Iran cancels $2 bln dam deal with China

Iran has cancelled a $2 billion contract for a Chinese firm to help build a hydroelectric dam, Chinese state media said on Thursday, a move that risks upsetting one of Tehran's most important economic and political allies.

Iranian President Mahmoud Ahmadinejad is due to visit China next week for a security summit, where he is expected to hold talks with his Chinese counterpart, Hu Jintao, on Iran's disputed nuclear programme.

In March 2011, Iran's official IRNA news agency said China's Sinohydro Corp. had signed a contract with Iranian hydro firm Farab to build the dam, described as the world's tallest, in Iran's western province of Lorestan. It was designed to support a 1,500-megawatt power station.

The Global Times, a popular tabloid owned by Chinese Communist Party mouthpiece the People's Daily, said the Iranian government had decided to cancel the contract. The report did not cite sources or give a reason.

But it quoted Iranian media reports as saying Iran's central bank was "dissatisfied" with financing options offered by China.

A Sinohydro official told Reuters by telephone the company was "checking with colleagues in Tehran on this issue". China's Foreign Ministry said it had no information about the case.

Guo Xian'gang, vice president of the China Institute of International Studies, a government think tank, said he did not see the cancellation affecting Sino-Iran ties.

"Some projects may be cancelled due to some technical reasons, other projects are still going on, it is really normal," Guo said. "The outside world does not need to exaggerate this."

Guo, who is an expert on the Middle East, added the cancellation would not affect Ahmadinejad's visit to China.

China and Iran have close energy and trade ties, and Beijing has repeatedly resisted U.S.-led demands to impose tougher economic sanctions on Iran to curb its nuclear ambitions.

However, differences have arisen between China and Iran in the development of Iran's oil and gas resources.

State-owned China National Petroleum Corporation was given a month's deadline by Iranian Oil minister Rostam Ghasemi in April to make a serious start on the giant South Pars gas field after 32 months of delay.

China and Iran have signed many agreements of intent for investment in Tehran but these have been "difficult to implement", said Yin Gang, a professor at the China Academy of Social Sciences and an expert on China's Middle East policies.

"Part of it has to do with the unstable situation in Iran, China needs to be careful in doing business," Yin said. "At the same time, the Iranian businessmen can be quite tough at the negotiating table."

In September last year, Reuters reported China's reluctance to progress with oil and gas investments in Iran.

Many foreign companies have been forced to pull out of the Iranian energy sector due to the fear of sanctions, but state-owned Asian firms are less susceptible to Western pressure to stay away from the Iranian market.

Source: REUTERS