation to the project investor, expropriates the project. The expropriation is occurred in two ways:

-Accidentally in the case of nationalization of projects and assets

-Gradually such as gradual changes in laws, taxes or tariffs after the project completion, in such a way that the project ownership is transferred to the government via these continuum changes.

This risk is reduced to a minimum level thru the guarantees in investment license.

4-2-7-2 Regulatory RiskThis risk involves any changes in

government policies with respect to laws and rules, methods of imposing the inflation, foreign exchange rates, methods and rates of taxing … which are codified in any period.

4-2-7-3 CorruptionCorruption is a general concept

describing any organized, interdependent system in which part of the system is either not performing duties it was originally intended to, or performing them in an improper way, to the detriment of the system’s original purpose.

Most of persuaded companies for investment in developing countries accept the corruption as an inevitable fact in the BOT infrastructure projects in developing countries and have a special regard to it.

4-2-7-4 Delay in issuing Acts and Permissions

When governmental organizations in local or global level do not ratify the required permissions and acts in the appropriate time and even invalidate some previous letters, risk of delay in acts occurs. This might have the following consequences:

-waste the investor’s time-delay the whole project-threaten the success of project

financingTo minimize this risk for the investors

and promote them to participate in Iran power plant projects, Iran Electricity Development Organization is responsible for accompanying the investors to receive the required acts and permissions.

4-2-7-5 Risk of Breach of Investment Agreements

This risk has some common aspects with expropriation risk and risk of supervisory organizations. This risk is a result of attitude to obtain more share of return on assets in a successful project, which might be performed by increment of taxes or hardening other financial and tariff laws in investment agreements. However, in this case, it is not aimed to

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obtain the ownership of the project or to deport the foreign investor from the commerce, but to gain more bargaining power.

4-2-7-6 Other Political RisksGenerally the other political risks are

as follows:-Unpredicted political events such as

riots, coups, war, and insurrection -Import-export limitations-No independent judicature system-Risk of implementation of codified

laws

4-2-7-7 Environmental issues This risk is specially considered in

developed countries in which powerful environmental NGO’s are active. The main issues are on the power plant location, because of environment pollutions, and also grid lines, because of wrecking the environment along the path.

The required permissions must be received from Iran Department of the Environment before finalizing project contracts. TAVANIR Company accompanies the investor to receive the required permissions from the Department.

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845.1. Industry Suppliers

855.2. Distributors

866-3. Purchasers and Costumers

Chapter 5- Supply Chain for Independent Power Production in Iran

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the developmental project requiring large scale investment. As declared in previous chapters, the investment figure for power generation projects can vary with type, location, capacity,… however assuming an average amount of about 300 million$ for a gas power plant of 1000 MW capacity, these projects can be seen to be more demanding than could be financed by just equity. Thus, finance services should be employed which will be discussed in chapter 9.

3.Ministry of Economic Affairs and Finance: Investment license and payment guarantee is issued by Ministry of Economic Affairs and Finance. The first one facilitate the free flow of capital repatriation but also the full and fair compensation against acts of Government towards expropriation as well as interruption of activities of the foreign investor. The second one guarantees the payments from Tavanir for generated electricity. Furthermore, the investor is in relation with the Ministry for tax payment (Several tax exemption exist for foreign direct investment).

4.NIORDC1 : Fuel supplement of the power plant requires purchase of a service line from NIORDC. Also, the pressure reduction station should be set up in the power plant.

5.Equipment & machineries producing companies: the required equipment for the power plant such as gas units are privileged of high technology and their production is performed in limited number of companies. almost half of the whole world market is supplied by GE. Siemens, Alstom, Mitsubishi, … are also in the list. MAPNA in Iran is a domestic manufacturer in this regard.

6.Spare Parts Suppliers: The power plant equipment, for proper and optimal

5. Supply Chain in Electric Power Generation in Iran

The value chain categorizes the generic value-adding activities of an organization. The “primary activities” include: inbound logistics, operations (production), outbound logistics, marketing and sales, and services (maintenance). The “support activities” include: administrative infrastructure management, human resource management, information technology, and procurement. The costs and value drivers are identified for each value activity.

However what is going to be noticed in this chapter mostly covers the organizations and firms in connection with the sponsor of power plant in order to generate and sell electricity.

5.1. Industry SuppliersTo clarify the investment process

in power generation industry, we will firstly dissect the organizations which the investor may be connected during construction phase. Most of the following organizations have to be categorized based on their “support activities”. However because they are in connection with the investor, and for generation of power the sponsor needs to contact them, they are introduced briefly here.

1.Tavanir Company: Tavanir is the company responsible to contract with the investor, during different stages; this company may issue the requested permits/licenses. Furthermore, the investor will sign Power Purchase Agreement or Energy Conversion Agreement with this company.

2.Banks and Finance Agencies: The power plant construction is of

1-Iranian Oil Refining & Distribution Company

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performance, requires some scheduled maintenance and replacing parts.

7.IRI Customs Administration: To import the power plant equipments, it is necessary to get necessary permits from IRI Customs Administration. Of course, the power plants constructed in free commercial zones are duty-free.

Transportation Companies: The plants are voluminous, thus their transportation is by the special equipments and provisions. Also the equipment transportation requires the permit issue by Iran Ministry of Road and Transportation and Police.

8.Department of the Environment:

During the selection of the power plant location, the permit of the Department of the Environment is necessary.

9.Regional Water Company: The required water of the power plant may be supplied by one of regional companies of water or by sinking a well. Obviously, there must be required permits to sink well.

10.Department of Cultural Heritage: To select the power plant location, there must be necessary permits of this department, because regions of interest may be protected for historical and archeological worth.

11.Regional MayoraltyHowever, as considered in previous

chapters, the investment in the power plant projects has its particular condition. Therefore, for precise determination of the suppliers, firstly the contract contents have to be specified.

For instance ECA (Energy Conversion Agreement) are of more concern in Iran. In this method responsibility of supplying fuel is undertook by Tavanir. So the relation between investor and NIORDC decrease to much less extent.

5.2. Distributors The distribution network, as the link

between the firm and customers, has great influence on the attractiveness

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and profitability of the business. In Power industry the distribution is quite simple from a structural point o view. The electric industry is consisted of three sections of generation, transmission and distribution. Therefore the distributors in this industry are the transmission and distribution organizers. At present, the transmission sector is in the monopoly of the State. However there are plans to privatize distribution grid. According to the laws Tavanir is responsible to purchase power from the generator wherever in the country. Therefore, the investor in electrical energy industry (the generation sector) is confident about its product distribution.

In the case of energy sale to the wholesale market or selling the power to Tavanir thru a long term contract, no cost is paid by the investor for transmission or transit. But if any bilateral contract to sell energy to a special customer is of concern, the transit cost between the power plant and the consumer is paid by

the investor. The complete description on the issue is provided in chapter 8.

6-3. Purchasers and CostumersThe electric power producers in Iran are

authorized either to sell energy to special costumers via bilateral agreements or to electricity wholesale market (IGMC). To sell energy to special consumer, producer is charged for a transit fee for employing national grid.

Also producer can sell electricity to Tavanir via long term contract which is preferable in terms of risk and bankablity.

A combination of the above mentioned methods is also conceivable. A full description of the methods is present in chapter 8. It is worth noting that upon the law, the Ministry of Energy is obliged to purchase the generated electricity wherever throughout the country. If the produced energy is not required at anytime, the capacity fee will be paid to the producer.

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6.1 Categorization of costs

6-1-2) categorizations of power plants, for the study of their costs structure

6-1-3) Initial investment parameters in a power plant6-1-3-1) Land (project site)6-1-3-2) Equipment6-1-3-3) Taxes and duties6-1-3-4) Fuel supply 6-1-3-5) Equipment transportation to the power plant site

6-1-4) Capital estimation for power plant projects in Iran6-1-5) Generation Costs

6-1-5-1) Fuel consumption6-1-5-2) Water Consumption6-1-5-3) Work force6-1-5-3-1 Generation:6-1-5-3-2 Engineering and planning6-1-5-3-3 Maintenance staff6-1-5-3-4 Logistics and finance6.1.5.4 Maintenance Costs

6.2 Tax and Tax exemptions6.3 The average cost of generated electricity in country6.4 Return on Investment

6.4.1 Payback period 6.4.2 Internal rate of return (IRR)

Chapter 6- Cost Breakdowns for IPP Projects in Iran 87

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The steam power plant, with 37.9 percent of the electricity power generated in the country, is the most common used power plant while gas power plants with 29.4 percent, compound cycle with 16.7 percent, hydro power with 14.7 percent and at last diesel and wind turbine altogether with 1.3 percent are the followers. As can be seen thermal power plants have the major roll in power generation in Iran. This is due to many domestic factors which suggest the trend of developing power capacity not deviated from this pattern. So thermal power plants are in focus of this Chapter rather than other types.

6-1-3) Initial investment parameters in a power plant

Initial investment costs, power costs, are those such as the cost required for the land, expenses due to plant construction transportation, costume duty, fuel supply line and connection to the Grid. Each of these, mentioned above have a lot of parameters, each of which are responsible and effective in decision making process.

6-1-3-1) Land (project site)In power plant construction site, the

important parameters are those such as proximity to fuel carrying lines, proximity to water sources, availability of work force, geological studies about the probability and impact of natural disasters, proximity to main routes or rail routes which are needed for transportation of equipment, availability of building construction equipment, and also environmental issues.

6 Cost breakdowns for IPP Projects in Iran

6.1 Categorization of costsIn a general view, there are two

different type of costs in the lifecycle of a power plant:

a-Capacity/power costs which are the costs required for constructing a power plant with a specific output power(Installation Costs)

b-O&M costs that depend on the amount of energy generated.

In this categorization the power costs are actually the costs of construction, and they are directly relevant to the nominal capacity of the plant.

The second category of costs, are those spent for fuel, spare parts, salaries, and so on that can be called energy costs. In other words the energy costs are those that are spent for the power plants expenditure. Need not to mention that these costs rise as the power generation increases.

Power costs usually are the major portion of the costs a power plant life cycle.

6-1-2) categorizations of power plants, for the study of their costs structure

In this section, power plants are categorized by their coefficient of impact. Their costs structure would be discussed latter on.

As mentioned in previous sections, there are six different types of power plants operating in Iran. Those six are steam, gas, combined cycle, diesel, wind and hydro power.

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6-1-3-2) EquipmentEquipment selection for the power

plant is dependent on a couple of parameters. The type of the power plant, the technology used, physical life duration, guarantee, country in which the equipment are made, availability of spare parts.

6-1-3-3) Taxes and dutiesThere are several tax exemptions

according to the national tax code that the investor may benefit from. Location of the plant is one the parameters that can affect level of exemptions.

6-1-3-4) Fuel supply Our country is abounding with natural

resources of gas, and also it is almost available everywhere throughout the country because of gas pipes running to rural and industrial locations, as such this fuel consist major consumption of power plants in Iran as a reliable and low cost fuel. In order to use gas as the power plant fuel it is needed to connect to the high pressure fuel lines. The costs and expenses associated with this consist of:

6-1-3-5) Equipment transportation to the power plant site

Power plant equipments are heavy and bulky so their transportation are costly. For transporting the equipment to the site, the routes of delivery should be studied because of tunnels and bridges and narrow routes in the way. This process might need inquiry and permits from police and ministry of roads & transportation.

1-Connecting to the high pressure lines.

2-Setting up a subscription The second item is fixed all over the

country and depends on the capacity of consumer line.

Table 6-1 demonstrate the relative costs for Pareh-sar combined cycle power plant with a capacity of 900 MW in Guilan (North of the country) invoiced by NIORDC.

30.000.000.000

352.000.000

Table 6-1) Fuel supply costs for Pareh-sar

Cost (Rial)

Setting up a subscription

Connecting to the high pressure lines (Subscriber Share)

Cost Items

379

271

157

246

1.567.000

1.542.000

972.000

593.000

6.115.000

4.794.000

2.856.000

3.545.000

Table 6-1-1) amount of investment for power plant projects in Iran(2004)

Technology of Generation

Relative costs in Euro/KW

Relative costs in Rials/KW

Total in Rials/KW

Steam Turbine

Combined Cycle

Gas Turbine (full scale)

Gas Turbine (small plants)

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6-1-4) Capital estimation for power plant projects in Iran

Amount of investment needed for a power plant construction depends mostly on type of the power plant and technology of power generation.

6-1-5) Generation CostsAs stated before the generation costs

consist of fuel consumption, operation and maintenance, water consumption, employment and so on. Each of these depends on the type of the power plant, location and technology of generation.

6-1-5-1) Fuel consumptionThermal power plants which are the

dominant electricity producers in Iran are the major fossil fuel consumers as well, and consumes nearly one third of the whole consumption annually. NLG is the main fuel used in power plants.

Gas oil is regarded as back up fuel especially in winters when the pressure loss of NLG lines is probable.

Regarding the least heating value of natural gas and a 34% efficiency for the power plant the approximate natural gas consumption for a 600 MW plant is:

NLG Low Heat Value: 38528 KJ/nm3Power plant capacity: 600 MW= 600000

KJ/sEfficiency= 34%NLG consumption = (600000*0.34)/

(38528)= 45.8 nm3/s = 165000 nm3/hr = 3957000 nm3/day

If for available gas oil: LHV= 36280 Kj/Litre

The amount of gas oil for generation of 600 MW= 173 m3/hr

According to 2004 electricity tariffs, for power plant consumptions NLG price is 29.26 Rials/m3 and gas oil price is 58.56 Rials/litre.

Also the cost of maintenance for the pipe lines connecting the plant to high pressure NLG lines should be considered which is about 3% of the cost of construction of the lines.

6-1-5-2) Water ConsumptionWater is a key element of production in

thermal power plants. The water required differs by power plant type but anyway the proximity of water resources would reduce the costs a lot so the study of

1

1

4

6

6

6

3

4

4/2

26/0

26/0

65/8

122/0

788/0

888/6

934/9

950/0

638/0

350/0

483/0

4549/5

1631/7

1724/4

2562/4

3053/8

3068/7

3471/3

3167/5

1825/9

18679/8

67/2

63/4

110/0

167/6

174/0

226/8

224/5

107/0

1140/6(Ref:IPDC)

Table 6-1-2) Costs for construction and setting up of thermal power generation units starting operation in 2006 (Ref:IPDC)

Power plant Number of Units

Power plant

Costs in M$ Costs in M Euro

Costs in B Rials

Total in Rials

Steam Units

Gas Turbines

Sh. Salimi

Yazd

Sanandaj

Parand

Shirvan

Jonoob Esfehan

Rood shoor

Orumiyeh

Total

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Just to help a first guess the work force required for a typical 900 MW power plant is listed below:

6-1-5-3-1 Generation:Personnel of this subdivision of the plant

may work in 3 shifts under supervision of a chief engineer. Each shift has a shift engineer and a safety technician and two operators with a fire fighting worker meaning 5 personnel in each shift and 22 personnel in total including a chief engineer and a supervisor. The shift supervisor and engineers can have a electrical or mechanical engineering degree. This is with the assumption of 4 units operating in the plant, with 3 units running 17 personnel would be sufficient.

6-1-5-3-2 Engineering and planningThe technical and planning

responsibility is on the engineering and planning subdivision. As you can see in the organizational chart this division has one investigation expert, one computer expert, a statistics, a safety, a training,

them is obviously important. In a power plant water maybe

consumed for following applications:a) Non-ionized water for supplying the

steam unit of the power plantb) Health and general applicationsc) Spraying water for Nox reductiond) Watering of grass and trees in the

field

6-1-5-3) Work forceQualified human resources is a must

need for an infrastructure project. In terms of human resources Iran has proved to be attractive to investors in infrastructure projects.

The work force can be divided into three categories:

1-Mechanical2-Electrical3-Instrumentation and controlSpecialists of chemical engineering,

project control, computers, business, finance are also required.

The number of work force differs from power plant to power plant, regarding the power plant type and technology.

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an instrumentation, an electrical, a mechanical and a sale expert which adds up a sum of 11 people. Diagram summarizes these figures.

6-1-5-3-3 Maintenance staffThis subdivision is responsible for

keeping the power plant in the best

working conditions and the least costs. Required staff for this subdivision is shown in diagram 6-1-3.

The overall repairs and maintenance group in each working shift is 25 persons including 10 experts, 8 technicians, and 7 simple workers.

Diagram 6-1-2- Engineering & planning staff

Engineering and planning subdivision

Research engineer

Computer Engineer

Statistics Officer

HSE Officer

InstrumentEngineer

ElectricalEngineer

MechanicalEngineer

Power MarketAnalyst

TriningOfficer

Diagram 6-1-3- Staff for Maintenance subdivision in the Power plant

Maintenance Subdivision

InstrumentsMaintenance

Mechanical Equipment Maintenance

Total of25 staff

Engineer & senior advisor: 10

Technician 8

Skilled Worker7

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6.1.5.4 Maintenance Costs In a power plant, maintenance costs

play a major roll in life cycle costs. Following table gives a measure of costs in this regard as is being experienced in Iran. This information is provided by the state-owned power stations and the figures are for the year 2005.

6-1-5-3-4 Logistics and financeDiagram 6-1-4 shows a typical structure

for staffing of such departments in the aforesaid power plant which totally suggest 23 personnel for this subdivision.

Diagram 6-1-4 logistic and finance typical staffing structure

Logistics

Financial Manager

Finance Officer

Senior Accountant

Accountant

Trading Affairs

Financial Manager

Contracts Officer

Outdoors Orders Officers

Storekeeper

Administration Staff

Employment & Screening

Physical Security

35

40

56

43

50

25.735

9.639

32.765

15.041

25.844

0.0532

0.0609

0.0154

0.0371

0.0415

1.58

0.77

1.74

1.18

2.79

Type of power plant

Small Gas Turbine

Full scale Gas Turbine

Steam Generator

Combined cycle

HRSG

The annual average Maintenance

duration (day) Rls/KW Eurocent/KWhr Rls/KWhr

Maintenance Cost

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6.3 The average cost of generated electricity in country

The price of the electricity that covers generation, transmission and distribution costs are codified annually by the bureau of economical and tariffs studies in TAVANIR Co. To do this the cost of end-use electricity is being calculated every year. The cost of electricity in the FY

2004-2005 has been 301 Rials per KWh. Table 6.3.1 shows the costs in the years 2000-2001 to 2004-2005.

As you can see in table 3.2.2 in the recent years the cost of electricity is decreasing, this trend shows an increase in productivity in electricity industry.

Chart (6.3.1) the average cost of generated electricity (Rials /KWh)

This suggests presence of the private sector in this industry will decrease these figures even more.

6.4 Return on Investment

There are several methods to assess the profitability of a project. Here two indices, payback period and internal rate of return are reviewed.

Table 6-2-1) Highlights of Tax Holidays

100%

80%

100%

50%

100%

Activity

Agriculture

Industry and Mining

Industry and Mining in Less-Developed Areas

Tourism

Exports

Level of Exemption Duration of Exemption

No Time Limit

Years 4

Years 10

No Time Limit

No Time Limit

301308313335261

Chart (6.3.1) the average cost of generated electricity (Rials /KWh)

Fiscal Year

Cost of generated electricity

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

6.2 Tax and Tax exemptions

The taxes are one of the noticeable elements in each business. The true understanding of the tax codes can absolutely help the investor to raise interest margin. Also being informed of the laws and associated exemptions is of

much interest to the investors.In order to facilitate more the investment

by private sector and pave the way for its participation the authorities has Reduced tax rates from 65% to a flat fixed 25% rate of tax income despite various tax holidays highlighted as follows:

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6.4.1 Payback period in business and economics refers to

the period of time required for the return on an investment to “repay” the sum of the original investment. For example, a $1000 investment which returned $500 per year would have a two year payback period.

Payback period as a tool of analysis is often used because it is easy to apply and easy to understand for most individuals, regardless of academic training or field of endeavor. When used carefully or to compare similar investments, it can be quite useful. As a stand-alone tool to compare an investment with “doing nothing”, payback period has no explicit criteria for decision-making (except, perhaps, that the payback period should be less than infinity).

The payback period is considered a method of analysis with serious limitations

and qualifications for its use, because it does not properly account for the time value of money, risk, financing or other important considerations such as the opportunity cost. Whilst the time value of money can be rectified by applying a weight average cost of capital discount, it is generally agreed that this tool for investment decisions should not be used in isolation. Alternative measures of “return” preferred by economists are net present value and internal rate of return. An implicit assumption in the use of payback period is that returns to the investment continue after the payback period. Payback period does not specify any required comparison to other investments or even to not making an investment

6.4.2 Internal rate of return (IRR)The internal rate of return (IRR) is a

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capital budgeting metric used by firms to decide whether they should make investments. It is an indicator of the efficiency of an investment, as opposed to net present value (NPV), which indicates value or magnitude.

The IRR is the annualized effective compounded return rate which can be earned on the invested capital, i.e., the yield on the investment.

A project is a good investment proposition if its IRR is greater than the rate of return that could be earned by alternate investments (investing in other projects, buying bonds, even putting the money in a bank account). Thus, the IRR should be compared to any alternate costs of capital including an appropriate risk premium.

Mathematically the IRR is defined as any discount rate that results in a net present value of zero of a series of cash flows.

Net present value (NPV) measures the excess or shortfall of cash flows, in present value (PV) terms, once financing

charges are met. By definition,NPV = Present value of net cash flows.

For its expression, see the formula below:

Where:t - the time of the cash flowN - the total time of the projectr - the discount rate (the rate of return

that could be earned on an investment in the financial markets with similar risk.)

Ct - the net cash flow (the amount of cash) at time t

In general, if the IRR is greater than the project’s cost of capital, or hurdle rate, the project will add value for the company.

Simply, to find the internal rate of return, the value(s) of r that satisfies the following equation should be found:

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7-1 Advantages of Investment in Iran Electricity Industry7.2 Different Methods of Private Sector Participation7-3 Private Sector Participation BOT Basis

7-3-1 Introduction7-3-2 Background7-3-3 BOT Contract Structure

7-3-3-1 Host Government7-3-3-2 Project Company7-3-3-3 Project Lenders7-3-3-4 Insurers 7-3-3-5 Project Shareholders7-3-3-6 Operator and O&M Company7-3-3-7 Builders7-3-3-8 Suppliers of Equipment, Material and Stuff7-3-3-9 Technical, Financial and Legal Advisors

7-3-4 Stages of BOT Projects7-3-5 Legal Framework for BOT Contracts

7-3-6 Case Studies of Power Plant Construction with BOT Method in Iran

7-3-7 Guarantees in BOT Contracts7-3-8 Payment in BOT Contracts7-3-9 Fuel Supply in BOT Contracts

7-3-10 Project Ownership and Technology Transfer in BOT Contracts

7-3-11 Case Studies of BOT Contracts in Different Countries 7-4 Investment on BOO Basis

7-4-1 Types of BOO Contracts7-4-2 Structure of BOO Contracts7-4-3 Legal Framework of BOO Contracts7-4-4 Obligations of the Parties to the Contract

7-4-4-1 Undertakings by the Investment Company7-4-4-2 TAVANIR Obligations

7-4-5 Risk Management in BOO Contracts

987-1 Advantages of Investment in Iran Electricity Industry

987.2 Different Methods of Private Sector Participation

1007-3 Private Sector Participation BOT Basis

1087-4 Investment on BOO Basis

Chapter 7- Private Sector Participation schemes In Iran Power Projects

97

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7-1 Advantages of Investment in Iran Electricity Industry

Investment in electricity industry is less risky than other industrial and economic activities in most countries and especially in Iran.

Some more important advantages of investment in this industry are as follows:

-Electricity demand has an increasing trend in Iran. A 7% to 8% growth rate is predicted for future years. This fact intensively decreases the market risk for the investor.

- A specific legal framework is provided for BOO and BOT contracts which clarifies the serious attempt of government to support the foreign investment in electricity industry of the country.

- Iran has power links to neighboring countries, including Azerbaijan, Turkmenistan (started August 2002), and Turkey; also there are some plans for extension of the power links to all the neighboring countries. As a consequence, the electricity market is extended. In underway contracts the possibility to employ the grid to export the electricity is predicted which decreases the market risks in turn.

-The electricity buy in Iran is under a governmental structure and there is no near-future plan to privatize it. This fact effectively decreases the revenue and operational risks.

-Foreign investment in Iran electricity industry is supported by the Low of Foreign Investment Promotion and Protection Act and Iran government (the Ministry of Finance and Economic Affairs) guarantees the currency transferability of Project Company which is an encouraging

point for foreign investment.-Although the investment risks in

electricity industry is low, but the asset return rate for equity of investor is a desirable rate.

-The political risks are undertaken by the government and thus there are no such risks for the investor.

-The insurance cost for act of nature (e.g., flooding, earthquake, and volcano) is calculated in electricity prices ad thus the investor imposes no such risks.

-In sectors of EPC, operation, O&M, project management, production of power plant equipments and supervisory and consulting engineering companies of Iran, electricity industry possess a proper potential and there are several active companies in these sections. All the above mentioned parameters might decrease the investment and operation costs (in the case of employing domestic potentials) for the investor.

-The successful experience of Independent Power Producers (IPPs) in many countries and especially in Asian countries is an encouraging point for successful investment in electricity industry of Iran.

7.2 Different Methods of Private Sector Participation

Privatization is the process of transferring ownership of business from the public sector (government) to the private sector (business). During the first 1980s the privatization, as a method of managing the large industries with more efficient trend, was concerned in the most of developed countries. Since then, it developed at a considerable rate and had a major role in modernizing the operation of industries which previously were managed publicly. One of the most

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familiar methods of privatization is BOT method.

A Build-Operate-Transfer (BOT) project is a method of using the private sector in developing infrastructural projects. The project financing is the essence of this method.

BOT, as a contract method, was originated in financial medias, when Turkey bided some power plants concessions, in the first 1980s. Nowadays, BOT is a generally acceptable method, in developing countries, especially for infrastructural projects.

This method is a concession contract in which a Principal, usually a government grants a concession to a Promoter, sometime known as the Concessionaire, who is responsible for the construction, financing, operation and maintenance of a facility over the period of the concession before finally transferring the facility, at a cost to the Principal, as a fully operational facility. During the concession period the Promoter owns and operates the facility and collects revenues in order to repay the financing and investment costs, maintain and operated the facility and make a margin of profit.

Other available choices for privatization are:

•BOO (Build-Own-Operate): A method of financing projects and developing infrastructure, where a private company is required to finance and administer a project in its entirety and at its own risk. The government may provide some form of payment guarantee via long-term contracts, but any residual value of the project accrues to the private sector. This method is discussed in Section 7-4.

•BOR (Build-Operate-Recontract)•BOOT (Build-Own-Operate-Transfer):

A method of financing projects and

developing infrastructure, where private investors construct the project and own and operate it for a set period of time (earning the revenues from the project in this period), at the end of which ownership is transferred back to the public sector. The government may provide some form of revenue guarantee via long-term contracts.

•BRT or BLT (Build-Rent-Transfer or Build-Lease-Transfer): This method is similar to a BOT project except that the project site, buildings and equipment are rented to the private sector during the term of the project.

•BT (Build-Transfer immediately)•BLOT (Build-Lease-Operate-Transfer):

In this method, the private sector build, lease, operate the plant and after a set period of time transfer it to public sector.

•DBFO (Design-Build-Finance-Operate)

•DCMF (Design-Construct-Manage-Finance)

•MOT (Modernize-Own/Operate-Transfer)

•ROO (Rehabilitate-Own-Operate): This method is the same contractual arrangement as a BOO, but for the rehabilitation of an existing facility rather than the construction of a new one.

•ROT (Rehabilitate-Own-Transfer): The method is the same contractual arrangement as a BOT, but for the rehabilitation of an existing facility rather than the construction of a new one.

•ROL (Rehabilitate-Own-Lease): After rehabilitation, the project company operates the asset on a lease basis.

In this chapter we discuss BOO and BOT in detail, due to the more interest to use the methods in infrastructure contracts.

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7-3 Private Sector Participation BOT Basis

7-3-1 IntroductionIn recent years, a growing trend

emerged among governments in many countries to solicit investments for public projects from the private sector.

The main reasons for this trend are a shortage of public funds and a hands-off approach of government agencies. The Build Operate Transfer (BOT) approach is an option for the government to outsource public projects to the private sector. With BOT, the private sector designs, finances, constructs and operates the facility and eventually, after a specified concession period, the ownership is transferred to the government. Therefore, BOT can be seen as a developing technique for infrastructure projects by using private initiative and funding. Such infrastructure projects include a wide array of public facilities with the primary function to serve public needs, to provide social services and promote economic activity in the private sector.

Nowadays, the BOT method is a method for participation of private sector in infrastructure projects such as power plants, roads, bridges, water and sanitation systems, airports, and public buildings, in most developing countries such as the countries of Southeastern Asian.

7-3-2 BackgroundThe first official private facility

development under the name “Build Operate Transfer” was used in Turkey in 1984, by Prime Minister Turgut Ozal, as part of an enormous privatization program to develop new infrastructure. However, the BOT approach was used as early as 1834 with the development of

the Suez Canal. This revenue-producing canal, financed by European capital with Egyptian financial support, had a concession to design, construct, and operate assigned to the Egyptian ruler Pasha Muhammad Ali.

In the second half of the nineteenth century, railways and roads were developed with the help of private financing in the western world and although the privately operated public facilities became financial successes, they were not devoid of shortcomings. The infrastructure projects had to be accessible to everybody but optimizing the economic rate of return conflicted with public interest. By the mid-twentieth century, the privatization of public facilities had experienced a downturn as the development of infrastructure projects by private funds gained popularity throughout the world, particularly in the United States. The increase in road traffic resulted in an urgent need for developing highway facilities and this prompted the government to increasingly use more private funds. In Europe, however, infrastructure projects remained under governmental jurisdiction as they were considered public requirements the state had to provide. Since the 1980s, the attitude of European countries has changed to include more privatization in their infrastructure development, especially in France and Britain where privatization was extensive, in order to fulfill public needs. At the same time, Asia was experiencing an economic boom that opened the doors for new forms of project delivery, based on the principle of privatization. Nowadays, BOT method is an interesting method for private sector participation in infrastructure projects in many countries such as Iran.

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7-3-3 BOT Contract StructureThere are many participants identified

in every BOT project. Diagram 7-3-1 shows the typical structure of BOT projects. Very simply, the principal (host government) grants the concession to the concessionaire (Project Company). The concessionaire, usually a consortium of companies, undertakes the financing and development of the project. Financing is obtained from sponsors and lenders. The builder builds the facility and the operator runs the facility.

7-3-3-1 Host GovernmentBOT contracts require governmental

support due to type, complexity and size of the projects and also economic and legal condition of host country.

In sectors of industry, oil, gas and mines, it is easier for the government to attract foreign investment, because in the mentioned sectors the generated production and raw material are saleable in several domestic or foreign markets. But the case is more challenging in power plant projects. In these projects the revenue is intensively dependent on demand. The major responsibility of host country is to prepare a proper investment bed for investors. Also, project selection, feasibility studies and initial information of the projects are undertaken by the host countries.

7-3-3-2 Project CompanyAfter the identification of the need for

the facility, the government, following a

Diagram 7-3-1 Typical Structure of BOT Contracts

ProjectCompany

HostGoverment

SpecialAgreements

Suppliers

Operator

Sponsors

Insurance

Lenders

Goverment

Technical Financialand Legal Advisors

Contractors Project

Agreement ConstructionContract

SupplyContract

Operation and Maintenance

Contract Shareholder,s

Agreement

InsurancePolicies

LocnAgreements

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due process, will grant a concession to the concessionaire. In fact, the investor or investors has to incorporate a company which is called the Project Company. The Project Company takes the responsibility of developing (designing, financing and constructing), maintaining and operating the facility, on behalf of the principal. The project company is the owner of the facility during the concession period and realizes profits on the initial investment through the usage of the facility.

The incorporation of the Project Company might be out of Iran. For instance, for the power plant project of Parre-sar, the company was incorporated in Germany and for the South Isfahan power plant the incorporation was in Dubai. In any case, it is necessary for the project company to have a branch or representative office inside Iran.

In Iran, due to special support of foreign investment in new acted laws, most of BOT investors are foreigners who are encouraged to use the governmental guarantees of the state.

7-3-3-3 Project LendersThe project lenders have a direct effect

on the most parts of agreements and guarantees. The lenders are commercial banks, finance institutions, bond holders and so forth.

7-3-3-4 Insurers In BOT projects, different kinds of

insurances are required, thus international insurance companies have prepared some new forms devoted to required insurances in BOT projects.

7-3-3-5 Project ShareholdersGenerally, a part of project financing

is supplied by the shareholders. The

shareholders invest money in exchange for equity. There is an agreement between the Project Company and the shareholder to finance a part of project. The share might be in the form of assets, goods, equipments or services to the Project Company.

7-3-3-6 Operator and O&M CompanyOperator is a company or organization

that manages the operational stage of the facility. Poor or inefficient operating and maintenance can cause plant performance to fall below levels stipulated in the contract. It also can cause premature wear and tear on plant components. The project company mitigates this risk by entering into a long-term O&M contract with a reputable operator. Hence, a certain degree of confidence in the operator’s experience and plant operating history is required.

7-3-3-7 BuildersThe builders, consisted of several

companies, are responsible for the design and construction of the facility via different methods such as Turnkey or EPC.

7-3-3-8 Suppliers of Equipment, Material and Stuff

These companies are responsible for supplement of required equipment and material during construction period and then.

7-3-3-9 Technical, Financial and Legal Advisors

The complexity of the BOT contracts especially in contract conclusion and stages of negotiations requires employment of expert technical, financial and legal consultants. The complexity of

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financing, necessity of understanding the legal framework of the host country and responsibility of the investor to choose the reliable equipment, require the vital role of consultants in BOT projects.

7-3-4 Stages of BOT ProjectsThe length of the concession period is

determined in the concession agreement between concessionaire and principal. Within the concession period, the concessionaire must be able to recover investments for all funding parties. The trend of a BOT project is as follows: After the preliminary study, usually conducted by the government, a consortium is chosen following a specific selection procedure. After the selection, the concessionaire starts the implementation of the project by forming the team, executing studies, obtaining permits, and proceeding with design development. Once the design is approved, construction begins. Upon completion of construction, the facility opens for use and the repayment of the facility is covered by the incoming revenues. After a predetermined concession period, the facility transfers to the principal and then state agencies will own and operate the facility.

1. Project definition•Project definition•Financing method•Initial feasibility study•Project management and partnership

assignment• Government decisions

2. Provision of bidding documents by the government

•Bid opening procedure•Prequalification of bidders•Project agreement

•Bidding documents•Ground rules of biding3. Submitting a proposal by the

investors•Organizing the Consortium/structure

of project investor company•Project feasibility study•Proposing the possible contribution

potential •Submitting the proposal4. Selection•Tender evaluation•Explanation/ modification/ justification•Release of the contract

5. Provision of the required implementation framework

•Organizing the project company•Equity financing or company

ownership •Loan contracts•Financial closing•Construction contract•Off-take contract•Insurance contract•O & M agreement

6. Project Implementation•Installations and machineries•Testing•Confirmation•Technology transfer and customizing

technical capabilities•Evaluation

7. Operation•Operation and installation maintenance

during concession period•Inspection•Education•Technology transfer

8. Transfer•The procedure of facility transfer to the

Government

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735

732

1000

828

900

500

500

1000

1

2

3

4

5

6

7

8

9

Power Plant Name

Power Plant Type

Actual Capacity

(MW)

Project Company

Sponsor Date of Biding or Agreement

Feasibility Study and Plant Site

Selection

Plant Land Ownership

CC

Gas

CC

CC

CC

CC

Gas

CC

CC

Pare sarCompany

Company of Fars GasPower plant

Company South Isfahan Power Plant

-

-

-

-

-

-

Done

Done

Done

Done

Underway

Done

Done

Done

Done

Done

Done

Done

Underway

Done

Done

Ownership is

neglected

Done

Environmental Permissions

by TAVANIR

by TAVANIR

by TAVANIR

stopped

by TAVANIR

by TAVANIR

A major part of procedure has done by TAVANIR and the rest is on the investor.

Evaluation Report is already prepared for the Department

of Environment

Done by Zanjan Regional Electric Company

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7-3-5 Legal Framework for BOT Contracts

BOT contracts in Iran are supported basically by Foreign Investment Promotion and Protection Act (FIPPA 2002).

In this law, it is proposed to qualitatively improve and update the regulations of foreign direct investment; Furthermore, participation with new investment methods is concerned. Employing these methods, foreign investor, entering the investment via different methods, contributes the project revenue, also non-political risks of the project such as commercial, technical, management and marketing risks without any legal participation. Buy back, Build-Operate-Transfer (BOT), Build-Lease-Transfer (BLT) are some cases of legal participation methods.

One of important parts of BOT contracts is the settlement of disputes. In Iran, the methods for the settlement of disputes in

contracts are considered as arbitration based on internal laws of Iran.

7-3-6 Case Studies of Power Plant Construction with BOT Method in Iran

BOT method is an efficient method for investment in most of developing countries such as Iran and also a familiar method for foreign investors; thus, during years 1994 and 1995 and with increasing need for private sector participation in infrastructure industries of Iran, the BOT contracts were considered by the authorities and soon after the negotiations of the first BOT power plant project were started, although the contract was concluded but the execution of the project was stopped.

The second case was the negotiations of Jalal power plant near Tehran in year 1997. Also, in year 1999 the bidding of Pare-sar power plant was performed which resulted in a contract with a

Table 7-3-1 Completed or Underway BOT Projects of Private Sector (statistics of 2004)

Pare-sar

Fars

South Isfahan

Tabriz

Zanjan

Ali-Abad

Gonaveh

Jalal

Shirvan

Num

ber

MAPNA International, Gruppo Flack, DSD

Dillinger Stahlbau GmbH

Quest Energy Middle east Ltd. & MAPNA

International

MAPNA International & IHAG

Xenel

SKS

Saudi Oger Ltd, International Power plc &

Sojitz Corporation

MAPNA International

ABB

Sumitomo, MAPNA International

Sep, 2000 23

Dec, 2004 20

May, 2002 6

Dec, 2001 14

Dec, 2006 30

Dec, 2001 20

Bidding was withdrawn

Aug 22, 2000

May 25, 2002

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Date of Contract Signature

PermitsDate of

Financial Closing

Site Provision Infrastructures Latest Status

29 Jul, 2001

3 Jul, 2005

4 Jan, 2002

Prepared for Signature

Under Negotiations

-

-

-

-

If required, permits are Extendable.

Permits are received.

Completed

-

-

-

-

-

-

Not Closed yet

Not Closed yet

Jul, 2004 5

-

-

-

-

-

-

Completed

Completed

Completed

Underway

-

Underway

-

-

Completed

Developing

Developing

Completed

-

-

-

-

-

-

foreign consortium. Incorporating the Project Company, the contract was transferred to the Project Company in year 2001. The partners were supposed to perform the undertakings till August, 2002. The investor had to conclude the finance procedure, EPC contracts of construction period and O&M contract. Also, government pledged to prepare the plant site, transportation facilities and required permits. This project has not reached the construction stage, yet.

Another case was Chehelsotoon power plant (South Isfahan) in the city of Mobarakeh. The contract was signed in January, 2002 and the project is currently in operation stage. The first unit of this power plant was synchronized with the grid in August, 2005.

The negotiations of Jalal 500MW combined cycle power plant, Shirvan 1000MW combined cycle power plant and Ali-Abad 1000MW gas power plant

was halted before sign of any contract. The contract of Tabriz 1000MW combined cycle power plant is in final stages. The contract of Fars 800MW gas power plant is concluded in July 2005; furthermore, Asaluye 500MW gas power plant was withdrawn after bidding in year 2005 and converted to BOO. The negotiations to construct the Zanjan combined cycle power plant have started in January, 2006 and are currently underway.

A summary of BOT power plant projects in Iran is shown in Table 7-3-1.

7-3-7 Guarantees in BOT ContractsGenerally, there are two types of

guarantee provided for the investors in Iran BOT contracts. The first type is the governmental guarantee which protects the Project Company against expropriation, nationalization and so on. Currency transferability warranties are also classified in this type. This

The Project Company is currently preparing construction plans.

The Project Company is supposed to declare financial closing.

The plant is in operation now.

The contract is waiting for final decision from TAVANIR for being signed

The main context of contract is agreed upon and the enclosures are under

negotiation.

The project is now considered to be followed on BOO basis.

The project is now considered to be followed on BOO basis

ABB because of problems in financing dispensed with the project now deleted

from the list of requirements

Because of construction of a plan nearby the intended site this project is deleted from the list of requirements

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Guarantee is granted to the investor in the form of Investment License.

The second type is Payment Guarantee in which all payment undertakings of TAVANIR are guaranteed by the Ministry of Finance and Economic Affairs. TAVANIR payment for the Capacity fee (as a Take or Pay guarantee) is one of the undertakings which results in reliability of asset return for the investor and as foresaid is guaranteed by Ministry of finance and economic affairs.

7-3-8 Payment in BOT ContractsAt first operation stages of Project

Company, the total imported capital is registered in the Ministry of Finance and Economic Affairs. During project operation concerning payments will be done upon invoices and according to the contract.

A portion of the costs (including wages, rent and official costs) is in Rials (official currency of Iran) and others (equipment, machinery and foreign staff) are in foreign currency. Therefore, a proper mechanism to compensate these costs has to be predicted in the contract.

One approach is to pay in two currencies; part in Rials and the rest in a foreign currency.

A second approach also exists in which provisions are made for required banking facilities to currency convertibility and transferability of any payment in Rials. In such cases, devaluation risk is allocated to the investor; of course in financial model, an inflation rate of domestic and foreign currency is considered to compensate the future fluctuations of currency exchanges.

7-3-9 Fuel Supply in BOT ContractsIn international BOT projects, the

proper and reliable fuel supplement is a

major risk of investment which directly affects the productivity and efficiency of the project.

In Iran, there is no competitive fuel market and the Ministry of Oil is the exclusive producer, thus this risk is not transferred to the investor. TAVANIR Company (as the representative of government in BOT contracts) guarantees the free supplement of fuel for power plants which results in reduction of electricity generation risks.

Undertaking the risk of fuel supplement by the Ministry of Energy, the BOT power plant contracts are signed in the form of Energy Conversion Agreement.

7-3-10 Project Ownership and Technology Transfer in BOT Contracts

In power plant BOT contracts in Iran, the project ownership is transferred to the government after completion of concession period and gradual transfer of ownership has not considered in contracts, yet.

Sometime before transfer of power plant to the government, the foreign investor is supposed to train some personnel of TAVANIR the required information of operation. Furthermore, during operation stages, the Project Company is to employ a portion of operation staff among domestic experts. Consequently, the technology transfer is performed during operation stage.

7-3-11 Case Studies of BOT Contracts in Different Countries

BOT method, which is a concerning method of contracting in most developing Southeastern Asian Countries and also developed countries, is known to be a proper basis for development of

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Table 7-3-2 Case Studies of BOT Contracts in Developing Asian Countries

Country

Turkey

India

Thailand

Thailand

Thailand

Thailand

Philippines

Pakistan

Malaysia

China

Akkuyu Power Plant

Dabhol Power Plant

Second Stage Expressway

Bangkok Elevated Road and Train System (BERTS)

Skytrain Project in Bangkok

Phone Communication System of Bangkok

Pagbilao Airport

Karachi Power Plant

North-South Highway

Guangzhou-Shenzhen-Zhuhai Expressway

Project Name Project Specifications Length of Concession Period

1000 MW Nuclear Power Plant

2450 MW Power Plant In 2 Phases

32 km Expressway

1.60 km monorail and Expressway

20 km monorail

2 million Numbers

700 MW Fuel Power Plant

5280 MW Fuel Power Plant

850 km Highway

PhaseI:122.8 km, PhaseII:110 km

15 years

Electricity Purchase guarantee for 12 years

30 years

30 years

30 years

25 years

25 years

Negotiations in year 1999

30 years

30 years

infrastructures. Thus, required regulations and circulars for BOT contracts are considered in the mentioned countries. Some of these projects are named in Tables 7-3-2 and 7-3-3 which are the projects of roads, tunnels, bridges, power

plants, airports, water and sanitation grids and communication systems. According to the table information, the BOT method is a worldwide contract type with extensive effect on development and success of infrastructures.

Table 7-3-3 Case Studies of BOT Contracts in Developed Countries

Country Project Name and Specifications

Australia

Canada

United Kingdom

United States

F4 Toll RoadF5 Toll Road

Sydney Airport LinkSydney Water-Treatment Plants

Collie Power PlantVictoria Toll Road

Melbourne Tolled Bypass

Northumberland Strait Crossing BridgeToronto Airport Extension

Channel TunnelDartford Crossing

Second Severns BridgeSky Bridge

Manchester Metro LinkBirmingham Relief Road

Caltrans Transport ProjectsFlorida High Speed RailTexas High Speed Rail

Honolulu High Speed RailArizona Transport Projects

Dulles Toll Road

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7-4 Investment on BOO BasisAnother private sector participation

scheme in Iran power plant projects is BOO. The main difference between BOT and BOO is the following: while in a BOT project the sponsors have to transfer back the project facilities to the government after the expiration of the concession period, in a BOO the Project Company is entitled to own and operate the project facilities without any time limitation. In other words, in a BOT scheme, the project developer is provided a certain number of years of positive revenue to compensate for its investment, after which the project reverts back to the government. In BOO, however, the title to the project never reverts back to the government. Thus, in BOO the investor is not obliged to technology transfer and training the personnel of TAVANIR for operation of plant after concession period. BOO contracts encourage not only better building but also better maintenance since the assets remain permanently with the owner and are not subject to automatic transfer at some arbitrarily determined period also, BOO contracts encourage optimization of construction, operating, and ongoing maintenance costs.

7-4-1 Types of BOO ContractsMost of BOO (Build, Own and Operate)

contracts in Iran are Energy Conversion Agreements (ECA). Considering the subsidies of fuel in power generation sector, TAVANIR Company takes the responsibility for supplying fuel consumption of the power plant without any charges for the investor. The investor is bound to report the thermal efficiency during the operation years, and will be forfeited if the efficiency is lower than the nominal one. The forfeit is defined with negotiation between two

parties; however, the amount of fine will be higher than the cost of fuel supplied by TAVANIR. There are some financial incentives considered by the Ministry of Energy for high efficiency power plants.

7-4-2 Structure of BOO ContractsThe existing procedure of BOO

investment in Iran electricity industry is as followed.

•Submitting the application form by the investor for BOO investment in power plant construction projects accompanied with requested capacity and introduction of the company and the participation team.

•Initial confirmation by TAVANIR Company and sending the evaluation forms.

•Evaluating the financial and management qualifications of the applicant to invest in electricity industry by the Evaluation Committee.

•Proposition of the site by TAVANIR to the investor.

•Confirming the proposed site by the investor and performing site selection studies.

•Submission of the type contract to the investor to be examined and revised.

•Contractual negotiations between the investor and TAVANIR.

•ECA conclusion.•Start of EPC.However, the investor her/himself

might propose the plant site which will be examined by authority and the result will be reported to the investor.

Chapter 11 has more about the related executive circulars and code of practices which should be followed by investors in the process of investment. Also, in recent years in addition to long term electricity sale contracts (ECA), the methods of sell to the wholesale (competitive) market are

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considered. The conditions of this sell will be discussed in the Chapter 8.

The most important factors in prequalification of the applicant are:

•The financial capability to provide the equity to the amount of about 25% of total project costs (for a 500 MW gas power plant, the amount is almost 37 M$)

•Having similar experiences •A qualified technical team

accompanying the investment companyIt is notable that the most significant

factor is the financial capability and the other factors are taken into consideration when this factor is not satisfactory enough.

7-4-3 Legal Framework of BOO Contracts

The legal framework of BOO contracts is Article 122, sub article b of the low of Third socio-economic Development Plan. This Clause delineates that the Ministry of Energy is permitted to downsize of the government’s role in economic activities and privatize government enterprises. If private sector (domestic or foreign) proposes a power plant construction, in the case of fulfilling technical, economic and environmental requirements, the associated construction permit is granted to the investor and the facilities of currency transferability and electricity purchase guarantee of these units are specified.

This trend is followed in Article 20 of Forth Development Plan. The details of laws and regulations for investment in power plant projects of Iran are extendedly discussed in next chapters.

7-4-4 Obligations of the Parties to the Contract 1

BOO contract is concluded based

on the bilateral negotiations, and each party has obligations mentioned in the contract. If not fulfilling these obligations, the responsible party has to compensate or pay for the related costs. The most important obligations will be discussed.

7-4-4-1 Undertakings by the Investment Company

The private sector investor, in a legal framework, undertakes the below obligations during different stages of the contract.

1.Design, engineering, financing, insurance, equipment procurement, transportation, construction, finalization, testing and initiation of the power plant without any delay

2.Operation, maintenance and energy production based upon current legislations, standards and contract content

3. Providing a Bank Guarantee issued in TAVANIR favor by an Iranian bank. This Guarantee (Construction Guarantee) has to be valid in terms of time, until the date for confirmation of construction. (The amount is determined based on the power plant capacity according to both parties negotiations)

4.Providing a Bank Guarantee issued in TAVANIR favor by an Iranian bank. This guarantee (Operation Guarantee) has to be valid in terms of time in the timeframe between signature of the contract and operation stage of the power plant (The amount is determined based on the power plant capacity according to both parties negotiations)

5.On time request for any required government permits, also renewing the validity of permits till the end of concession period

6.Provision, negotiation and conclusion of EPC contract (Engineering,

1- The discussion is the same for BOT contracts.

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Procurement and Construction contract), O&M contract, etc, etc

7.Performing any necessary action to ensure the security and safety of the power plant

8.Performing any necessary action to ensure financing of the project in the agreed upon timelines

9.An immediate report to TAVANIR of any foreseeable decrement in the paid asset of the Project Company or change in the stakes of investors and equity of shareholders.

10.Delivering the required documentaries to TAVANIR after signing up the contract and before the determined deadlines.

11.Selling of claimed capacity and energy to TAVANIR, according to contract contents

7-4-4-2 TAVANIR Obligations1.Timely request for government

permits which are mentioned in contract, receive and renew these government permits during concession period provided that the investor company provides any necessary documentation or contribution for TAVANIR

2.Contribution with the investor company to provide the necessary requests of government organizations to accelerate the procedure

3.Supplying the required natural gas or backup fuel, before the predicted date of the first initiation and then during the commercial operation period

4.Accomplishing the facilities of electricity transmission and gas pipelines according to the contract

5.Operation and maintenance of the grid for continuum connection of power plant to the grid

6.Purchase of net energy generation

capacity of the power plant, correspondent to contract contents

7-4-5 Risk Management in BOO Contracts 1

In any economic activity there is the possibility to impose different types of risks. However, in Iran electricity industry the existing policy calls for a properly coverage of existing risks and therefore providing sufficient incentives for foreign investment. The most important risks covered in Iran BOO contracts are:

1-Revenue Risk: to cover this risk, some points are considered in the contracts:

•FIPPA cover for foreign assets•Guarantee of the Ministry of Finance

and Economic Affairs for the principal and the profit (interest) of the financial facilities and any other foreign currency transfer within the context of the investment project

•Payment of electricity fee (in domestic or foreign currency) through Letters of Credit (LC) mechanism by TAVANIR

2-Devaluation Risk: the investor might propose a composed rate of foreign currency and Rial. In this case, the payments will be in foreign or domestic currency due to the costs.

3-Risk of Natural Events during EPC and Operation Periods: The investment company is obliged to provide the necessary insurance cover for the power plant during whole concession period. The cost of this insurance is paid to the company by TAVANIR.

4-Risk of Change in Laws: In the case of any change in the laws (resulting in increment or decrement of taxes, tolls or any other imposed costs to the investment company) the payments will be modified to compensate any possible revenue loss of the investment company.

1-The discussion is the same for BOT contracts.

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8-1 Competitive Electricity 8-2 Competitive Electricity Market Design

8-2-1- Power Pool8-2-2- Bilateral Contracts

8-3 A Case-Study of Electricity Market (United Kingdom) 8-3-1- New NETA market structure in England

8-3-1-1- Power pool8-3-1-2- NETA8-3-1-3 Why was it believed the Power Pool failed?

8-4- Electricity Market in Iran8-4-1- Bilateral Contract or Direct Sell to End-User

8-4-1-1- Selling Rate of Electricity8-4-1-2- Transmission Cost8-4-1-3 Fines due to failing to dem8-4-1-4- Method of Payment8-4-1-5- Fuel Cost8-4-2 Electricity Supply to Wholesale Electricity Market8-4-2-1 Electricity Sell8-4-2-3 Fines due to failing to demonstrate the declared capacity8-4-2-3 Method of Payment8-4-2-4 Fuel Price8-4-2-5 Transmission Cost

8-4-3 Long Term Sell Contract with TAVANIR or IGMC 8-4-3-1 Selling Rate of Electricity8-4-3-1-1 Base Rates Associated with First Year of Contract 8-4-3-1-2 Hourly and Seasonally Coefficients8-4-3-1-3 Increase in power purchase Rates in subsequent Years after the Contract

8-4-4 Sell of Electricity under Guaranteed Fees8-4-4-1 Selling Rate of Electricity8-4-4-2Payment Method8-4-4-3Fuel Rate8-4-4-4Transmission Costs

Chapter 8- Iran Power wholesale Market 111

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8-1 Competitive Electricity MarketIn different industrial and service areas,

private sector participation and removing monopolies is synonym to opening markets to competitive environment. In fact, the major advantage of private sector compared with public one is the competitive environment in private participation. But electricity has its own story. Due to the special nature of this industry, competition spells out some how different here. Some features make this market different from other markets such as the impossibility of saving electricity and immeasurable consumption amount. As mentioned, electric industry consists of three major sections including generation, transmission and distribution which impossibility of saving and continuous process of generation and consumption and time varying nature of consumption rate make it difficult to balance the different elements and evaluate the share of each section in the final value. Thus, performing a proper model for a competitive market is important and also complex issue. Obviously, a competition environment in all the parts of the electricity industry is not practical. In many countries transmission and distribution sections are managed exclusively by the government and only the generation section might convert to a competitive environment. Making competition in generation section needs some governmental infrastructures such as similar access chances of the producers to the transmission and distribution grid and establishment of competitive market and fair pricing system. There are several methods to establish competitive market and pricing system in different countries; however, due to the complexity of the electricity market, works to improve this system is going on.

8-2 Competitive Electricity Market Design

There are several models to design free market and to establish competitive environment in electricity market in different countries.

In a general classification, one can categorize available models into two main categories. These two market mechanisms are:

-Power pool-Bilateral contractsFollowing the specification of these two

mechanisms will be described.

8-2-1- Power PoolIn a power pool, electricity generation

companies (power plants) offer price per energy unit in different times to the market operators. Classifying the offered prices, the curve of supply versus energy price is obtained. The prices might be offered based on estimation of energy generation costs. Markets with such governing relations are called cost-based markets. In another method is a price-based market in which the producers offer the price freely between a maximum and minimum prices announced by the market manager.

Market operator also predicts the energy demand in different times and transfers the generated energy to the customers. This market called one-way power pool. In the more advanced type of this market, known as bilateral power pool, system operator receives customers’ demand (distributors and large consumers buy electricity from the market directly) in different times with their offered prices and so obtains the curve of demand-price. Then according to these two curves, energy will be allocated to the appliances. In power pools, the transaction is usually done the day before the time of consumption. Of course, the time interval between

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consumption and bye-sell can be less which in consequence will increase the complexity of buy-sell market.

8-2-2- Bilateral Contracts The other model of energy market

is a mechanism arranged based on bilateral contracts between generators and costumers. In this market structure, buyers and sellers freely negotiate for energy exchange and bilateral contracts will be signed. Naturally, in this market the generators (power plants) will be the market sellers and large and small distribution companies and large consumers will be the market buyers. But this is not the end of the story because in this market generators might be energy buyer at some occasions. These transactions will be done to dissolve energy shortages and to balance the market. In this condition, agents may play a role in market balancing as well.

Practically, there is always difference between the value of signed contracts in the market and actual amount of transmitted energy (recorded by measurement instruments) which is compensated by the operator.

8-3 A Case-Study of Electricity Market (United Kingdom)

The UK is one of the first countries to change the customary and exclusive structure of the electricity market to the free and competitive one. In this part we take a look to this case. There are five main factors in the reform of England electricity market: establishment of wholesale electricity market, establishment of retail electricity market, mitigation of concentrations, promoting laws and privatizing the power plants and public facilities. Among these factors, the first one has a priority and without establishment of a competitive market the other factors have no considerable effects.

The cost of electricity generation is the major part of the total energy cost, thus competitive environment in this sector is more vital than competitive transmission or distribution sectors to cause considerable decrease in electricity price.

The experience in the UK showed that privatization decreased the costs and increased the reliability despite engineering predictions. Also, demands for investment in power plant construction projects increased.

The UK faced some problems in its initial market structure and thus the new structure of electricity market in the UK was developed in 2001 by replacing NETA system.

8-3-1- New NETA market structure in England

8-3-1-1- Power poolThe basic design of the original British

wholesale electricity market is well known. Demand is forecast for each 30-minute period 24 hours ahead by the System Operator and bids are received for plants that their owners wish to operate. Essentially, the bids are sorted by price and the highest successful bid needed to just meet demand in that 30-minute period sets the Pool Price. This Pool Price is paid to all successful bidders. In addition, successful bidders are paid a capacity charge that only becomes significant if supply is only just sufficient to meet demand. Wholesale buyers (and any large consumers that choose to buy directly from the Pool) must buy all their output from the Pool and they pay the Pool Price including the capacity payment and charges for ancillary services. However, while all buying and selling must nominally go through the Pool, bilateral contracts are allowed which effectively bypass the pricing arrangements. In practice, power bought and sold that is covered by such

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contracts have accounted for more than 90 per cent of electricity consumption.

8-3-1-2- NETAAs with the Power Pool, NETA is settled

every 30 minutes and buyers and sellers are allowed to sign bilateral contracts that remain entirely commercially confidential on any terms they choose. However, there the similarities end. At 24 hours before the period of demand in question, open-access Power Exchanges (PXs) are opened and buyers and sellers are able to place bids to buy or sell power to balance their needs. Deals are concluded bilaterally at the price posted. At four hours before the period of consumption, generators inform the System Operator of the plant they intend to operate and retail suppliers inform the System Operator of the amount of power they expect their consumers to consume. The System Operator then determines whether the supply and demand that the companies have forecast matches their (more accurate) demand forecast and it asks for bids from generators to supply additional power or reduce output in the so-called Balancing Market. The System Operator buys any difference between expected and actual sales by generators to wholesalers, and between wholesalers and their consumers for the companies in the Balancing Market. The system operator also deals with any congestion problems and other ancillary services in this four-hour period and passes the cost on to retail suppliers.

8-3-1-3 Why was it believed the Power Pool failed?

Apart from the Norwegian Pool, which has with some developments, been in operation for nearly 30 years and the Chilean market, which is now thought ripe for further reform, the British wholesale electricity market, centred on the Power Pool was in operation for much longer than

any other competitive electricity market in the world. It is therefore important to analyse this experience in order to draw lessons not just for Britain, but also for all countries trying to develop a competitive wholesale electricity market.

In important respects, the British wholesale electricity market, in the form it operated from 1990-2001, was highly successful. The supply of electricity was entirely secure over these 11 years and prices to consumers stable, albeit significantly too high. However, in 1997, the Power Pool, the spot market that was meant to be the centre point of the wholesale market, providing the market for significant proportion of power sales and price signals for the contract market, was judged by the Regulator and government to have failed and was replaced by NETA in March 2001. Wholesale electricity buyers do not appear to have had sufficient confidence in the Pool for them to trust it for their power purchases, nor did it provide price signals for the contract market. On those grounds, the Power Pool must indeed be regarded as a failure. However, it is far from clear why it has failed.

There are a number of possible explanations for the failure of the Pool:

•Poor design of the Pool;•High concentration in the generation

market;•Lack of consumer competition;•Dominance in the wholesale market of

transitional contracts, increased nuclear output and new gas-fired plants built by the retail supply companies; and

•Vertical integration of generation and retail supply.

8-4- Electricity Market in IranIn this section methods for electricity

sell and the governing regulations on the Iran electricity market will be discussed. The Fourth FYDP (Five year development plan) indicates, in Article 25 (B), that the

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Government wishes to encourage “other domestic entities” (i.e., independent power producers (IPPs), distinct from TAVANIR) to become involved in the production of electricity. While the plan specifically refers to “domestic” entities, the Government is clearly interested to also attract foreign investors to the sector. The objectives of this plan are to

(i) The efficiencies of private sector involvement in power plant construction and realize operation;

(ii) Shift the burden of supplying capital for power plant construction off the balance sheet of TAVANIR; and

(iii) Achieve more transparency in the cost of power development

Also, to facilitate private sector participation (PSP), the Government has issued a Decree prescribing four basic options for the sale of power from IPP plants, covering both new power plants and plants that a private investor may have acquired from TAVANIR:

a) An IPP can sell power directly to end-users;

b) An IPP can participate in the wholesale market;

c) An IPP can sell power to TAVANIR under a long-term Energy Conversion Agreement (ECA); and

d) An IPP can sell power to see IGMC under a “guaranteed fee arrangement”.

8-4-1- Bilateral Contract or Direct Sell to End-User

Private generator can deliver part or all of its generation capacity to the end-users via long/short term contracts. In this option the generators pay the transmission charges.

8-4-1-1- Selling Rate of ElectricityNaturally, the negotiations between

shareholders of contract dictate the price and the market manager has no impression on the cost and the selling condition. It’s obvious that the customer might buy, in the case of competitive prices with the prices of wholesale market.

8-4-1-2- Transmission CostIran Grid Management Company, as

an investment incentive, permits the generators to deliver the electricity to the end-users based on the preset costs via the transmission grid. This cost is nominated as transmission cost.

To this purpose, the generator has to sign a transmission contract with the Iran Grid Management Company.

Transmission cost is determined according to the maximum monthly deliverable power by the generator. In other words, generator has to consider the maximum monthly consumption requirement and buy the equivalent transit capacity.

Of course, in the case of efficiently use of the available grid capacity, the reduction of this cost is considered in the Law.

Note: Small power plant units will be free of transmission costs if they supply the end-users via low and medium voltage grids.

This incentive is considered for small scale electricity generation in the concentrated consuming regions.

These costs just include transit charges for national use and in the case of electricity export to the neighboring countries the costs are negotiated with

1/00 1/05 1/10

4-2 Adjustment Factors of Transmission Costs-Table 8

Concession Period of Contract

Till 5 Years Till 10 Years 10 Years and MoreDescription

Adjustment factor for Transmission Cost in the year of closing Contract

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the Grid Management. Cost of using transit services are

annually calculated and updated by the Grid Management Company. Generators might also sign long-term contracts for transit services. In such cases time variant parameters affect the total cost will be discussed during contract finalization. According to the Table 8-4-2 the base cost is defined and the annual changes for future years are calculated using formula presented in chapter 8-3-4-2-1. Thus, the most important advantage of long term contracts is the more bank acceptability of the investment which makes them interesting for some investors.

8-4-1-3 Fines due to failing to demonstrate the declared capacity These kinds of fines and their method of calculation will be defined in bilateral contracts based on mutual agreements and there are no standard methods or regulations for them in this type of transactions.

8-4-1-4- Method of PaymentMethod of payment is a case of mutual

agreement specified in the bilateral contract and there is no legal restriction on it.

8-4-1-5- Fuel CostThe generator is responsible for

providing fuel and pay the related cost and if the fuel required for the power plant does not timely provided, TAVANIR or the Grid Management Company do not take the responsibility.

However, the supposition is that the power plant fuel is supplied with power plant fuel tariffs. In the case of supplement with higher tariffs, the margin is paid to the generator.

To calculate the margin, firstly the consumed fuel is estimated (using the average efficiency of thermal power plants and also the generated energy

of power plant). The product of this estimated amount and the margin of fuel price is the fee which is paid to the electricity generator

Furthermore, if for shortage of natural gas or any technical failure, liquid gas is used as power plant fuel, the margin of liquid gas price and power plant fuel price is paid to the electricity generator.

If the case that the generated electricity is exported, TAVANIR does not take any responsibility for the price of consuming fuel.

8-4-2 Electricity Supply to Wholesale Electricity Market

One method to supply the electricity inside Iran is to sell it to electricity wholesale market, in which the seller of electricity might sell whole or a part of the generated electricity. The point of this method is that the sellers are paid for the declared capacity per day. The capacity fee is considered to cover the investment costs.

The model of Iran electricity market is Pool, in which all the buyer and sellers take part. The major characteristics of Iran electricity market are:

1-The market model in Iran electricity market is the model of the-day-before market.

2- The sale model in Iran electricity market is unilateral sale.

3- The payment to the sellers is based on a pay as bid mechanism.

4-Iran electricity market is a wholesale market.

In Iran, the competition is in energy sector, in such a way that each seller is permitted to deliver the energy-supply curves in ascending steps (10 steps at maximum) to the electricity market. In the case of accepting the prices in the electricity market, the payment is based on the offered price not the maximum accepted price of the market.

Capacity fee is constant. In electricity

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market, based on declared generation capacity of each power plant unit, a capacity fee per MW is paid.

The rate of energy sell to the buyers is a constant rate. In this case, the average payment for all power plants is calculated and considered as the price which the buyers pay to the electricity market.

Currently, in wholesale electricity market, the sellers are regional electricity/water companies (as the representative of their regional power plants) TAVANIR Company and power plants with Take or Pay contracts. Of course, the power plants that are interred to a long term Take or Pay contract with TAVANIR, do not supply the part of electricity that is previously sold to TAVANIR (based on the contract) to the market. This part is sold by TAVANIR in wholesale market.

On the other hand, the Regional Electricity Companies are also the buyers in the electricity market. The management of market in Iran is the duty of Electricity Market Regulatory Board. The main component of the prices in the Iran power market is the capacity price. All the available capacities in the market receive a certain hourly fixed payment, which is set annually by the Market Regulatory Board. The main advantages of this payment are that it increases the investment security, prevents price spikes, and avoids unnecessary stress in the market, especially at market startup.

8-4-2-1 Electricity SellAs mentioned, equal to declared

capacity of power plant for different hours of day, the capacity fee is paid regardless of practically used amount. The capacity fee (based on circular of year 2005) has been equal to 72000 Rials per MWh which is multiplied by different coefficients respect to hours of day, days of week and months of year. This amount is paid regardless of generation of the power plant. The capacity fee is fixed for

all power plants. The coefficient of this fee for different times is calculated using the below coefficients.

1-Hours of a day:•Working days in peak-load hours, with

coefficient 2.5 and in low-load hours, with coefficient 0.25

•At weekend (Thursday and Friday) in peak-load hours with coefficient 1.5 and in low-load hours, with coefficient 0.25, and in medium-load hours, with coefficient 0.7

2-Months of a year•Hot months (June, July, August,

September) with coefficient 1.2•Other months (8 remaining months)

with coefficient 0.9The energy price is offered by the

producer to the wholesale electricity market. The producer is not permitted to offer any free price, the price has a limitation and the producer is obliged to offer the price between the margins. The base price of energy in year 2005 has been 36000 Rials per MWh and the offered price might have -100% and +50% difference with it.

To evaluate the market performance and qualify the competition, the average price for energy sell in market during years 2005 and 2006 is provided in below diagrams.

The following is the discussion on two popular methods of payment to the producers in electricity market of different countries and then the method in Iran electricity market is introduced.

a)Uniform PricingIn this method, each individual

generating firm makes a bid for each unit of capacity that it owns (i.e., an individual plant bids multiple units). The market operator ranks these bids and sets the market price at the level needed to just satisfy demand. All units that are bid below the market price are called on to operate and receive the market price for their production. This is why this system

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52000

48000

44000

40000

36000

32000

28000

24000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 1 2

3928

638

229

3808

838

667

3929

139

696

4079

141

517

4198

942

527 4405

844

085 44

522

4662

945

949 44

502

4732

348

284

4905

549

260

4955

049

286

4953

049

176

4917

648

887

4850

948

251

4754

047

540

4732

845

602

4540

344

758

4285

942

197

4217

941

452

4021

039

884

3960

638

436

3733

837

338 37

245 3773

638

692

3943

740

777

4244

444

078

4351

844

732

4538

0

Diagram 8-5-1 Average Price of electricity Sell in Electricity Market during a Year (weekly average, March 2005 to March 2006)

MW

h/R

ial

52000

48000

44000

40000

36000

32000

28000

24000

20000

16000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Diagram 8-5-2 Hourly Average of Price during a Year

MW

h/R

ial

Houre

is referred to as “uniform pricing”: all generators supplying electricity are paid the same price per unit of electricity. Given a sufficient amount of competition, the market price determined by this system should equal the industry’s true marginal cost of production.

b)Pay as BidUnder a Pay-as-Bid pricing system, the

bids are ranked, as in uniform pricing. However, unlike uniform pricing, the dispatched generators (i.e., those called on to produce because of their relatively low bids) are not paid the market price; as the pay-as-bid name suggests, the market operator only pays each generator

the actual amount bid.In Iran electricity market, the method of

Pay as Bid is used. Thus, the generators are paid their own offered price.

8-4-2-3 Fines due to failing to demonstrate the declared capacity

Each power plant unit announces the generation capability accompanied with offered prices to the market manager. If the unit wins the sale and be selected to supply electricity in a specific time period, but can not generate the claimed capacity, it has failed to demonstrate the declared capacity. The fine for this is calculated as following:

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Fine= Capacity fee* 20* (Claimed capacity-Generated capacity)* Coefficients

Coefficients are the same as mentioned in Section 8-4-2-1.

8-4-2-3 Method of PaymentThe market manager, in monthly

intervals, pays for the energy fee and capacity fee of any power plant unit. The users shall pay to the respective generating companies’ capacity fees corresponding to plant availability and energy fees for the scheduled dispatch. The fees are:

Capacity fee: This is the sum of products of declared generation capacity minus internal consumption and transmission loss per hour and provision rate.

Energy fee: This is the sum of products of generated energy per hours (measured) and accepted price of energy for the same hour.

To this purpose, a sight, irrevocable, date documentary credit with expiration date of one year is issued by the buyer on behalf of the seller.

In the event that payment by TAVANIR of any amount due in accordance with the agreement is not made within the time period set forth, TAVANIR shall pay delay penalty on the unpaid part of such amount to the seller based on the interest rate of short term loans.

8-4-2-4 Fuel PriceThe responsibility to sign the fuel supply

contract and pay for the associated costs is on the generator and thus, there is no responsibility for TAVANIR and Grid Management Company to timely supply of the fuel to the power plant.

However, the supposition is that the power plant fuel is supplied with power plant fuel tariffs. In the case of supplement with higher tariffs, the margin is paid to

the generator.To calculate the margin, firstly the

consumed fuel is estimated (using the average efficiency of thermal power plants and also the generated energy of power plant). The product of this estimated amount and the margin of fuel price is the fee which is paid to the electricity generator.

Furthermore, if for shortage of natural gas or any technical failure, liquid gas is used as fuel, the margin of liquid gas price and power plant fuel price is paid to the electricity generator.

If the case that the generated electricity is exported, TAVANIR does not take any responsibility for the price of consuming fuel.

8-4-2-5 Transmission CostSelling the electricity to the wholesale

electricity market, the generator takes the advantages of transmission and distribution grid, free of cost. However,

ساعا ميانگين كل

4815

4

4749

0

4712

7

4157

8

3852

9

3869

3

3845

3

3862

9

3912

74192

4

4037

2

4052

2

(Average of Peak-Load Hours, Average of Medium-Load Hours, Average of Low-Load Hours)

Diagram 8-5-3 Average Accepted Prices in Peak, Low and Medium Loads (2005)

Average of Low-Load Hours

Average of Medium-Load Hours

Average of Peak-Load Hours

Week 1

Week 2

Week 52

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in the case of any bilateral contracts between the generator and the consumer directly, these costs are calculated as the transit costs and received from the generator (for details see section 8-4-1-2).

8-4-3 Long Term Sell Contract with TAVANIR or IGMC 1

Respect to Forth Development Plan Law, TAVANIR Company is permitted to sign long term sell contract or long term energy conversion agreement with the suppliers or qualified applicants for power plant construction. As a consequence of these contracts, the reliability of investment is increased and thus the investment risk is slaked. Investors need to have a guaranteed electricity sell respect to loan payment conditions of initial operation years of power plant, thus this method is a proper investment method for them.

In this method, the availability is declared by the generator in contract. The base capacity fee (as will be discussed in Section 8-4-3-1) is also specified. These long term contracts, might guarantee the electricity buy in a specified time interval with predetermined (in contract) rates. Of course, in this method the energy is also bought proportional to the consumption requirement and in contract, TAVANIR is not obliged to buy the whole generated energy of power plant. The method of energy price calculation in the case of requirement to generation of power plant is determined in the contract.

Thus, the most important advantage of long term contracts is the more bank acceptability of the investment which makes them interesting for some investors.

8-4-3-1 Selling Rate of ElectricityThe base capacity fee and the rate

of energy conversion (or electricity generation) are determined in these

contracts. The hourly, daily and seasonally rates are calculated by product of these rates and the hourly, daily and seasonally coefficients. Also, the ascending trend of these rates for different years is obtained via an equation given at the end of this section.

Therefore, the only aspects which must be declared at the contract time are:

-Base capacity fee in first year of contract

-Energy conversion rate (electricity generation) in first year of contract

With determination of the above rates, as given in Section 8-4-3-1-3, the variation trend of the rate is predicted in future years and with multiplication of it into the coefficients specified in Section 8-4-3-1-2, the sell rates are obtained for different times of year.

8-4-3-1-1 Base Rates Associated with First Year of Contract

In long term contracts, there are two methods to determine the above rates:

a)BiddingIn this method, the supposing power

plant is bided and the selling rate and conditions are determined respect to the bid results.

b)Negotiations If there is no bidding performed for the

power plant, the above rates are obtained via below formulas:

Capacity Fee= (Adjustment factor) * (Capacity fee in the year of contract)

(The capacity fee in electricity market was declared to be 77 Rials per KWh provision in year 2006)

Energy Conversion Rate (Electricity Generation Rate) = (Adjustment factor) * (Average of energy conversion rate)

The average of electricity generation rate is obtained by division of total payment to active power plants of the wholesale market by their total supplied energy to the grid during the previous 12-month period which is announced

1-These contracts are classified in BOO contracts. The Procedure is different in BOT contracts.

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by the grid management at the end of each month. The average of electricity generation rate during years 2004 till 2006 is illustrated in the below figure.

The adjustment factor in above relations is dependent on the contract period and is calculated using Table 8-5-3.

Regarding the Table, by increment of concession period and thus decrement of risk, the adjustment factor of price is lessened and as a consequence, the interest margin is also decreased.

8-4-3-1-2 Hourly and Seasonally Coefficients

As discussed in previous sections, capacity fees and energy generation rates are the product of base rate and time-related coefficients. In this section, the coefficients (respect to circular of electricity market) are provided in below tables.

8-4-3-1-3 Increase in power purchase Rates in subsequent Years after the Contract

Regarding increments in generation costs in years after contract closing, naturally, it is necessary to increase the selling rate of electricity too. This issue is predicted in long term contracts. The base rates are calculated in a yearly manner using the below equation:

8-4-3-2 The same as 8-4-2-28-4-3-3 The same as 8-4-2-38-4-3-4 The same as 8-4-2-48-4-3-5 The same as 8-4-2-5

8-4-4 Sell of Electricity under Guaranteed Fees

Another method of electricity supply is selling it to the Grid Management Company with predetermined fees. These fees are imparted for Forth Development Plan and will not change along the plan.

It is worth noting that in this method, there is no capacity fee paid to the generator. In the case of demand for energy, the power plant is called for generation and supplement of the electricity to the grid in the predetermined hours. The charge for this energy is paid respect to the

50000

40000

30000

20000

10000

0

3518

2

3374

9

3497

7 3899

4 4205

7 4446

6

4190

7

3984

6

3785

4

3855

0 4144

0 4366

7

3859

6 4086

1

4490

3 4700

1 4952

2

4841

5

4575

4

4141

3

3848

0

3898

7

4377

9

4365

3

4003

2

تاكنو 86

Apr

Jun

Aug

Oct

Dec

Feb

Apr

Jun

Aug Oct

Dec

Feb

Apr

Average of Monthly Price during Years 2004 till 2006

MW

h/R

ial

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mentioned tariffs of section 8-4-4-1. The seller determines the method of

energy supply to the Grid Management Company before any electricity sell: via wholesale electricity market and sale mechanism (Section 8-4-2) or sell with guaranteed prices (this section).

8-4-4-1 Selling Rate of ElectricityVia this method, the selling rate of

electricity is fixed during the Forth Plan. The rates are as below:

1-Medium load hours: 110 Rials per KWh

2-Low load hours: 50 Rials per KWh3-Peak load hours: 280 Rials per

KWh for guaranteed electricity supply by generator and 150 Rials per KWh for non guaranteed electricity supply

4-During hot months (June, July, August, September) 60% is added to the above mentioned amounts.

5-During the months of December, January and February, 20% is added to the above mentioned amounts.

8-4-4-2Payment MethodThe method is the same as discussed

in Section 8-4-3-3.

8-4-4-3Fuel RateThis rate is the same as discussed in

Section 8-4-3-4.

8-4-4-4Transmission CostsThe Generator does not pay any charge

to the Grid Management Company for use of transmission and distribution grid via this method.

0/98 0/94 0/90

Table 8-5-3 Adjustment Factors

Description

Adjustment Factor

Base Capacity Fee, Average of Energy Conversion

Rate, Average of Electricity Generation Rate

Contract Period

Till 5 years Till 10 years years and more 10

Table 8-5-5 Peak, Medium and Low

hoursMonths Peak Load Medium Load Low Load

First 6-Month of Year

Second 6-Month of Year

24-20

21-17

20-8

17-5

8-0

5-0

24-211-In Iran, the new year begins in April2-Hot months (Jun, Jul, Aug, Sep) = 1.2, Other 8 Remaining Months =0.8

= x

(a) (1-a)

.. (1،02)Price Adjustment

Factor in long term contracts

Consumer price index (CPI) at the

beginning of the year of due payment

Consumer price index (CPI) at the

beginning of the year of contract closing

Average conversion rate of Euro in the year before due

payment

Average conversion rate of Euro in the year before closing

contract

(Year of due payment- Year of closing contract)

a is a parameter ranging from 0.25 to 0.75 and will be agreed upon in the contract.

2.5

1.5

1

0.7

0.25

0.25

Table 8-5-4 Coefficients of Weekdays

Days hours Peak Load Medium Load Low Load

Working Days

(Holidays (Friday & Thursday in Iran

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9-1 Introduction9-2 development trend of financing methods for investment plans

9-2-1 Traditional Finance Theory9-2-2 Modern Finance Theory

9-3 Financing Methods9-3-2 Debt Financing

9-3-2-1 Istisna’s9-3-2-2 Commercial Banks

9-3-1 personal assets9-3-2 Debt Financing

9-3-2-1 Istisna’s9-3-2-2 Commercial Banks9-3-2-3 Line of Credit & Letter of Credit9-3-2-4 Asset Based Financing (Household Mortgages)9-3-2-5 Trade Credit9-3-2-6 Equipment Suppliers (Vendors)9-3-2-7 Commercial Finance Companies9-3-2-8 Brokers9-3-2-9 Insurance Companies9-3-2-10 Bonds

9-3-3 Equity Financing9-3-3-1 Angel Investors9-3-3-2 Infusion of Money by Partners9-3-3-3 Venture Capital 9-3-3-4 Initial Stock Offering

9-3-4 Internal Financing9-3-4-1 Accounts Receivable Financing9-3-4-2 Leasing-to-Ownership or Leasing9-3-4-3 Retained Earnings

9-4 Project Finance9.4.2 History

9.4.2 A basic project finance scheme

1249-2-2 Modern Finance Theory

1279-3-4-3 Retained Earnings

Chapter 9- Financing Power Projects 123

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Sources of financing9-1 IntroductionFinancing the power plant projects

is a problematic area for investors. An attracting point in power plant projects is the possibility to invest in the project without or with limited amount of equity. In these projects, equity’s share varies from 10% to 40% of total capital. The Rest can be funded through several financing methods.

In this chapter some different methods of financing is enumerated. Although some mentioned methods have not been implicated in Iran till now or may seem less relevant to IPP projects at first glance, but to create a clear and comprehensive perspective of opportunities, the methods are introduced in this chapter and it is the investor’s choice to chase up any of them.

9-2 development trend of financing methods for investment plans

9-2-1 Traditional Finance TheoryMost of traditional finance specialists

believe that debt finance is more attractive than equity finance, not only because the costs of raising the funds (for example arrangement fees with a bank or issue costs of a bond) are lower, but because the annual return required attracting investors is less than for equity. Thus the cost of debt capital is lower. But there are dangers associated with raising funds through debt instruments. Shareholders and lenders claim higher efficiency because of the high risk of the firm and the cost of capital increases. Thus a particular concern is the relative use of debt versus equity financing and there is an optimal debt-equity ratio.

The financial cost of capital in a firm is a weighted average of the return on debt and equity paid by firms. The value of a firm is affected by how the firm is financed.

9-2-2 Modern Finance TheoryThe modern theorem, opposing the

classical financing theories, is named Modigliani-Miller theorem which was derived by Franco Modigliani, Merton Miller (Winner of Nobel Prize in 1990). The Modigliani-Miller theorem forms the basis for modern thinking on capital structure. The basic theorem states that, in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed. It does not matter if the firm’s capital is raised by issuing stock or selling debt. It does not matter what the firm’s dividend policy is. Therefore, the Modigliani-Miller theorem is also often called the capital structure irrelevance principle.

9-3 Financing Methods9-3-1 personal assetsThe first source to supply the required

assets for any business is personal assets. For this type of financial resources, risk and return calculations are not that important to be of first priorities.

These resources are the cheapest available ones. For small power plants this method may be of more interest and in full scale ones personal assets may be just part of equity.

9-3-2 Debt Financing9-3-2-1 Istisna’sThis is an agreement under which

one of the parties (Moustasni’i) requests the other party (Snai’i) to manufacture or build an asset which is paid for in

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advance, in installments or on completion. This is a variation which is similar to the Salam contract, except that the object of the transaction is the delivery of finished products that have undergone a transformation process, and not goods purchased as is.

Istisna’a thus provides medium-term financing to cover financing requirements for the manufacture, construction or supply of finished products.

9-3-2-2 Commercial BanksIn these banks, the investors will likely

be asked to put up collateral on the loan in case they default on their payments. However the investors will need to make sure that the business will be generating sufficient cash flows by the time loan repayment starts.

- Short Term Loans These loans usually apply to money

needed for the day-to-day operations of the business, such as purchasing inventory, supplies, or paying the wages of employees. Short term financing is referred to as an operating loan or short term loan because scheduled repayment takes place in less than one year. A line of credit is an example of short term debt financing.

- Long Term Loans These loans usually apply to assets

your business is purchasing, such as equipment, buildings, land, or machinery. With long term debt financing, the scheduled repayment of the loan and the estimated useful life of the assets extends over more than one year. In Iran repayment of the loan is annually.

9-3-2-3 Line of Credit & Letter of Credit

A line of credit loan is designed to provide short term funds to a company

in order to maintain a positive cash flow. Then, as funds are generated later in the business cycle, the loan is repaid. Most commercial banks offer a revolving line of credit, where a fixed amount is available. As funds are used, the “credit line” is reduced and when payments are made, the line is replenished. One advantage of a line of credit is that the no interest is accrued until the funds are withdrawn, but the line is immediately available for the company’s cash flow needs.

A letter of credit is a guarantee from a bank that a specific obligation will be honored by the bank if the borrower fails to pay. Letters of credit can be useful when dealing with new vendors who may not be assured of a company’s credit worthiness. The bank would then offer a letter of credit as an assurance to the vendor of payment. Although no funds are paid by the bank, the credit requirements for a line of credit and a letter of credit are similar.

9-3-2-4 Asset Based Financing (Household Mortgages)

Asset based financing is a general term whereby a lender accepts as collateral the assets of a company in exchange for a loan. Most asset based loans are financed against accounts receivable and less often, against inventory since receivables are among the most liquid of a company’s assets followed by inventory. Receivables are favored by lenders since they self-liquidate in a short period of time by themselves and are not susceptible to problems such as shrinkage or physical damage.

Another type of asset based lending rapidly gaining popularity is factoring. Factoring is defined as the purchasing of a company’s accounts receivable on a non-recourse basis.

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Asset based lending may be the best source of working capital for companies in turnaround where traditional bank loans may not be available or for new and rapidly growing companies where high levels of growth cause the business cycle to outpace the collection of receivables.

9-3-2-5 Trade CreditTrade credit exists when one firm

provides goods or services to a customer with an agreement to bill them later, or receive a shipment or service from a supplier under an agreement to pay them later

9-3-2-6 Equipment Suppliers (Vendors)

Equipment supplies represent a well-established source of funding. Most of the vendors offer funding to businessmen looking to buy their equipment. This financing method is similar to Trade credit method. Generally, equipment vendors offer a logical step payment plan during the equipment life.

9-3-2-7 Commercial Finance Companies

Commercial finance companies are another option. Although they generally charge higher interest rates than banks and credit unions, they also are able to approve more requests for loans. Most loans obtained through finance companies are secured by a specific asset as collateral, and that asset can be seized if the entrepreneur defaults on the loan. They usually provide payment terms and interest rates comparable to a commercial bank, but require a business to have more assets available as collateral.

9-3-2-8 BrokersIn some countries, Brokers are also

lender companies and most of them charge lower interest rates than banks to their customers. These loans have the support of collaterals – stocks and Bonds in costumer’s portfolio- and thus lower interest.

9-3-2-9 Insurance CompaniesIn many countries, life insurance

companies are important sources of financing. There are two kinds of loans paid by these companies: Policy loans and mortgage loans. Policy loan or life insurance loan is a loan issued by an insurance company that uses the cash value of a person’s life insurance policy as collateral. This is a loan issued at a proper interest rate. A mortgage loan is a loan secured by real property through the use of the mortgage. Insurance companies cover 75% to 80% of the value of real property and permit the company to have a 25 0r 30 year repayment table.

9-3-2-10 Bonds Bonds are frequently known financing

resources for large companies.9-3-3 Equity FinancingThere are some drawbacks in Debt

Financing. The repayment of the loan is the sole obligation of investor to the lender. Even if the business fails, the investor will still has to make these payments. And if he/she is forced into bankruptcy, the lenders will have claim to repayment before any equity investors. In equity financing, the investor is owner. In this method risk is shared as well as its potential incomes. Some prevalent methods of equity financing are discussed in this section.

9-3-3-1 Angel InvestorsAn angel investor (known as a business

angel or informal investor in Europe) is an affluent individual who provides capital for

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a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.

9-3-3-2 Infusion of Money by Partners

There two types of partnership: General partnership and limited partnership. A general partner is personally responsible for all obligations of the partnership. The limited partner is “limited” in potential loss, since all he/she can lose is his/her investment, and the general partners alone are subject to claims, debts in bankruptcy and lawsuits against the partnership.

9-3-3-3 Venture Capital Venture capital is a type of private equity

capital typically provided by professional, outside investors to new, high-potential-growth companies in the interest of taking the company to an IPO (Initial public offering). Venture capital investments are generally made as cash in exchange for shares in the invested company. A venture capitalist (VC) is a person who makes such investments. Venture capital can also include managerial and technical expertise. Most venture capital comes from Venture Investment Companies, a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies, or ventures, with limited operating history, which cannot raise funds through a debt issue. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity.

9-3-3-4 Initial Stock OfferingAt the last stages of financing, the

investors, offering the company stocks to the public, convert to a public stock company. However, the procedure is costly and time consuming.

9-3-4 Internal FinancingInternal financing is the name for a firm

using its profits as a source of capital for new investment rather than distributing them to firm’s owners or other investors and obtaining capital elsewhere. This type of financing is available for most of businesses.

9-3-4-1 Accounts Receivable Financing

This form of financing is a type of secured loan in which accounts receivable are pledged as collateral in exchange for cash. The loan is repaid within a specified short-term period as the receivables are collected by broker. Accounts Receivable Financing cost between 5 to 40% of total receivables generally speaking. Since Accounts Receivable Financing rates depend on the credit-worthiness of the customers, the average invoice, average payment cycle, and factoring volume, it is hard to predetermine the exact cost of the money.

9-3-4-2 Leasing-to-Ownership or Leasing

Nowadays, it is possible to lease any kind of asset (official space, telephone, computer, heavy equipments & machinery …) for business. Also, the company might use a lease-to-ownership-plan for assets like land, to reduce the required initial capital.

9-3-4-3 Retained EarningsRetained earnings are used for funding

innovation and growth programs and

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for fulfilling the fixed or working capital needs of the company. Since it means dependence on inner resources to meet up the fiscal requirements of the company, this type of financing is a low cost method.

9-4 Project FinanceProject finance is the financing of long-

term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are used to finance the project, and debt is repaid using the cashflow generated by operation of the project, rather than the general assets or creditworthiness of the project sponsors. Because of this structure, the debt is said to be “nonrecourse” to the project sponsors.

The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the project company has difficulties complying with the loan terms.

Generally, a special purpose entity is created for each project, thereby shielding other assets owned by a project sponsor from the detrimental effects of a project failure. As a special purpose entity, the project company has no assets other than the project. Capital contribution commitments by the owners of the project company are sometimes necessary to ensure that the project is financially sound.

Project finance is often more complicated than alternative financing methods. It is most commonly used in the mining, transportation, telecommunication, energy and public utility industries.

Risk identification and allocation is a key component of project finance. A

project may be subject to a number of technical, environmental, economic and political risks, particularly in developing countries and emerging markets. Financial institutions and project sponsors may conclude that the risks inherent in project development and operation are unacceptable (unfinanceable). To cope with these risks, project sponsors in these industries (such as power plants or railway lines) are generally completed by a number of specialist companies operating in a contractual network with each other that allocates risk in a way that allows financing to take place.

The financing of these projects must also be distributed among multiple parties, so as to distribute the risk associated with the project while simultaneously ensuring profits for each party involved. Usually, a project financing scheme involves a number of equity investors, known as sponsors, as well as a syndicate of banks which provide loans to the operation. The loans are most commonly non-recourse (or limited recourse) loans, which are secured by the project itself and paid entirely from its cash flow

9.4.2 History Limited recourse lending was used to

finance maritime voyages in the days of ancient Greece and Rome. Its use in infrastructure projects dates to the development of the Panama Canal, and was widespread in the US oil and gas industry during the early 20th century. However, project finance for high-risk infrastructure schemes originated with the development of the North Sea oil fields in the 1970s and 1980s. For such investments, newly created Special Purpose Corporations (SPCs) were created for each project, with multiple owners and complex schemes distributing

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insurance, loans, management, and project operations. Such projects were previously accomplished through utility or government bond issuances, or other traditional corporate finance structures.

Project financing in the developing world peaked around the time of the Asian financial crisis, but the subsequent downturn in industrializing countries was offset by growth in the OECD countries, causing worldwide project financing to peak around 2000. The need for project financing remains high throughout the world as more countries require increasing supplies of public utilities and infrastructure. In recent years, project finance schemes have become increasingly common in the Middle East, some incorporating Islamic finance. The new project finance structures emerged primarily in response to the opportunity presented by long term power purchase contracts available from utilities and government entities.

9.4.2 A basic project finance scheme

Project finance is used by private sector companies as a means of funding major projects off balance sheet. A typical project finance structure is outlined below.

Project financing is commonly used as a financing method in capital-intensive industries for projects requiring large investments of funds, such as the construction of power plants, pipelines, transportation systems, mining facilities, industrial facilities and heavy manufacturing plants. The sponsors of such projects frequently are not sufficiently creditworthy to obtain traditional financing or are unwilling to take the risks and assume the debt obligations associated with traditional

financings. Project financing permits the risks associated with such projects to be allocated among a number of parties at levels acceptable to each party.

On the other hand Project financings are extremely complex. It may take a much longer period of time to structure, negotiate and document a project financing than a traditional financing, and the legal fees and related costs associated with a project financing can be very high. Because the risks assumed by lenders may be greater in a non-recourse project financing than in a more traditional financing, the cost of capital may be greater than with a traditional financing.

The following types of insurance typically are obtained for all project financings and cover the most common types of losses that a project may suffer.

1.Property Damage, including transportation, fire and extended casualty.

2.Boiler and Machinery.3.Comprehensive General Liability4.Worker’s Compensation.5.Automobile Liability and Physical

Damage.6.Umbrella or Excess LiabilityThe following types of insurance often

are obtained in connection with a project financing. Coverages such as these are more expensive than standard insurance and require more tailoring to meet the specific needs of the project.

1.Business Interruption2.Performance Bonds3.Cost Overrun/Delayed Opening4.Design Errors and Omissions.5.System Performance (Efficiency).6.Pollution Liability

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Company Managment

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Operation and Maintenance

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Non-recourse debt Inter-creditor

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Engineer-Procure- Constract Contract

EPC Contractor

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10.2 Legal framework for IPP projects in Iran.10.1 Introduction10.3 Other Regulations & Laws Concerning Investment in Iran Power Industry

10.3.1 The constitution10.3.1.1 Article 43 10.3.1.2 Article 44 10.3.1.3 Article 47 10.3.1.4 Article 50 10.3.1.5 Article 77 [Treaties]10.3.1.6 Article 81 [Foreign Business]10.3.1.7 Article 139 [Property Claims]

10.3.2 Laws by Parliament of Islamic Republic of Iran10.3.2.1 Foreign Investment Promotion and Protection Act (FIPPA) 10.3.2.2 Law of the 4th development plan10.3.2.3 The regulations of investment in free commercial-industrial regions of Iran10.3.2.4 maximum use of the technical, engineering, industrial and executive power of the domestic resources in national projects (2003).10.3.2.5 Iranian Tax Code (2002)10.3.2.6 The law of registration of the companies (1931)

10.3.3 Regulations by council of 10.3.4 Circulars, CoP’s and Standards by Minister of Energy

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10.1 IntroductionThe installed capacity of power

generation in Iran has to be increased to support the demand reliably at load peaks let alone the ever increasing demand for power in the country for next two decades.

So in the following years the process of increasing power generation capacity should be chased up with a higher rate. But in one hand the governmental resources for this purpose are not sufficient and on the other hand in order to follow the privatization policy, the governmental strategy is based on the invitation of the private sector and developing the capacity of electricity generation by using the capabilities of private sector.

So by true understanding of these facts, great activities have been done in recent years, especially in regulations for foreign investment and attracting the active private sector for infrastructure projects; as you can see in the article 122 of the 3rd development plan that is insisted again in the article 25 of the 4th development plan and also in the sub article (L) of note 21 of the budget act in FY 2003-2004 that is repeated changeless in the budget act of FY 2005-2006. These laws insist on attracting and supporting investments by private sector in power industry.

BOO and BOT methods are considered as firm bases for the public private-sector participation. And also some clear laws are codified in order to promote private sector to take part in power market. TAVANIR Co is responsible for signing power purchase agreement or energy conversion agreement in Ministry of Energy. In the case of BOO and BOT contracts IPDC is mainly in contact with investors on behalf of and authorized by TAVANIR Co.

BOT because of promotions and

protections offered by FIPPA act is usually of more interest to foreign investors.

Process of choosing the investors in Iran starts by a declaration by the investor, to which attached some forms to be filled by the investors regarding their technical, financial and management qualifications.

10.2 Legal framework for IPP projects in Iran.

The basic legal framework that supports private sector participation in Iran power projects on the basis of BOO is made up of five bases:

A.Law of the 4th socio-economical development plan (articles 20 and 25 )

B.Code of Practice for power purchase conditions and off-take guarantee referring to sub article b of article 25 of the 4th development plan law.

C.Code of practice for Article 20 of 4th development plan law (by Minister of Energy)

D.Circular for power sell and purchase conditions, rating and procedure (By minister of Energy)

E.Amendment to Circular for power sell and purchase conditions, rating and procedure (By minister of Energy)

As mentioned before above regulatory framework facilitates private sector participation on BOO basis. Legislations due to Iran power market (power pool) also rest in the same provisions.

BOT basis in backed by FIPPA act(2002) which provide a firm support for foreign investment in Iran power industry.

10.3 Other Regulations & Laws

Concerning Investment in Iran Power Industry

In this part some other regulations that may be referred by investors are presented with distinction of their sources:

-The constitution- Laws by parliament of Islamic Republic

of Iran

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- Regulations by council of ministers-Circulars, CoP’s and Standards by

Minister of Energy

10.3.1 The constitution10.3.1.1 Article 43 The economy of the Islamic Republic of

Iran, with its objectives of achieving the economic independence of the society, uprooting poverty and deprivation, and fulfilling human needs in the process of development while preserving human liberty, is based on the following criteria:

1. …;2. …;3. …;4. …;5. the prohibition of infliction of harm

and loss upon others, monopoly, hoarding, usury, and other illegitimate and evil practices;

10.3.1.2 Article 44 “The economic system of the Islamic

Republic of Iran shall be based on public, cooperative and private sectors, with proper and sound planning.

The public sector includes all large-scale industries, mother industries, foreign trade, large mines, banking, insurance, power supply, dams and large irrigation channels, radio and television, post, telegraph and telephone, aviation, shipping, roads, rails and the like, which are public property and at the disposal of the Government

The private sector includes such activities related to agriculture, cattle-raising, industry, trade and services that supplement the economic activities of public and cooperative sectors.

Ownership in the upper told three sectors, insofar as it conforms to other articles of this chapter, does not surpass the limits of Islamic laws, contributes to economic growth and development of the country, and does not harm the society,

will enjoy protection of law in the Islamic Republic.

Details of regulations, scope and conditions of the three sectors shall be determined by law. “

The supreme leader of the Islamic Republic of Iran has signified the general policies of the Article 44 of the constitution of the Islamic Republic of Iran to the heads of 3 states and the chief of the Expediency Discernment Council of the System (EDCS), the proclamation of these strategic policies is based on the provision No1 of the Article 110 of the constitution. That this part gives the responsibility of making the general policies of the system - after consulting with the Expediency Discernment Council of the System – to the supreme leader of the revolution. The Article 44 of the constitution that its general policies are stated in the proclamation of the supreme leader of Iran to the heads of the three states and the chief of the EDCS, divide the economic system of Iran to three sectors of public, cooperative and private. And clear the limitations of each sector. The context of the proclamation is as follow:

In the Name of God, the Merciful and Compassionate

I hereby announce the general policies of the Article 44 of the Constitution of the Islamic Republic of Iran. There are a number of observations and remarks in this regard that I should underline.

The implementation of these policies requires new legislations or possibly changes in the existing laws, and the government and MAJLIS need to cooperate with each other for this purpose.

The supervision of the State Expediency Council over the good performance of these policies is essential. This can be achieved by putting in place the required procedures, collaboration of the relevant responsible agencies and presentation of regular annual supervisory reports on a

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specific date. The decision regarding “ general

policies on development of non-governmental sector through entrusting activities and ownership of state-owned firms” will be made by receiving reports, documentary evidence, and comprehensive consultative opinions of the State Expediency Council on the relationships between privatization and each of the elements under Article 44, on how different factors can have adverse impact on the efficiency of some state-owned firms, the implications of the transfer and ceding activity of the relevant firms to the non-governmental sector under Article 44, on the level of preparedness of the non-governmental sector and on sanctions and the ways available to the government to exercise its authority.

SEYYED ALI KHAMENEIE

In the Name of God, the Merciful and Compassionate

General policies of the Article 44 of the Constitution of the Islamic Republic of Iran

In view of the provisions under article 44 and in Article 43, general policies of Article 44 of the Constitution of the Islamic Republic of Iran are intended to achieve the following objectives:

• Accelerated growth of national economy.

• Promotion of public ownership to achieve greater social justice.

• Enhancing the efficiency of economic firms and productivity of human and material resources and technology.

• Enhancing the competitive capability of the national economy.

. Increasing the private and cooperative sectors in national economy

• Reducing financial and administrative burden on the government that is as a result of its controlling role in economic activities.

• Increasing the general level of

employment. . Motivating people for investment and

increasing the income of the family.To achieve the upper told objectives,

the following guiding principles were agreed upon

A. General policies concerning development of non-state sector and preventing the unnecessary growth of the government.

1. The government shall not be allowed to engage in economic activities that fall outside those envisioned in Article 44. Moreover, it is obliged to relinquish any activity, including continuation and operation of previous activities that are covered under Article 44, and cede them (at least 20 percent annually) to the private and cooperative sectors by the end of the Fourth Five-Year Development Plan. Considering that the government has the overall responsibility to ensure good governance, the continuation and initiation of essential activities by the government that fall outside of the main titles of Article 44 are permitted for a definite period of time, upon the proposal of the Council of Ministers and approval of the parliament of Islamic Republic of Iran. Industries which are dependent to the military, police, intelligence and security services that have confidential character do not fall under this decree.

2. Investment in and management and ownership of those sectors that fall under Article 44 by the non-state firms and public institutions, and the cooperative and private sectors are permitted as described below:

2-1 Large-scale industries, mother industries (like large downstream oil and gas industries) and large mines (except oil and gas).

2-2 Foreign trade activities in the framework of trade and foreign currency policies of the country.

2-3 Banking operations by non-state public firms and institutions, publicly-held

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cooperatives and joint stock companies, provided maximum shares of each share holder is determined by law.

2-4 Insurance

2-5 Power supply, generation and importation of electricity for domestic consumption and export.

2-6 All postal and telecommunication activities, except the main telecommunication grid, assigning of frequencies and main networks of postal exchanges, routing and management of distribution of mails and basic postal services.

2-7 Roads and railways

2- 8 Aviation (air transport) and shipping (marine transport).

Optimal share of the State and non-State sectors in the economic activities covered under the preamble of Article 44 will be determined by law by taking into view the sovereignty and independence of the country, social justice and economic development and growth.

B. General policies of the cooperative sector

1. Increasing the share of the cooperative sector in the national economy to 25 percent by the end of the Fifth Five-Year Development Plan.

2. Effective measures by the government to establish cooperatives for the unemployed with a view to generating productive employment.

3. Support by the government to set up and promote cooperatives by offering incentives such as tax concessions, providing credit facilities by all financial institutions, abstaining to receive any additional costs or other charges in comparing to those paid by the private sector.

4. Removal of all barriers and constraints that obstruct the presence of the cooperative sector in all economic arenas, including banking and insurance.

5. Establishment of the Cooperative Development Bank funded by the government for the purpose of enhancing the share of the cooperative sector in the national economy.

6. Support by the government to enable cooperatives to gain market access and providing this sector full information on non-discriminatory basis.

7. Exertion of the right of sovereignty of the government in the framework of policy-making and overseeing the enforcement of the applicable laws and avoiding interference in the administrative and management affairs of the cooperatives.

8. Development of technical and vocational training and other supportive programs with a view to enhancing efficiency and empowerment of the cooperatives.

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9. Flexibility and diversity in methods of raising capital, distribution of shares in the cooperative sector and taking necessary measures that set in motion establishment of new cooperatives in addition to the conventional ones in the form of public joint stock companies with fixed limits of shares, the ceiling for which will be determined by law.

10. Support by the government of the cooperatives, proportionate to the number of members.

11. Establishment of nationwide cooperatives to cover the three lowest deciles of the population in order to poverty alleviation.

C. General policies on development of the non-state sector and ceding of State-owned firms.

The general policies of this part will be announced later on.

D. General policies of ceding 1. Requirements of ceding 1-1 Doing Empowerment of the private

sector to engage in extended and diverse activities and in managing large businesses.

1-2 After the completion of the ceding of shares, the overseeing and support by the relevant authorities will continue in order to achieve the intended objectives.

1-3 Applying generally accepted and sound methods for the ceding of shares with special emphasis on the stock exchange, strengthening the relevant organization set up for this purpose, instituting transparent flow of information, creating equal opportunities for all to benefit from gradual offering of the shares of large firms in the stock market for the purpose of obtaining base price of the shares.

1-4 Those who involved in ceding of shares and authorities in the government with respect to the ceding operation must not be able to profit from this activity.

1-5 obeying the general polices of the cooperatives in the ceding operation.

2. Applications of the incomes gained from ceding operation:

The proceeds from the ceding of shares of state-owned firms shall be deposited in the special Treasury Account and disbursed in the framework of approved plans and budgets in the order explained below:

2-1 improving the disadvantaged families self-reliant and strengthening the social security system.

2-2 Allocation of 30% of the incomes gained from the ceding operation to nationwide cooperatives in order to achieve poverty alleviation.

2-3 Creating economic substructures by giving priority to the less developed regions.

2-4 Granting financial facilities (administered funds) to strengthen cooperatives, to modernize and renovate non-state firms by giving priority to ceded companies and for the purpose of investments by the non-state sector for the less developed regions.

2-5 The Partnership of state-owned firms with non-state sectors up to 49% for the economic development of the less developed regions

2-6 Completion of partially-completed projects of the state-owned firms by taking into view Note “a” of the general policies.

D. General policies on application of the right of sovereignty by the government and avoiding creation of monopolies.

1. Continuity in the application of the general right of sovereignty of the government after the commencement of the activities of the non-state sectors as a result of ceding operation through policy-making, enforcement of laws and regulations and overseeing, especially in respect of application of norms of SHARIA and the law at non-state banks.

2. Preventing influence and control of aliens over national economy.

3. Preventing creation of monopolies, by the non-state firms by putting in place laws and regulations

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10.3.1.3 Article 47 “Private ownership, legitimately

acquired, is to be respected. The relevant criteria are determined by law”

10.3.1.4 Article 50 “The preservation of the environment,

in which the present as well as the future generations have a right to flourishing social existence, is regarded as a public duty in the Islamic Republic. Economic and other activities that inevitably involve pollution of the environment or cause irreparable damage to it are therefore forbidden”

10.3.1.5 Article 77 [Treaties]”International treaties, protocols,

contracts, and agreements must be approved by the Islamic Consultative Assembly.”

10.3.1.6 Article 81 [Foreign Business]

”The granting of concessions to foreigners or the formation of companies or institutions dealing with commerce, industry, agriculture, service, or mineral extraction, is absolutely forbidden.”

This Article says that no one of the foreigners have the right to have any kind of static property in Iran with the 100% ownership. But those foreign companies that have legal contracts with the states-owned and government in order to present their services can have their branches in Iran according to the article 3 of the law of registration of companies. And this doesn’t disturb the Article 81 of the constitution.

10.3.1.7 Article 139 [Property Claims]

”The settlement of claims relating to public and state property or the referral thereof to arbitration is in every case dependent on the approval of the Council of Ministers, and the Assembly must be informed of these matters. In cases where

one party to the dispute is a foreigner, as well as in important cases that are purely domestic, the approval of the Assembly must also be obtained. Law will specify the important cases intended here.”

10.3.2 Laws by Parliament of Islamic Republic of Iran

10.3.2.1 Foreign Investment Promotion and Protection Act (FIPPA)

The legal corpus governing foreign investment in the Islamic Republic of Iran constitutes the Foreign Investment Promotion and Protection Act ( FIPPA) and the FIPPA’s Implementing Regulations, as well as legislation applicable for the establishment and conduct of economic activities in the country. While the prospective investors are recommended to get full knowledge about the legislation directly related to their interest, they are also advised to get familiar with certain legislation which is fundamental in their daily affairs, such as laws pertaining to companies formation and administration (Commercial Code- Company Law), registration of companies, branches and representative offices, import/export regulations, taxation, industrial and intellectual property protection, status of foreign nationals ( entry, resident and work permits), banking and insurance, free and special economic zones regulations,etc.

Standing of FIPPA:Since 1955, the legal framework of

Iran’s foreign investment regime was defined under the Law for the Attraction and Protection of Foreign Investments (LAPFI). Moreover, in line with reforms in the overall economic framework, Iran’s parliament undertook to propose and approve a plan concerning a new foreign investment law entitled: The Foreign Investment Promotion and Protection Act (FIPPA) which was ratified in May 2002. FIPPA replaced the LAPFI which was in

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effect since 1955. FIPPA’s replacement of LAPFI has further enhanced the legal framework and operational environment for foreign investors in Iran.

Some specific enhancements introduced by FIPPA for foreign investments in Iran can be outlined as follows:

Broader fields for involvement by foreign investors including in major infrastructure,

Recognition of new modes of foreign capital exposure in addition to Foreign Direct Investment, e.g. project financing, Buy-Back financing arrangements and BOT investment schemes,

,Streamlined and fast-track investment licensing application and approval process

Creation of a one-stop institution called the “Center for Foreign Investment Services” at the Organization for Investment, Economic and Technical Assistance of Iran (OIETAI), for focused and efficient support for foreign investment undertakings in Iran,

,Further liberalization of foreign exchange mechanisms as enjoyed by foreign investors

Introduction of new legal options governing the Government-Investor(s) relations.

Clearly, the ratification of FIPPA and the approval of its implementing regulations by the Council of Ministers represented a significant complement to a whole host of reforms taking place in Iran’s general macroeconomic framework and structural mechanisms. The trend in foreign investment applications in Iran since the ratification of FIPPA demonstrates that the new economic environment and the enhanced foreign investment legal and regulatory regime have tapped a great foreign investment potential for Iran that can be realized at a more accelerated

pace through a concerted effort aimed at transparent communication of the latest status of Iran’s dynamic economic and foreign investment framework.

Highlights of FIPPA: 1.General Features: The Government

of the Islamic Republic of Iran welcomes foreign investment in all areas of economic activities by foreign persons including real persons as well as juridical entities. In accordance with Article (1) of FIPPA, the term foreign investor is defined to be natural persons and legal entities as well as Iranian nationals and companies either residing in Iran or abroad. The foreign investors by importing capital as defined in a very broad and diversified form, being in cash or in kind, or being machinery and equipment, raw materials, parts, specialized services as well as intellectual property for the purpose of investment in industry, mining, agriculture and services shall be eligible to enjoy the privileges and facilities provided under FIPPA. The advantages and facilities shall be granted to foreign investors who obtain the investment license. In general, foreign investment in Iran is free for all investors but such facilities and privileges are only granted to those investors who seek the FIPPA coverage by way of submission of application to the OIETAI, which is the central government agency to receive, license and protect the interests of foreign investors throughout the lifetime of their operation in Iran, notwithstanding the type and manner of investment. In fact, the interests and rights of foreign investors under FIPPA are fully recognized and secured against non-commercial risks which would simply commit the Iranian Government not only to facilitate the free flow of capital repatriation but also the full and fair compensation against acts of Government towards expropriation as

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well as interruption of activities of the foreign investor.

It should be noted that under FIPPA,

no restriction of what ever nature is legally permissible to be imposed on the manner of investment , type of investment, volume of investment, percentage of shareholding, profit and capital repatriation as well as internal relations between the parties to an investment project.

2.Risks Covered: Generally speaking, FIPPA provides full security against the risks which are generally referred to as non-commercial risks. These risks are usually insured by the export credit and investment insurance agencies. The risks related to transfer issues and expropriation remains as the cornerstone of the risks attributed to an investment in a recipient country. FIPPA honors all the rights and entitlements of investors by way of facilitating and making available the necessary foreign exchange for transfer purposes, being issues related to transfer of profit as well as issues related to capital repatriation. In fact, FIPPA recognizes the transfer right as the most fundamental right of foreign investors. There is no limitation to the amount of the profit to be transferred as well as to capital and gains on capital to be repatriated. In the area of expropriation and nationalization of foreign assets FIPPA recognizes the rights of the investors to receive compensation based on the fair market value of the expropriated assets immediately the day before expropriation takes place.

In addition to the foregoing, FIPPA also recognizes the rights of foreign investors in cases whereby as a result of enactment of a law and/or a decision by the government, the implementation of a project is seized or interrupted. In such cases the Government is

under obligation to guarantee all the payments which should have been paid on maturity.

3.Facilities Provided. FIPPA produces and provides a bulk of new facilities all in line with and aimed at meeting the interests of foreign investors. Of importance is the establishment of the Center for Foreign Investment Services (CFIS) at the premises of the OIETAI which makes it possible for the new-comers, whether Iranian or foreign, to have a direct access to the relevant organizations and government agencies through the resident representatives of those organizations and at the same time to collect, first - hand and updated information from the most relevant agencies without any need to resort to those agencies. In fact CFIS is designed as a one-stop-shop to serve the investors’ needs and save their time and energy throughout the investment decision – making and implementation stage starting from preliminary studies on project feasibility, collection of information on regulatory framework and preparatory work for the investment licensing right to the operational stage which may require certain co-ordination and follow-up activities toward proper materialization of the investment project.

From the standpoint of FIPPA foreign

investors will enjoy the same and equal treatment as accorded to local investors. There should be no discrimination vis-à-vis foreign investors and all facilities, privileges, exemptions will be equally extended to foreign investors. Anyhow, a most favoured nations treatment may also be applicable to the investors of countries with which the Iranian government has entered into a Bilateral Investment Treaty ( BIT) which provides for more favouable treatment over national treatment.

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In addition to the foregoing, FIPPA introduces new legal options in respect of government-investors relations which symbolizes the receptive and constructive approach of the Iranian government toward safeguarding the interests of foreign investors. There are various instances in FIPPA as well as in the Implementing Regulations

which focuses at the liberty of the foreign investor to choose from among a variety of alternatives, the best choice compatible to his expectations, which interalia, may extend from a choice on the percentage of shareholding, the management, claims for compensation resulting from expropriation, application for complementary security umbrella for receiving compensation resulting from government intervention to a wide spectrum of transfer options ranging

from access to the banking system as well as free access to export and other foreign currency revenues and the like.

Last but not least, are a series of

facilities in the areas of entry and exit visas, residence and work permits for the investors, managers, directors and experts as well as their immediate relatives. These facilities are provided on a long term basis which creates comfort and confidence to those related with investment projects for constant presence over the asset in which they have invested.

4.Broad Outlook. FIPPA provides for

investment in all areas of economic activities in Iran. In fact there is no area other than areas related to arms, ammunition and security which are

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closed to foreign investment. According to Article (3) of FIPPA, foreign investment is divided in two broad categories:

(a) Foreign Direct Investment in all areas open to Iranian private sector by way of direct equity participation in the share capital of Iranian companies whether in greenfield projects or in existing firms or companies . As was explained elsewhere, foreign shareholding in Iranian entities is not limited in terms of percentage as opposed to what was formerly publicized that a foreign investor can not hold more than 49% shares in Iran. Such restriction is totally irrelevant and even contradicts the current general policy and legislation.

(b) Foreign “Indirect” Investment

under contractual arrangements which provides for any type of investment defined under FIPPA other than direct investments. Although the arrangements recognized under FIPPA are limited to Civil Participation* , Buy- Back and BOT arrangements, but each of the a.m. forms may be sub-divided by different types under the same title. Of importance, we may mention different types of BOOT, BOO, BLT, ROT, etc schemes as well as Project Financing and Profit Sharing arrangements. In other words, any type of investment in which the investor does not have an equity stake and/or is not qualified from ownership standpoint will fall under this broad category to be known as “Indirect” investment. This category provides for foreign investors to enter into areas which are closed to the private sector or areas in the upstream

fields or national projects in which a direct participation in not, by law, permissible.

Irrespective of the type of investment, the foreign capital, as defined under FIPPA, is not only defined to be the funds disbursed to cover the investors’ share in the equity capital but also, it refers to the funds which may be provided to an Iranian recipient entity in the form of credits and financial facilities (shareholders’ loans and third party financing). The term Foreign Capital under FIPPA may cover both. It depends on the investor’s wish and consent on how the loan to be treated in the context of FIPPA. Such investors/financiers may be given two options. One option is to treat the loan as part of the investment of the foreign investor in the project . In this case, the repayment of the loan is dependent, upon the economic performance of the project without being supported by way of a repayment guarantee by the government, banking system and state-owned companies. The other option is to treat the loan as separate financing alternative outside the FIPPA coverage. In this case the repayment may be supported by a guarantee obtained from any of the a.m. authorities. In short, FIPPA’s coverage is only available for the funds brought into the country in the form of investment rather that the funds, the repayment of which is secured under banking instruments.

10.3.2.2 Law of the 4th development plan

To supply this plan some methods in attracting the foreign investment were

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presented by the experts.One of very important points in 4th

development plan law in relation to BOT is the article 24 that lets the executive authorities smooth the way for foreign direct investment with the help of FIPPA Act(2002) in order to trust economic growth, help technology transfer, increase productivity, increase job opportunities.

10.3.2.3 The regulations of investment in free commercial-industrial regions of Iran

10.3.2.4 maximum use of the technical, engineering, industrial and executive power of the domestic resources in national projects (2003).

10.3.2.5 Iranian Tax Code (2002)Exemptions on tax are some of the

considerable points in this law for investors.

10.3.2.6 The law of registration of the companies (1931)

This law in order to register a company has cleared the specific field of activities and if a foreign company is going to do some activities in Iran through its branches or agencies, it has to give its declaration to

the bureau of the registering companies and register its company.

10.3.2.7 Trading Act (1921)

10.3.3 Regulations by council of ministers

The most important regulations other than stated before are:

- Regulations on non-oil buy-back conditions transactions(2001).

- Code of practice for article 6 of amendments to the law of ordering some of financial regulations of the government

10.3.4 Circulars, CoP’s and Standards by Minister of Energy

This collection contains some technical standards and regulations that make investor to present his/her services inside a specific frame.

-The executive methods of connecting to Grid

-Code of practices for Operation-Code of practices for Iran power

market regulatory council-The technical standards of the

transformers-The technical standards of the interface

of the power station-The technical standards of RTU

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11.1 The organizational structure in Ministry of Energy11.1.1 Iran Power Generation, Trans

11.1.1.1 Deputy of coordination and operation supervision 11.1.1.2 Deputy of planning11.1.1.3 Deputy of development and economic affairs11.1.1.4 Deputy of coordination and financial supervision.

11.1.1.5 Deputy of Human Resources and Productivity Enhancement

11.1.1.6 Deputy of Logistics11.1.1.7 Subsidiaries of TAVANIR Co. 11.1.1.7.1 The regional electricity companies.11.1.1.7.2 Generation Management Companies.11.1.1.7.3 Power Generation Utility and Repair Companies11.1.1.7.4 Power Distribution Companies.11.1.1.7.5 Iran Grid Management Company.11.1.1.7.6 Iran Power Development Company.

11.1.1.7.7 Iran Power Plant Projects Management Co. (MAPNA)

11.1.1.7.8 Iran Power Plant Repairs Co.11.1.1.7.9 Iran Energy Efficiency Organization (SABA)

11.2 Departments of most concern to investors11.2.1 Iran Power Development Company11.2.2 Deputy of Planning in 11.2.3 Iran Grid Management Company.11.2.4 TAVANIR Co.

11.3 Steps to invest in Iran Power Generation Industry

Chapter 11- Steps to invest in Iran Power Generation Industry 143

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In this chapter the procedures that investors have to follow to invest in Iran power industry are presented. Also departments and organizations mostly in touch with investors are introduced.

11.1 The organizational structure in Ministry of Energy

In Iran, Ministry of Energy is responsible for development, governing, r

Because investors are mostly in touch with the subsets of TAVANIR Co., a brief introduction of its important subsets are presented in this chapter.

11.1.1 Iran Power Generation, Transmission and distribution Management Co. (TAVANIR)

Now the TAVANIR co is the administrator of the 16 regional electricity companies, 32 power Generation companies, 42 Energy distribution companies, Iran Power Development Company, the new energies organization of Iran (SUNA), the Energy Efficiency Institution of Iran (SABA) Iran Power Projects Management Co. (MAPNA)

And according to this fact all the governmental debentures of these companies have been conveyed to TAVANIR co.

To organize the supervisory activities of the government in the field of operation and development of the electric power industry within the framework of the policies of Ministry of Energy, conducting the affiliated companies improvement of efficiency and productivity as well as optimization of facilities of the electric power industry and should it necessitates implementation on certain executive affairs in behalf of the ministry of energy in the fields of supervision and planning in restructuring process of the

electric power industry the expert holding company of TAVANIR with aforesaid mission has been established.

General Assemble of TAVANIR comprises of:

- Minister of Energy- Minister of economic affairs and

finance- Minister of oil - Minister of mine and industries That by itself shows the importance

and concerns toward this company and its missions.

Missions of deputies and subsets of TAVANIR Co. are described more in the following:

11.1.1.1 Deputy of coordination and operation supervision

The missions and responsibilities of this deputy are as follows:

-Supervision on the performance of the regional electricity companies in relation to operation of transmission and sub transmission grid.

-Supreme supervision on the performance of power distribution companies.

-Supreme supervision on the generation management companies

-Setting the power plants and transmission network repair and maintenance program.

-Supervision on budgetary, fuel supply, energy forecasting, safety and environmental standards.

-Optimization of power plants

Generation Technical bureauGeneration Technical bureau is working

as a subset of Deputy of coordination and operation supervision and because of its bulky workflows releases part of its work to generation technical offices in regional electric companies and has supreme supervision on them in the following fields:

-Supervision on commissioning of

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newly built power plants. -Defining the technical specifications

of power plants in relation to the electric market& national dispatching center.

-Supervision on maintenance and operation

-Anticipating repairs and fuel needed by the power plants

-Anticipating budget and energy of the power plants.

-Evaluating the request for spare parts.

-Analyzing the accidents in power plants.

-Participation in codification of the organizational charts of the recently built power plants.

-Supervision on commissioning of newly constructed power plants.

-Evaluation of performance of the power plants.

-Cooperation in preparation of policies of privatization of power plants and member of releasing committee in this regard.

-Supervision on Implementation of HSE standards.

11.1.1.2 Deputy of planning-Estimation of the Power demand in

Iran with the assistance of the regional electricity companies and planning for

installed capacity development-Development planning for transmission

and sub transmission network in national scale, and supervision on their development.

-Evaluation of financial needs of power industry.

-Development of cross-border interconnection of electrical network with neighboring countries

- DSM of electricity and supervision on the related activities in the regional electric companies.

11.1.1.3 Deputy of development and economic affairs

-Codification of electricity tariffs.-Customizing related technologies,

designing and making parts necessary in electricity industry.

-Codification of the standards needed by electric power industry, preparation of test plan, inspection and quality control procedures.

-Implementation of national research projects.

- preparation of regulations and planning for releasing the power plants and construction of new power plants under BOO scheme.

Minister ofEnergy

Table 11.1.1 Organizational Chart in Ministry of Energy

Public Affairs InternationalAffairs

PerformanceAssessment

PhysicalSecurity

Personnel Screening

Deputy of Planning and Economic

Affairsb

Deputy of Human Resource

Development

Deputy of Waterand Waste Water

Deputy of Powerand Energy

Deputy of legal and parliamentary

affairs

TAVANIR Co.-Iran Water Resources Management Co.- SATKAB Co.- Water & Waste Water Engineering Co.- Shahid Abbaspour Technical University- Niroo Research Institute - Water Research InstituteInstitute for Energy and Hydro Technology

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11.1.1.4 Deputy of coordination and financial supervision.

-Devising the roadmaps of the electricity industry for the management of the company.

-Investigating of financial issues of the electric power industry.

-Continuous monitoring of the systems and codification of the financial instructions and recommending necessary actions toward improvement.

-Holding general meetings of the affiliated companies of TAVANIR.

11.1.1.5 Deputy of Human Resources and Productivity Enhancement

-Planning for supply and development of human resources in the industry.

-Investigation and recommendation of chart of affiliated companies.

-Information Management and publication of the statistical reports of electric power industry.

-Conducting evaluation and productivity improvement of the electric power industry.

-Promotion of IT and its application in various activities of the electric power industry

11.1.1.6 Deputy of Logistics-The basic activity of this Deputy is to

support other deputies through providing them with financial and staff as well as general services support.

11.1.1.7 Subsidiaries of TAVANIR Co.

11.1.1.7.1 The regional electricity companies.

While regional electric companies are affiliated to TAVANIR Co. they are acting the same as the mother company within the scope of their managerial territory. They are responsible for coordination of the affiliated companies, generation, transmission and distribution and sell and supply of electricity to all consuming sector in the region.

With the continuous willingness toward outsourcing and privatization in the industry, repair and general services of units, operation of switching stations and sub transmission grid have been transferred to the private sector in some regional electricity companies.

11.1.1.7.2 Generation Management Companies.

Generation management companies which are established as non government companies, are responsible for operation one or more power plants in the related region. At the present, each of these companies act as a contractor for operation of power plant upon an agreement with the related regional electric company.

To utilize the existing capacities and improvement of human resources capabilities and provision of incentives, these power plants are permitted to offer their services in the fields of optimization, IT, operation recruit of personnel, commissioning and operation of new power plants to IPDC, MAPNA or others.

11.1.1.7.3 Power Generation Utility and Repair Companies

These companies are constituted in order to reduce the maintenance costs of the power plants. They are professional companies that can take the job as contractors and in some tenders that are hold in the fields of fundamental repairing and optimization of the power plants. These tenders can be hold inside their region or elsewhere throughout the country.

11.1.1.7.4 Power Distribution Companies.

There are 42 nongovernmental electricity power distribution companies inside the country. Some of these companies are covering a province and some according to the geographical scope are working through cities. In a great city like Tehran there are 5 companies of this type.

These companies are working under the

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AZERBAYJAN

ISFAHAN

BAKHTAR

TEHRAN

KHORASAN

KHOOZESTAN

ZANJAN

SEMNAN

SISTANO BALOCHESTAN

WEST

FARS

KERMAN

GUILAN

MAZANDARAN

HORMOZGAN

YAZD

Regional electricity

The coordination and supervision assistant

Iran Power Generation, Transmission and distribution

Management Co. (TAVANIR)

Scheduling assistant

The expansion assistant

Supplying assistant

Coordination & financial

supervision assist

Human resources & utilization assist

Management of the electricity production

West AZERBAYJAN- TABRIZ

ISFAHAN- SHAHID MOHAMADMONTAZERI

SHAHID MOFATEH – west SHAZAND

.REI- SHAHID MONTAZER GHAEM QOM- BESAT- utilization of TARASHT power

plant, SHAHID RAJAEI, DAMAVAND

TOOS- MASHAD- the Gas power plants ofKHORASAN

SABA company- AHVAZ (RAMIN) - utilization of DEZ and SHAHID ABASPOUR power

plant and dam. south west of ABADAN

SISTANO BALOCHESTAN power plants

BISTOON

South of FARS utilization of FARS electricity

ZARAND-KERMAN

GUILAN-LOUSHAN, SHAHID BEHESHTI

NEKA- SHAHID BEHESHTI

PERSIAN GULF- HORMOZGAN

YAZD

Distribution of electricity power

TABRIZ city, west and east AZERBAYJANstates, ARDABIL State

ISFAHAN city, ISFAHAN andCHARMAHAL states

MARKAZI, HAMADAN, LORESTANstates

West, north west and south west, east, north east, and south east and center of

TEHRAN state and QOM state

MASHAD city, south and north ofKHORASAN state

AHVAZ city, KHOOZESTAN andKOHGILUYE states

QAZVIN AND ZANJAN states

SEMNAN state

KERMANSHAH, KORDESTAN, ILAMstates

SHIRAZ city, FARS and BOOSHEHRstates

South and north of KERMAN state

GUILAN state

MAZANDARAN, west of MAZANDARANand GOLESTAN states

HORMOZGAN state

YAZD state

Other companies that are dependant to TAVANIR

The administrator ship of the power plant projects of Iran MAPNA

The electricity expansion organization of Iran

The new energies organization of Iran SUNA

The utilization of energy organization of Iran SABA

The repairing power plants of Iran company

The administrator ship of the electricity lines of Iran

Diagram 11.1.2 Organizational structure of TAVANIR and its subsets

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control and administration of the regional electricity company of their region, and government share of these companies is in the possession of TAVANIR.

11.1.1.7.5 Iran Grid Management Company.

To comply with the general policies of the electric power industry in the field of providing healthy competitive environment for power producers, promoting private sector investment, reduction of government intervention into the electric power industry, even distribution of subsidies paid on electricity, respecting the rights of option for costumers and establishment of power market, this company has emerged.

IGMC responsibilities and objectives are:

-Conducting and monitoring of transmission network of the country for maintaining the network stability and reliability.

- Provision of necessary measures for indiscriminate access of public to the electric network of the country.

- Provision, management and planning for development of Iran power market

This company is a state-owned company and works under supervision of TAVANIR Co. The supervision on the performance of the power market is carried out by the Market Committee.

11.1.1.7.6 Iran Power Development Company.

This organization affiliated by TAVANIR Co. is responsible for construction thermal power plants, transmission and optic fiber projects and utilization of capacities and opportunities existing for construction of power plants on BOT & BOO basis.

11.1.1.7.7 Iran Power Plant Projects Management Co. (MAPNA)

MAPNA Group is a conglomeration of parent enterprise and its 27

subsidiaries engaged in development and implementation of power, oil & gas, railway transportation and other industrial projects under EPC & IP schemes as well as manufacturing relative equipment. Since its inception in 1992, MAPNA Group has constructed or has under-construction more than 60 projects valuing € 17 billion, among them power projects cover more than 45,000MW, having a share of 86% of the country’s total grid capacity.

As an investor and main contractor of independent power and industrial projects (IPs), MAPNA Group has ventured into projects to generate over 9000 MW of electricity under BOT & BOO schemes, corresponding to a total contract value of more than € 4 billion.

MAPNA’s subsidiaries manufacture gas and steam turbines and their ancillary equipment, turbo-compressors, turbine blades and vanes, power generators, heat recovery steam generators (HRSGs) and conventional boilers, power plant electrical and control systems, cargo and passenger locomotives, etc.

In response to the market growth and with the intention to promote and secure IP projects, MAPNA has recently included “after sales services” and “operation & maintenance” to its scope of activities.

Some companies of its affiliation are:

-MONENCO, IRAN- MAPNA International- MESBA, Boiler Manufacturing-Mapna Turbine Co. (TUGA)- Mapna Turbine Blades Co. (PARTO)- Mapna Operation & Maintenance Co.- Mapna Power Generation Co. - Mapna Electric & Control

11.1.1.7.8 Iran Power Plant Repairs Co.

IPPRC was established to carry out overhauling and periodic repair of power plants and H.V substations as well as manufacturing and reconstruction of

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spare parts needed by power plants of the country. In fact it was one of the most essential actions for achieving self sufficiency in the electric power industry.

This company, at present is an affiliated company to TAVANIR. It comprises of mechanical repairs, power plant repairs, electrical repair and manufacturing of equipment sections and is cooperating with SANIR in export and construction of spare parts. 49.9% of shares of this company belong to TAVANIR.

11.1.1.7.9 Iran Energy Efficiency Organization (SABA)

Iran Energy Efficiency Organization (IEEO-SABA) was established in 1995 as the administrator of the plans of Energy Affairs deputy of Ministry of Energy to promote the culture of Energy conservation and productivity and encouragement of private sector to work in this field.

SABA with a record of Energy auditing in hundreds of factories in various industries, a full scale collection of measuring instruments , experienced staff, modern laboratory for formulation of Energy consumption standards in household appliances and industrial elements , organizing tens of national and international seminars and training courses and a complete collection of information, books and professional publications related to Energy management, presents services to industry, researchers and academics.

11.1.1.7.10 Renewable Energy

Organization of Iran (SUNA)Renewable Energy Organization of Iran

(SUNA) is responsible for policy making and directing renewable energy in Iran. In this respect many different renewable projects are ran by this organization

11.1.2 SATKAB Co.SATKAB was established to

manufacture water and power equipments and supplies in 1968. the main activities of the Company was ascertained to provisions and supplies of equipments, customs clearance and deliveries of various manufactured products, machineries, manufactured equipments and devices, transmission and distribution of electricity and water supply and distribution required by water, power and water and wastewater companies and other governmental and non-governmental companies and associations and to provide management directorship and technical services, payment of commission and protections required according to the needs of Ministry of Energy headquarters and dependent subsidiaries and other companies and associations, investment and participation in other commercial and industrial manufactures relevant to water, power and water and wastewater industries in addition to various commercial operations and transactions and at last to provide other services in relations with Company’s aims.

SATKAP Company is share holder of 29 active electric companies the list of which is given in Diagram 11.2.3.

11.2 Departments of most concern to investors

In this part some departments that are anyhow in touch with investors are reviewed.

11.2.1 Iran Power Development Company

This organization is the most original reference for investment in thermal power plant industry. Even in the long term contracts that TAVANIR is the addressee of the investor, this organization is negotiating with the investor as the representative of TAVANIR, and at the end the contract will be signed by TAVANIR. Some of this organization’s

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responsibilities that are relative with the investor are:

- Call for investment and tendering-Receiving applications from the

applicant for selling electricity to the wholesale power market.

-Giving the qualification forms to investors and taking them back filled by them.

-Holding tenders and announcing the winner.

-General Confirmation of proposed power plants.

-Assessment of investors’ feasibility study for proposed power plants

-Negotiating with investors on contract terms of agreement

-Taking license bond from the investor.-Catching the price confirmation and

sufficiency of the licenses.-Pursuing issuance of construction

license.-Signing fuel contract (in the long term

contracts of energy conversion)-Confirmation of the finance

agreement.-Confirmation of closing of contract.-Taking construction bond from the

investor.-Supervision on construction of the

power plant by the investor.-Construction of fuel pressure reduction

station (in the long term contracts of energy conversion)

- Developing the gird to the power plant in the case of necessity.

-Confirmation of connecting to the grid.

-Pursuing the issuance of operation license.

-Synchronization of the first unit of power plant

-Confirmation of the start of the commercial operation.

Other responsibilities of this organization:

-Running studies to choose power plant construction site throughout the country

-Update the rates (Energy Conversion

rates) for confirmed power plants each year with the Ministry of Energy.

-Taking the concerning licenses from the Gas Company for gas supply of each power plant.

-Preparing type contracts for each of investment methods

-Determining the maximum of the variety methods of finance in each way of investment and report it to the Ministry of Energy

-Proposing base rates (Energy Conversion/Power Purchase) for each method of investment to the authorities of ministry of energy for passage by them.

11.2.2 Deputy of Planning in TAVANIR.

Some responsibilities of this deputy concerning investors are:

-Pursuing forecast for electricity power demand by the country in different time scales.

- Grid Study over the country.-Confirmation of priority of proposed

power plants upon demand forecasts

As can be seen, plans for expansion of the grid, forecast for demand in coming years and so on can be obtained from this department. This deputy presents these data to IGMC in the periods of 6 month in order to facilitate access to them by investors.

11.2.3 Iran Grid Management Company.

In the case that investor chooses to sell electricity directly in the wholesale power market, this company would be mostly contacted by investor after starting operation of the plant.

11.2.4 TAVANIR Co.In the long term contracts of Power

Purchase/Energy Conversion, TAVANIR Co. is responsible to sign contract, however to facilitate the processes IPDC as the representative of TAVANIR

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negotiates with the investor and finally after the agreements TAVANIR signs the contract.

11.3 Steps to invest in Iran Power Generation Industry

Previous chapters gave brief description of Iran power industry, its current situation

SATKAB Co.

Name of the company Scope of Work

Producing

Consultation

Construction

Services

Alumtek

Alumrad

Iran Transfo

Pars Switch

IRAN meter manufacturing Co.

Maghareh Sazi Iran

Niroo Trans

Iran Water & Electrical Equipments Engineering Co

MATN

MOSHANIR

ETANIR

Pars Niroo

Nasb Niroo

PEIMA GHARB

PEIMANBAR

Guilan Niroo

Niroo Resani Boostanoo

Isfahan Power plant Repair Co.

Khuzestan Power Transmission Repair Co.

RANIR

Tehran Financial Services

Bargh Araa

Poshtibani Sanate Bargh Guilan

Kish Water & Power

SABA investment

Industrial city of Alborz

Industrial city of Kaveh

Niroochap

Niroo commercial & engineering equipments

Variety of aluminum cables

Aluminum Rods

Variety of transformers

Variety of switches

Variety of meters (electricity, gas, …)

Insulators

Kinds of measurement trances of flowing and voltage

Electrical and hydro mechanical equipment

The operation in the technical improvement in the energy and electrical industry

Electrical industry services

The power transmission equipments

The power transmission and building equipments

Power plants and power transmission

Building and equipments

Power transmission

Switch Centers

Building the high and intermediate pressure lines

Repairing the power plants

Maintenance of switching centers and transmission lines

IT services

The financial services and auditing

General Services

General Services

Supplying of the electricity and water

Investment and partnership in the industry of water and electricity

Municipal services

Municipal services

Printing Services

Inspection services, supplying equipments

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and future prospects. Also methods of investment in this environment were reviewed according to their legal framework. In this chapter the work flow for investment in Iran power industry is explained; meaning the steps that investors shall go through in order to invest in power generation industry in Iran:

1.General announcement and call for investment

2.Willingness declaration by the investor: the applicants declare formally their willingness for investment to TAVANIR Co.

3.Choosing the investor for predetermined power plant projects:

3.1 TAVANIR Co. sends the information about the predetermined power plant projects regarding their type, capacity, method of connection to the Grid, date to be operated, the location and other necessary information to the applicants.

3.2 The applicants will choose their preferred project after a period of one month and will reply attached to their filled qualification forms.

3.3 TAVANIR Co. after studying qualifications of applicant in a period of one month, issues a statement to accept the application.

3.4 If more than one application is received for a power plant project TAVANIR will chose among them via tendering.

4. Confirming investment for proposed power plants

4.1 The applicant of the proposed power plant submits his request that contains information about the type, capacity, number of units, location and timetable for construction and operation

of the power plant to TAVANIR Co.4.2 TAVANIR Co. submits qualification

forms to the applicant.4.3 The applicant after filling the forms

in a period of one month submits the filled forms to TAVANIR Co.

4.4 TAVANIR Co. assesses the financial, technical and management qualifications of the applicant and issues a statement to accept the application.

4.5 Deputy of planning will provide the applicant with information needed (i.e. transmission and sub transmission Grid) to perform feasibility and environmental studies.

4.6 The applicant in a period of 4 months delivers his reports to deputy of planning and IGMC for review.

4.7 Deputy of planning will inform applicant about the way of connecting to the grid and associated costs in a month.

4.8 To proceed with the contract and closing the terms of agreement, TAVANIR Co. will take a contract guarantee from the applicant

5. The General agreement: Deputy Minister of Energy confirms the application and qualifications of the applicant in an statement of “general agreement”. In turn the applicant in supposed to submit a permit bond. Before expiration of the general agreement, the applicant is due to take concerning permits.

6. Signing the power purchase agreement: TAVANIR Co. will sign a Power Purchase Agreement/Energy Conversion Agreement with the investor.

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7. The construction license: after signing the power purchase agreement/ Energy Conversion Agreement, the applicant will give the construction bund, then construction license of the power plant will be signed by the Minister of Energy and awarded to the investor.

8. Other Permits and licenses.8.1 In the case of passed power plants

that choosing the place of building and studying the capabilities of the site are confirmed by the Ministry of Energy, the basic necessary licenses for environment and supplying fuels and water are supplied by TAVANIR co.

8.2 In the case of proposed power plants the applicant have to take the licenses for fuel supplying (signing the Gas contract) water supplying and environment. Of course TAVANIR Co. will help the investor in the course of taking these permits.

9. Financing the project: Ministry of Energy will introduce the

investor to the relative sources in order to use financing services.

10. Signing financing agreement.11. Ordering and transportation of

equipments.12. Signing EPC contract.13. The license of connecting to grid:

after finishing construction of the power plant, the license of connecting to grid will be issued by the IGMC.

14. The Operation License: after issuing the license of connection to the Grid, license of operation will be issued to investor by the IGMC.

The above procedure represents B.O.O based contract practice which shown in a flow chart in Diagram 11.4.1. If the investor is willing to follow B.O.T scheme which is supported firmly by FIPPA act (2002), he shall follow the procedure in the flowchart shown in diagram11.4.2.

1

2

3

4

5

line

Table11.3.1- List of licenses in the process of investment

Time of issuing

Before closing the contract

Before starting Construction

Before starting Construction

Before commercial operation

Before synchronization of first unit

The license of Construction

Environmental Permit

Operation License

The license of connection to the Grid

license

Investment License (For foreign investments)

The issuing organization

Ministry of Energy

Iran Department of Environment

Ministry of Energy

IGMC

Ministry of Finance and Economic Affairs

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Diagram1.4.11 Procedures for Investment in Iran power Generation Industry on BOO Basis

start

Forecast of Power Consumption Demand for different regions

throughout the country

Receipt of application from the investor

Public announcement to invite private sector for

investment.

Assessment of proposed power plant

Declaring reasons for rejecting the application to the applicant and ministry

of energy

Acceptable?

Sending qualification form to applicant?

Receipt of the filled forms

Examine the forms to check the qualification

Declaring reasons for rejecting the application to the applicant and ministry

of energy

Acceptable?

Presenting information of the Grid to the applicant.Preparing the general agreement for investment

of the applicant in the specified power plant

Receipt of permit bondSubmitting the general agreements to applicant

Asking the applicant for feasibility and environmental studies

Receipt of feasibility and environmental studies from the applicant

Assessment of the reports

Acceptable?Declaring reasons for

rejection to the applicant and ministry of energy

Releasing permit bond to the applicant

Requesting for proposal

Receipt of financial proposal

Assessment of proposal in comparison with last tenders

and a reference financial model

Request for Construction License from the Ministry of Energy

Releasing the bond to the applicant

finalization of the contract and its enclosures

Preparing draft of the contract(Power Purchase/Energy Conversion)Acceptable?

Declaring reasons for rejection to the applicant and ministry of energy

Issuing the construction

license?

Declaring the reason of not issuing the license to

applicant

Proposed pricings in frame of

approved rating scales?

Declaring the rejection of the proposal pricings

to the applicant

Request for licenses in related to confirmation of pricings?

Submitting License?

Declaring the reason of not issuing the license

to the applicant

Determination of the purchaser of generated electricity Releasing the bond to

applicant

Signing contracts

End

Yes

No

No

Yes

No

Yes

No Yes

Yes

No

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Order to IPDC to run the project

Flowchart 11.4.2 Procedures for Investment in Iran power Generation Industry on BOT Basis

Budget allocation Taking investment license

from the ministry of finance & economic affairs

Does the project need to be tendered?

Choosing/ Confirming the investor

Choosing a consulting Co. for feasibility studies/preparing site/

preparing ECA contract

General announcement and pre-assessment of investors

Signing a MoU with investor

confirming the closing date

Choosing project site Holding tender and choosing qualified

investor

Negotiating on a predetermined

schedule

Taking the ownership of the land

Passing the land to the investor

Signing the ECA contract with investor

Taking payment guarantee from the ministry of finance

& economic affairs

Taking environmental permit

Connecting to fuel and Grid linesTaking associated permit for awarding the contract

without tendering

Start on construction

Supplying of equipments

IPDC undertakes costume duties?

Transporting the equipments to the site

Receipt of shipment documents

Supervision on construction process before starting

operation

Installation of the equipmentsCOD confirmation

Transferring back the power plant to TAVANIR Necessary tests before

starting operation

Operation in concession period

Operating the power plant for the rest of its life

NoYes

No

Yes

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