Iran Power Generation Industry

In The Name of GOD
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
Chapter 1- Outlook to Iran Power Generation Industry
Chapter 2- Iran Power Generation Industry, an International Perspective 43
Chapter 3- Why Investment in Iran Power Generation Industry?
65
Chapter 4- Iran Power Projects Risks Overviewed
71
Chapter 5- Supply Chain for Independent Power Production in Iran
83
Chapter 6- Cost Breakdowns for IPP Projects in Iran
87
Chapter 7- Private Sector Participation schemes In Iran Power Projects
97
Chapter 8- Iran Power wholesale Market
111
Chapter 9- Financing Power Projects
123
Chapter 10- Legal Framework for IPP projects in Iran
131
Chapter 11- Steps to invest in Iran Power Generation Industry
143
Chapter 1- Outlook to Iran Power Generation Industry
1-1 Introduction
1-2 Current Generation Capacity
1-3 Prediction of Power Demand in Coming Years
1-4 Types and Capacities of Existing Power Plants in Iran
14
1-4-1) Different Types of Power Plants in Iran
14
1-4-2) Capacity of Existing Power Plants
17
1-4-3 Geographical Distribution of Existing Power Plants
20
1-5 Underway Power Plants
20
1-5-1) Different Types of Underway
24
1-5-2) Geographical Distribution of Underway Power Plants
1-6) General Indices of Electricity Generation in Iran
25
1-7) Analysis of Electricity Consumption in Iran
27
1-7-1) Per Capita Energy Generation
27
1-7-2) Consumers Combination
34
1-7-3 Major Consumption Centers
35
1-7-4) Power Consumption Patterns
35
1-8) performed plans with private sector participation
38
1-1 Introduction
Electricity 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
efciency. 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 Capacity

The 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.
Outlook to Iran Power Generation Industry
1-3 Prediction of Power Demand

in Coming Years
Nowadays, 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
Chapter 1
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
sufcient 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 ofce 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
Percentage of
Annual Growth
2004 to 2005
Average
Annual Growth
1994 to 2004
Description
9/9
6/2
37054 33801
9/6
5/7
30754 27600
11/4
6/8
Year 2005
National Gird
Ministry of
Power
Private
Large
Sum of
Sector Industries the Grid
Out of
National Total Sum
Grid
Year 2004
Increment of
Year 2005
(Table 1-2-1) Installed and Operational Power Generation Capacity of Iran
3703
38038
1213
1594
40845
158
41003 37300
Average Actual Power
3253
34494
1067
1380
36941
113
Maximum Generated Power
3154
29897
302
470
30669
85
Maximum Imported Power
15
770
770
770
755
2/0
37
329
329
329
292
12/7
22/6
3082
29166
302
1753
31221
85
31306 28224
10/9
7/0
with Maximum Modied Demand
2986
29200
252
1525
30977
85
31062 28076
10/6
Maximum Modied Demand
3035
30692
1525
32217
85
32302 29267
10/4
7/4
4524 177652 419
178071 162870
9/3
7/8
4/6
7/0
9/5
7/8
Maximum Exported Power
MW
Nominal Power of Power Plants
Maximum Supplied Load

Max. Supplied Load Simultaneous
15201 170737 2391
Gross Generation of Power Plants

Internal Consumption of
327
MKWh
Power Plants
7147
115
171
7433
14874 163590 2276
4353 170219 412
-96
2074
2074
Exported Energy
924
2761
Maximum Daily Generated Energy
64
Net Generation of Power Plants

Imported Energy
7440
7113
170631 155757
2074
2170
-4/4
2761
2761
1837
50/3
25.0
619/4
619/4
555/0
11/6
8.7
Maximum Daily Required Energy
65
629/6
564/9
11/5
9.0
Generated Power Factor
-1/1
65/2
90/4
109/9
66/1
56/3
66/1
67/2
-1/1
0.6
Operation Factor of Power plant
-0/8
56/5
25/6
37/4
55/3
39/9
54/9
55/7
-0/8
-0/7
36/1
35/0
28/4
35/8
20/9
35/8
36/5
-0/7
629/6
Thermal Units
Average Efciency of
0.5
-0/7
4/2
4/9
-0/7
Distribution
1/7
18/1
16/4
1/7
Total
0/8
19/5
18/7
0/8
Per Capita Power

Per Capita Generation
Per Capita Consumption
Transmission
51
604
553
9/2
4.7
KWh
Loss
Transmission and Sub
207
2621
2414
8/6
6.2
101
1956
1855
5/5
5.4
9
Iran Power Generation Industry
Investment Guide
(Table 1-2-2) Outlook of Distribution Status of Electrical Industry in Year 2006

Increment in
Electricity Costumers
Energy Sale
Description
Year 2006
Year 2005
Percentage of Annual
Average Percentage of
Growth 2005 to 2006
Annual Growth 1995 to 2005
Residential
3977
48085
44108
9 / 0
6 / 6
Public
1979
18329
16350
12 / 1
10 / 2
1197
17666
16469
7 / 3
11 / 8
3467
46590
43123
8/0
7/3
Other Consumption
778
9320
8542
9/1
1/1
Street Lighting
303
4608
4305
7/0
8/9
Total
11701
144598
132897
8/8
7/3
Residential
589
16989
16400
3/6
4/7
Public
74
749
675
10 / 9
7/9
Agricultural
12
138
127
9/1
14 / 0
9/7
Agricultural
Industrial
Industrial
Million KWh
Thousand Costumer
21
152
131
16 / 0
Other Consumption
211
2531
2320
9/1
4/7
Street Lighting
10
47
37
27 / 0
33 / 9
Total
907
20559
19652
4/6
4/8
Overhead Medium Voltage
11 / 9
305 / 6
293 / 7
4/1
6/3
Underground Medium Voltage
0/6
12 / 1
11 / 5
5/4
4/8
Sum of Medium Voltage Grid
12 / 5
317 / 7
305 / 2
4/1
6/2
6/8
226 / 9
220 / 1
3/1
4/1
Underground Low Voltage
1/9
31 / 4
29 / 5
6/4
7/2
Sum of Low Voltage Grid
8/7
258 / 3
249 / 6
3/5
4/4
Number of Overhead Transformers
22 / 1
339 / 0
316 / 9
7/0
7/3
0/3
23 / 2
22 / 9
1/3
2/3
Total Sum of Distribution Transformers
22 / 4
362 / 2
339 / 8
6/6
6/9
Capacity of Overhead Transformers
3029 / 0
49297
46268
6/5
6/5
259 / 0
16945
16686
1/6
2/6
3288 / 0
66242
62954
5/2
5/3
459
8393
7934
5/8
325
6695
6370
5/1
Overhead Low Voltage
Distribution Facilities
Year 2006
Number of Underground Transformers
Thousand Kilometers
Thousand sets
Capacity of Underground
Transformers
Mega Volt Amperes
Total Capacity of Distribution

Transformers
Number of Medium Voltage
Set
Distribution Feeders
Number of Street Lights
Thousand sets
Employees of Distribution Companies
Employee
- 511
21883
22394
- 2/ 3
- 1/ 38
Total Number of Electried Villages
X 1000
709
53059
52350
1/4
4/8
14 / 5
4981 / 4
4966 / 9
0/3
4/2
2/0
138 / 2
136 / 2
1/5
6/2
0/8
93 / 4
92 / 6
0/9
3/0
59
6810
6751
0/9
4/4
5/1
Rural Electrication
Total Number of Electried Rural

Households
Length of Rural Medium Voltage Lines
1000 Km
Length of Rural Low Voltage Lines

Capacity of Rural Power
MVA
Grid Transformers
Number of Rural Power Grid
1000 sets
Transformers
Distribution Grid Losses
Average Consumption of Customers

Average Consumption of Residential
1/1
64 / 7
63 / 6
1/7
- 0 / 02
18 / 02
18 / 04
- 0/ 02
271
7033
6763
4/0
2/3
141
2830
2690
5/2
1/8
- 0/ 1
15 / 5
15 / 5
-0/5
1/3
- 0/ 1
12 / 6
12 / 7
- 1/ 1
-0/4
18 / 6
3222
3203
0/6
0/4
KWh
Customers
Average Length of Medium Voltage
Distribution Lines per Customer
Indices
M/costumer
Average Length of Low Voltage

Distribution Lines per Customer
Average Distribution Grid Transformer
W/Costumer
Capacity per Customer

Average of Distribution Grid
Transformer Number per Customer
10
Chapter 1
0/3
17 / 6
17 / 3
1/9
1/9
Customer Number per Employee
Sets/ 1000 Costumer
61 / 9
939
878
7/1
6/7
Blackout Time per Customer
Minute/day
0 / 55
1 / 98
1 / 43
38 / 5
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 importexport 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.
11
Investment Guide
(Table 1-3-1) Average Growth Rate of Electricity Consumption during Several Years
Period of Time
1967-1978
Description
Years of Birth of
Economic
Evolutions
Average of Growth Rate

of Electricity Consumption
(Percent)
1989-1994
1995-2001
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 Plan
9/5
9/8
6/7
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 electrication and
extension of national grid continued.
During years 1989 to 1994, encountering
rst 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
ofce 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 nal prediction
12
22/9
1978-1988
Chapter 1
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 Irans 20year 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.
(Table 1-3-2) Prediction of Consumption Demand with Distinction of Regional Electric Power Companies (MW Capacity)
Regional Electric Co.
1385
1386
1387
1388
1389
1390
1391
1392
1393
1394
1395
1396
1397
1398
1399
1400
1401
1402
1403
5,518 5,897
6,301
6,733
7,195
7,688
6,966 7,389
7,838
8,315
8,820
9,356
6,241 6,616
7,013
7,434
7,880
8,353
Azarbaijan
2,022 2,156 2,328 2,501 2,683 2,889 3,275 3,707 3,961
4,233 4,523 4,833 5,164
Isfahan
3,229 3,460 3,671 3,910 4,082 4,325 4,591 4,778 5,186
5,501 5,836 6,190 6,567
Bakhtar
2,383 2,581 2,816 3,055 3,358 3,683 3,996 4,400 4,664
4,944 5,240 5,555 5,888
Tehran
6,300 6,644 6,985 7,416 7,853 8,238 8,739 9,025 9,926 10,646 11,417 12,243 13,130 14,082 15,104 16,202 17,378 18,642 19,996
Khorasan
2,666 2,847 3,042 3,285 3,639 3,939 4,222 4,506 4,827
Khuzestan
4,777 5,181 5,696 6,264 6,877 7,579 8,354 9,079 9,787 10,551 11,374 12,261 13,217 14,248 15,359 16,557 17,849 19,241 20,742
Zanjan
901
962 1,038 1,120 1,203 1,293 1,384 1,468 1,588
Semnan
370
411
453
511
564
606
Sistan and Baluchistan
629
677
732
793
858
933
651
692
738
5,170 5,539 5,933 6,355
1,719 1,860 2,012 2,177

787
840
896
956
6,808 7,293
7,812
8,368
8,964
9,602
2,356 2,549
2,758
2,984
3,228
3,493
1,019 1,087
1,160
1,237
1,320
1,408
1,070 1,250 1,363
1,458 1,560 1,669 1,786
1,911
2,045
2,188
2,341
2,505
2,680
Gharb
1,286 1,401 1,543 1,683 1,953 2,073 2,269 2,459 2,619
2,789 2,970 3,163 3,369
3,588 3,821
4,070
4,334
4,616
4,916
Fars
3,163 3,760 4,260 4,763 5,189 5,814 6,245 6,692 7,182
7,708 8,273 8,879 9,529 10,227 10,976 11,780 12,643 13,570 14,564
Kerman
1,498 1,687 1,810 2,087 2,245 2,495 2,684 2,925 3,144
Gilan
Mazandaran
Kish Free Zone
Hormozgan
Yazd
3,380 3,634 3,906 4,199
4,514 4,853
5,217
5,608
6,029
6,481
952 1,024 1,097 1,177 1,264 1,347 1,460 1,574
1,697 1,829 1,972 2,125
2,291 2,470
2,663
2,870
3,094
3,335
1,559 1,665 1,806 1,941 2,179 2,383 2,587 2,850 3,058
3,281 3,521 3,778 4,054
4,350 4,667
5,008
5,373
5,766
6,186
324
347
372
399
896
90
102
115
135
147
160
172
185
199
1,586 1,777 1,990 2,229 2,429 2,648 2,886 3,146 3,379

719
790
880
972
1,065 1,162 1,325 1,535 1,647
213
229
245
263
282
302
3,629 3,897 4,186 4,496
4,828 5,186
5,569
5,982
6,424
6,900
1,767 1,896 2,035 2,183
2,343 2,514
2,697
2,894
3,105
3,332
(Table 1-3-3) Prediction of Consumption Demand till Year 2025 (MW Capacity)
Year
Demand
Year
Demand
1385
34,074
1395
74,438
1386
37,053
1396
79,756
1387
40,189
1397
85,458
1388
43,762
1398
91,572
1389
47,501
1399
98,128
1390
51,484
1400
105,157
1391
55,797
1401
112,690
1392
60,157
1402
120,771
1393
64,842
1403
129,431
1394
69,473
13
Investment Guide
(Diagram 1-3-2) Prediction of Consumption Demand

in Iran till Year 1403
140,000
120,000
Demand (MW)
100,000
80,000
60,000
40,000
20,000
1403
1401
1399
1397
1395
1393
1391
1389
1387
1385
Year
(Table 1-3-4) Total Generation Capacity Shortage in Iran with Distinction of Dispatching Centers (MW)
Dispatching Center
Tehran
1391
1392
1393
1394
1395
1396
1397
1398
1399
478
1651
2641
3703
4840
6063
7377
8788 10306 11933 13683 15561
1400
1401
1402
1403
South
628
1250
1916
2631
3399
4223
5107
South-East
927
1907
2651
3423
4251
5141
6096
7121
8223
9403 10673 12034 13497
South-West
280
1256
2307
3441
4663
5981
7402
8934 10585
North
496
905
1345
1817
2325
2871
3458
4087
4766
5493
North-East
396
861
1359
1892
2463
3075
3731
4432
North-West
261
736
1016
1315
1634
1975
2339
2729
3145
3590
4065
4573
5116
569
679
1332
1799
2294
2818
3377
3970
4599
5268
5979
6732
7533
8383
415
783
1173
1587
2026
2491
2985
3510
4066
4655
West
14
1390
Central
6057
7076
8170
1-4 Types and Capacities of

Existing Power Plants in Iran
1-4-1) Different Types of Power
Plants in Iran
At rst, different types of power plants
and their general characteristics will
be mentioned in this section. Different
classications of power plants based on
their fuel types and technology are as
follows:
Chapter 1
1. Thermal power plants

2. Hydro power plants
3. 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.
8000
Zanjan
Semnan
Kish
Yazd
Sistan
Gharb
Kerman
Gilan
Azarbaijan
Mazandaran
Bakhtar
Hormozgan
Khuzestan
Fars
Isfahan
Khorasan
Tehran
Private Sector
Large Industries
(MW)
Ilam
Khuzestan
Tehran
Isfahan
Fars
Hormozgan
Khorasan, Razavi
Mazandaran
Qazvin
Gilan
Azarbaijan, East
Kerman
Markazi
Hamadan
Khorasan, North
Qom
Yazd
Kurdistan
Kermanshah
Azarbaijan, West
Bushehr
Khorasan, South
Lorestan
Ardabil
Chahar Mahaal and Bakhtiari
Semnan
Kohgiluyeh and Boyer-Ahmad
Golestan
Zanjan
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
14/6
21/4
Diagram 1-4-a Share of Nominal Power of Each Province to Total Nominal Power
of Country in 2006 (Percent)
Diagram 1-4-b Nominal Power of Regional

Electric Power Companies at the End of 2006
10000
Steam
Gas
Combined Cycle
Diesel
Wind
6000
4000
2000

Investment Guide
15
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 classications 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 classication 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
16
Chapter 1
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 efciency.
The power plants motivated by
reciprocating motors are used for small
places including ofcial 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 Plants
Construction of hydro power plants
requires existence of rich rivers (with
abundant ow) 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 Plants
These 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
rate of these types of power plants is

increasing.
Nuclear Power Plants
Construction of nuclear plants has
been started from early 50s 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 Plants
In 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 Plants
There 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 efciency 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:
17
Investment Guide
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 xed .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 efciency, 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.
Table 1-4-1 Installed Capacity and Operation Date of New Power Plant Units
Power Plant
Name
Unit
Number
Nominal Power of Electricity Network

Total
Steam
Gas
Combined Cycle Hydro Power Wind Power
Parand
11
159
159 / 0 85 / 01 / 31
Sanandaj
13
159
159 / 0 85 / 20 / 01
Shirvan
12
159
159 / 0 85 / 02 / 20
Parand
12
159
159 / 0 85 / 03 / 02
Mobin Petrochemical**
11-16
738
738 / 0 85 / 03 / 11
South Isfahan
16
159
159 / 0 85 / 30 / 18
Sanandaj
14
159
159 / 0 85 / 04 / 09
Parand
13
159
159 / 0 85 / 04 / 13
Shirvan
13
159
159 / 0 85 / 04 / 14
10
Karun 3
11
Salimi
161
161 / 0 85 / 04 / 26
12
Yazd
161
161 / 0 85 / 05 / 06
13
Parand
14
159
159 / 0 85 / 06 / 08
14
Shirvan
14
159
159 / 0 85 / 06 / 15
15
Taleghan
9/0
9/0
85 / 06 / 17
16
Taleghan
9/0
9/0
85 / 06 / 21
17
Darre-Takht 1
0/3
0/3
18
Darre- Takht 1
0/3
0/3
19
Karun 3
250
20
Parand
15
159
159 / 0 85 / 08 / 09
21
Rood Shoor
11
264
263 / 8 85 / 09 / 15
250 / 0 85 / 04 / 17
250
250 / 0 85 / 07 / 29
9/9
22
Binalood
6-20
23
Rood-shoor
12
264
263 / 8
9/9
Urmia
11
159
159 / 0 85 / 11 / 28
25
Shirvan
15
159
159 / 0 85 / 11 / 29
26
Parand
16
159
159 / 0 85 / 12 / 09
322
519
10
3492
Reference: IGMC
* Synchronization Date
** In year 2006 only 100MW is transferred from Mobin Petrochemical Company to electricity network of Iran
Chapter 1
8 / 11 / 24
24
Total
18
Operation
Date*
4342
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 owing
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.
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
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.
1
0/1
0113
13/4
13/6
18/3
17/7
44
40/8
26
23/6
Steam
Gas
Combined Cycle
Hydro
Wind
Diesel
Steam
Gas
Combined Cycle
Hydro
Wind
Diesel
19
Investment Guide
Diagram 1-4-3: nominal power generation of regional

electricity company of each province (2005)
8000
9000
7000
8000
6000
7000
6000
5000
(MW)
(MW)
Diagram 1-4-4: actual power generation of regional

electricity company of each province (2005)
4000
5000
4000
3000
3000
2000
Chapter 1
Azarbaijan
Isfahan
Bakhtar
Tehran
Khorasan
Khuzestan
Zanjan
Semnan
Gharb
Fars
Kerman
Gilan
Mazandaran
Hormozgan
Yazd
Kish
Industries
Azarbaijan
Isfahan
Bakhtar
Tehran
Khorasan
Khuzestan
Zanjan
Semnan
Gharb
Fars
Kerman
Gilan
Mazandaran
Hormozgan
Yazd
Kish
Industries
1000
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
20
2000
1000
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 sufcient for
total existing requirement. This is the
result of some local blackouts.
1-5 Underway Power Plants

This 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 clarication of generation capacity in
near future for investors.
The information about these power
plants claries that whether electricity
demand of any area is satised by
existing projects. Power plants or plant
units which are classied in uncertain
group are currently under study.
Diagram 1-4-6 Net Generation in Different

Areas of Iran
Diagram 1-4-5 Total Energy Consumption

of Each Province
35000
30000
25000
(KWh)
25000
20000
20000
15000
15000
5000
Azarbaijan
Isfahan
Bakhtar
Tehran
Khorasan
Khuzestan
Zanjan
Semnan
Gharb
Fars
Kerman
Gilan
Mazandaran
Hormozgan
Yazd
5000
Azarbaijan
Isfahan
Bakhtar
Tehran
Khorasan
Khuzestan
Zanjan
Semnan
Gharb
Fars
Kerman
Gilan
Mazandaran
Hormozgan
Yazd
10000
10000
Diagram 1-4-7 comparison of generation and consumption patterns in Iran

35000
Generation
30000
Consumption
25000
(Million KWh)
(Million KWh)
30000
20000
15000
10000
5000
0
-5000
21
Investment Guide
Table 1-5-1 Underway power plant projects (Finalized Plan)

Type
Regional
Electric Co.
Dispatching
Region
Jahrom (Combined Cycle)
C.C.
Fars
South
1270
1385
1390
Sanandaj (Combined Cycle)
C.C.
Gharb
West
916
1384
1389
Damavand (Combined Cycle)
C.C.
Tehran
Tehran
1218
1384
1388
Shahid Salimi (Combined Cycle)
C.C.
Mazandaran
North
161
1385
1385
Shirvan (Combined Cycle)
C.C.
Khorasan
North-East
1200
1384
1389
Kazerun (Combined Cycle)
C.C.
Fars
South
480
1385
1385
Kerman (Combined Cycle)
C.C.
Kerman
South-East
644
1385
1386
Yazd (Combined Cycle)
C.C.
Yazd
South-East
161
1385
1385
Yazd (Solar Cycle)
C.C.
Yazd
South-East
416
1387
1388
Ardabil
Gas
Azarbaijan
North-West
584
1386
1386
Name
22
Chapter 1
Capacity Number of First Stage of

(MW)
Units
Operation
Final Stage of
Operation
Parand
Gas
Tehran
Tehran
862
1384
1385
New Chabahar
Gas
South-East
284
1386
1386
Hormozgan (Combined Cycle)
Gas
Hormozgan
South-East
149
1384
1384
Qaen (Gas)
Gas
Khorasan
South-East
563
1386
1387
Sahand
Steam
Azarbaijan
South-West
325
1384
1384
Urmia
Gas
Azarbaijan
South-West
564
1385
1385
Tus Development
Gas
Khorasan
South-East
870
1385
1386
Asaluye Development
Gas
Fars
South
1230
1386
1387
Rood Shoor
Gas
Tehran
Tehran
1864
1384
1386
Zanjan
Gas
Zanjan
Tehran
576
1385
1385
Zanjan
Gas
Zanjan
Tehran
423
1386
1386
South of Isfahan
Gas
Isfahan
Center
834
1384
1384
Bushehr (Nuclear)
Nuclear
Fars
South
1000
1385
1385
Pol Kaloo 2
Hydro
Isfahan
Center
1385
1385
Masjed Soleiman Development
Hydro
Khuzestan
South-West
1000
1386
1386
Roodbar Lorestan
Hydro
Bakhtar
West
386
1389
1390
Siyah Bishe
Hydro
Mazandaran
North
1000
1387
1387
Simare
Hydro
Gharb
West
480
1388
1389
Shahid Rajaei
Hydro
Mazandaran
North
14
1386
1386
Karun 3
Hydro
Khuzestan
South-West
1500
1384
1385
Karun 4
Hydro
Isfahan
Center
1000
1388
1388
Karik 2
Hydro
Isfahan
Center
1385
1385
Karik 3
Hydro
Isfahan
Center
1385
1385
Koohrang
Hydro
Isfahan
Center
26
1384
1384
Gatvand
Hydro
Khuzestan
South-West
1000
1387
1387
Lavark
Hydro
Tehran
Tehran
48
1384
1385
Molla Sadra
Hydro
Fars
South
100
1385
1385
Manj
Hydro
Isfahan
Center
1384
1384
Table 1-5-2 Underway power plant projects (In Study)

Name
Type
Regional
Electric Co.
Dispatching
Region
Total Production
Capacity
Number
of Units
First Stage of
Operation
Final Stage of
Operation
Parre sar C.C.
C.C.
Tabriz C.C.
C.C.
Parre sar C.C.
South
1001
1387
1387
Tabriz C.C.
South-West
Jalal C.C.
877
1388
1388
C.C.
Jalal C.C.
Tehran
425
1387
1387
Shirvan C.C.
C.C.
Shirvan C.C.
South-East
888
1388
1388
Fars C.C.
C.C.
Fars C.C.
South
826
1387
1387
Ali Abad
Gas
Ali Abad
North
964
1387
1387
Gonave & Deilam
Gas
Gonave & Deilam
South
461
1387
1387
465
1387
1387
1387
Qom C.C.
C.C.
Qom C.C.
Tehran
Eslam Abad
Gas
Eslam Abad
West
279
1387
Isfahan
Gas
Isfahan
Center
1678
1387
1387
Ilam
Gas
Ilam
West
253
1388
1388
Bakhtar
Gas
Bakhtar
West
1330
1390
1390
Tehran
Gas
Tehran
Tehran
810
1388
1388
Bistoon Development
Gas
Bistoon Development
West
571
1387
1387
Khorram Abad
Gas
Khorram Abad
West
903
1387
1387
Khuzestan
Gas
Khuzestan
South-West
1534
1386
1386
Dogonbadan
Gas
Dogonbadan
South-West
289
1388
1388
Ramsar
Gas
Ramsar
North
316
1386
1386
Zanjan
Gas
Zanjan
Tehran
574
1386
1386
Zanjan
Gas
Zanjan
Tehran
574
1386
1386
Sarakhs
Gas
Sarakhs
South-East
489
1388
1388
Semnan
Gas
Semnan
Tehran
617
1386
1386
Sistan & Baluchistan
Gas
Sistan & Baluchistan
South-East
438
1392
1392
South
Asaluye
Gas
Asaluye
452
1385
1386
Ali Abad
Gas
Ali Abad
North
939
1385
1385
Qeshm
Gas
Qeshm
South-East
145
1388
1388
Kashan
Gas
Kashan
Center
439
1388
1388
408
1390
1390
1386
Kerman
Gas
Kerman
South-East
Kahnooj
Gas
Kahnooj
South-East
863
1386
Hormozgan
Gas
Hormozgan
South-East
903
1386
1386
Yazd
Gas
Yazd
South-East
1391
1391
912
23
Investment Guide
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.
Diagram 1-5-1 The capacity of underway

power plants based on their types (2008)

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
19%
45%
14%
55%
67%
Hydro
Gas
Combined Cycle

24
45%

29%
55%
Combined Cycle
Hydro
Chapter 1
Combined Cycle
Hydro
71%
Combined Cycle
Hydro
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 efciency 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
more in gas power plants and then in

combined cycle ones.
Combined cycle plants have the
maximum efciency with average of 46%
among all other types of power plants in
Iran. Moreover, gas power plants have the
highest thermal efciency among others
with average thermal efciency of 3102
Kilo Calorie. (Thermal efciency(%)=
generated output(power)(W) /[fuel heat
value(J/kg) * fuel consumption(kg/
s)]*100(1)) which indicates the lowest
efciency 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 efciency of
power plants in Iran is Low. Although the
extracted statistics are not in standard
Table 1-6-1 Total amount of fuel and water consumption of different

types of power plants in Iran (2005)
*Consumed fuel 1000
Consumed Water
Gas (Cubed eter )
Gas (Liter)
Fuel oil (Liter)
(thousand cubed meter)
Steam
38174
17437740
5736143
42573
Gas
1455100
7175845
Combined Cycle
607693
7182849
107
Hydropower
Wind
Diesel
78176
25
Investment Guide
Diagram 1-6-1 Efciency of Different Types

of Power Plants in Iran
50
45
40
35
30
25
20
15
10
5
Diagram 1-6-2 Gas

Consumption Percentages of
Each Type of Power Plants (2005)
Diesel
Combined Cycle
Gas
Steam
Diagram 1-6-3 Gas oil Consumption

Percentages of Each Type of Power
Plants (2005)
Diagram 1-6-4 Share of Generation of

Each Type of Power Plants in
Overall Generation Capacity of Country
0/2
6/5
4% 2%
23%
28%
26
22/3
54%
54/4
66%
23%
14/9
Steam
Gas
Combined Cycle
Chapter 1
Gas
Combined Cycle
Diesel
Steam
Steam
Hydro
Combined Cycle
Gas
Diesel
and calibrated conditions, but based

on the same statistics, for instance
efciency of combined cycle plants
has considerable difference with its
expected amount (around 60%); also
in gas units the expected efciency
around 38% can be the comparison
reference for efciency of existing gas
unit. This considerable difference can be
observed from two perspectives. Firstly,
by efciency improvement in existing
power plants a signicant amount of
energy requirement of country is fullled
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 efciency of
power plant and consequently energy
subsidies will be decreased.
1-7) Analysis of
Consumption in Iran
Electricity
1-7-1) Per Capita Energy Generation

Per 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).
27
Investment Guide
Status Comparison of Regional Electricity Companies in Year 2005-2006

Azarbaijan
Isfahan
Bakhtar
Description
2006
2005
Growth rate
Growth rate
2006
2005 Growth rate
8766
7896
11 / 0
15884 15031
5/7
9784
9311
5/1
Residential
3640
3432
6/1
3270
3176
3/0
2323
2074
12 / 0
Public
1109
981
13 / 0
1016
955
6/4
734
698
5/1
Agriculture
692
610
13 / 4
2131
2154
- 1/ 1
1557
1442
8/0
Industrial
2274
2014
12 / 9
8419
7764
8/4
4494
4476
0/4
Others
624
573
8/9
640
591
8/3
293
265
10 / 6
Electrical Energy Sell
Million KWh
Million KWh
Street Lighting
2006
2005
427
286
49 / 3
408
391
4/4
383
355
7/8
Share of Regional Energy sell from Total
Percent
6/1
5/9
0/1
11 / 0
11/3
-0 / 3
6/8
7/0
- 0/ 2
Customers
Thousand Costumer
2084
2004
4/0
1745
1662
5/0
1265
1217
4/0
1724
1666
3/5
1440
1379
4/4
1083
1044
3/7
51
45
12 / 8
45
42
7/0
35
33
6/3
Residential
Public
Agriculture
Thousand Costumer
15
14
10 / 3
19
18
7/0
11
10
7/8
Industrial
16
14
15 / 1
23
22
6/4
10
12 / 9
Others
278
265
4/9
218
201
8/3
126
120
4/9
Street Lighting
17 / 6
10
10
5/3
8/5
8/5
0/0
6/2
6/2
0/0
Share of Regional Customer number from Total
Percent
Medium Voltage Distribution (Urban And Rural)
Kilometer
Low Voltage Distribution (Urban And Rural)
10 / 1
10 / 2
- 0/ 1
32155
31171
3/2
23867 22857
4/4
25391 24809
22442 21611
3/8
17763 17250
25054
24161
3/7
Share of Regional Distribution Grid Length from Total
Percent
9/9
10 / 0
0/0
Number of Medium Voltage Feeders
Set
507
470
7/9
6/1
0/1
Capacity of Distribution Transformers
Mega Volt Ampere
8/0
0/0
649
612
6/0
5412
5103
6/1
8/2
8/1
0/1
8/0
3/0
7/6
- 0/ 1
628
594
5/7
4279
4078
4/7
6/5
6/5
0/0
7/5
4361
4110
Percent
6/6
6/5
Number of Electried Villages
Village
113
82
35
20
Number of Electried Rural Households
Household
1424
1075
92
87
533
429
251
145
55
77
Share of Regional Distribution Transformers Capacity from Total
2/3
Rural Electrifying
Kilometer
28
78
51
14
11
Capacity of Transformers of Rural Grid
Kilo Volt Ampere
3075
2315
290
315
875
675
Personnel of Electricity Distribution Companies
Capita
3158
2699
17 / 0
1624
1756
- 7/ 5
1544
1615
12 / 21
13 / 14
- 0/ 93
11 / 85 10/05
1/8
18 / 93 18 / 06
0 / 87
12 / 23
13 / 39
- 1/ 16
8 / 18
7/42
0 / 76
10 / 9 9 / 92
0 / 98
41 / 5
43 / 5
- 1/ 9
20 / 6
21/1
- 0/ 5
23 / 7 22 / 3
1/5
25 / 9
25 / 5
0/4
53 / 0
51/7
1/3
45 / 9 48 / 1
- 2/ 1
- 4/ 4
Loss
Distribution Loss
Percent
Total Loss
General Indices
Share of Residential Costumers
Share of Industrial Costumers
Chapter 1
Percent

Tehran
Khorasan
Khuzestan
Description
Million KWh
2006
2005
Growth rate
2006
2005
Growth rate
2006
2005
Growth rate
29709
28147
5/5
12686 11673
8/7
16383
14723
11 / 3
Residential
11450
10953
4/5
3451
3180
8/5
5922
5029
17 / 8
Public
5239
4999
4/8
1125
983
14 / 5
2163
2008
7/7
Agriculture
969
862
12 / 4
4268
3905
9/3
558
532
4/9
Industrial
7238
6907
4/8
2681
2492
7/6
6814
6329
7/7
Others
3839
3553
8/0
676
613
10 / 3
638
554
15 / 2
Million KWh
Street Lighting
974
872
11 / 7
485
500
- 3/ 0
288
271
6/2
Percent
20 / 5
21 / 2
- 0/ 6
8/8
8/8
0/0
11 / 3
11 / 1
0/2
Customers
Thousand Costumer
4/7
1999
1920
4/1
976
930
4/9
5254
5020
Residential
4178
4125
1/3
1683
1612
4/4
835
796
4/9
Public
306
264
15 / 9
56
57
- 1/ 2
25
23
8/7
Agriculture
Thousand Costumer
0/0
10
10
0/0
0/0
Industrial
33
23
41 / 0
14
13
9/4
0/0
Others
733
604
21 / 4
236
228
3/3
109
104
4/8
10
257 / 1
0/0
9/7
9/8
Street Lighting
Percent
Kilometer
25 / 6
25 / 6
0/0
0/0
4/7
4/7
0/0
22696
22011
3/1
40970 37611
8/9
19805
19130
3/5
37719
36210
4/2
24039 23143
3/9
14048
13610
3/2
Percent
10 / 5
10 / 5
0/0
11 / 3
11 / 0
0/3
5/9
5/9
0/0
Set
1866
1832
1/9
664
621
6/9
637
601
6/0
Mega Volt Ampere 13687
13242
3/4
4866
4517
7/7
7838
7479
4/8
Percent
20 / 7
21 / 0
- 0/ 4
7/3
7/2
0/2
11 / 8
11 / 9
0/0
Village
51
51
53
92
Household
256
40
703
1025
847
1383
17
96
200
67
52
Rural Electrifying
Kilometer
11
33
51
35
46
Kilo Volt Ampere
575
200
1625
2300
4700
7050
Capita
3587
3806
2143
2173
2105
2111
- 5/ 8
- 1/ 4
- 0/ 3
Loss
Distribution Loss
Percent
Total Loss
13 / 78 13 / 65
0 / 13
11 / 08 12 / 41
- 1/ 33
38 / 05 37 / 22
0 / 83
14 / 75 14 / 43
0 / 32
13 / 17 13 / 79
- 0/ 62
27 / 64 24 / 92
2 / 72
38 / 5
38 / 9
-0 / 4
27 / 2
27 / 2
0/0
36 / 1
34 / 2
2/0
24 / 4
24 / 5
- 0/ 2
21 / 1
21 / 3
-0 / 2
41 / 6
43 / 0
- 1/ 4
General Indices
Percent
29
Investment Guide

Zanjan
Semnan
Description
2006
2005
Growth rate
2006
2005
Growth rate
2006
2005
Growth rate
4626
3984
16 / 1
1980
1846
7/3
2505
2151
16 / 5
Residential
933
905
3/2
324
324
0/0
1140
976
16 / 8
Public
359
307
16 / 8
163
143
14 / 1
613
513
19 / 6
Agriculture
671
558
20 / 2
455
428
6/2
213
169
25 / 9
Industrial
2400
1981
21 / 2
897
805
11 / 5
227
211
7/6
Others
155
141
10 / 1
71
69
2/5
159
151
5/4
Million KWh
Million KWh
Street Lighting
108
92
17 / 8
70
76
- 8/ 3
153
131
16 / 5
Percent
3/2
3/0
0/2
1/4
1/4
0/0
1/7
1/6
0/0
Customers
Thousand Costumer
585
561
4/4
215
205
5/0
398
374
6/3
Residential
492
473
4/0
172
165
4/2
340
321
6/0
Public
22
21
5/8
13 / 9
12
11
10 / 1
Agriculture
Thousand Costumer
22 / 0
33 / 3
29 / 0
Industrial
9/1
17 / 6
-16 / 7
Others
60
57
5/1
28
27
4/1
41
38
6/8
0/0
1/9
1/9
0/0
Street Lighting
Percent
Kilometer
2/8
2/9
0/0
1/0
1/0
0/0
12290
11885
3/4
5710
5526
3/3
16531 15372
7/5
6/2
8480
8301
2/2
3339
3103
7/6
8068
7596
Percent
3/6
3/6
0/0
1/6
1/6
0/0
4/3
4/1
0/1
Set
356
341
4/4
121
117
3/4
175
156
12 / 2
Mega Volt Ampere
2035
1913
6/4
843
784
7/5
1524
1365
11 / 6
Percent
3/1
3/0
0/0
1/3
1/2
0/0
2/3
2/2
0/1
Village
105
249
Household
89
21
25
66
3568
5831
17
21
516
817
129
240
150
200
9675
17850
317
342
Rural Electrifying
Kilometer
30
Kilo Volt Ampere
175
75
Capita
602
622
- 3/ 2
13 / 05
16 / 03
- 2/ 98
10 / 88 10 / 66
0 / 22
30 / 07 30 / 52 - 0/ 45
12 / 01
14 / 94
- 2/ 93
10 / 04 8 / 74
1/3
29 / 17 29 / 71 - 0/ 54
20 / 2
22 / 7
- 2/ 5
16 / 4
17 / 6
- 1/ 2
45 / 5
45 / 4
0/1
51 / 9
49 / 7
2/2
45 / 3
43 / 6
1/7
9/1
9/8
- 0/ 7
- 7/ 3
Loss
Distribution Loss
Percent
Total Loss
General Indices
Chapter 1
Percent

Gharb
Fars
Kerman
Description
Million KWh
2006
2005
Growth rate
2006
2005
Growth rate
2006
2005 Growth rate
4300
3865
11 / 3
11084 10025
10 / 6
6829
5915
15 / 5
Residential
1903
1732
9/9
4436
3893
14 / 0
1332
1235
7/9
Public
792
691
14 / 6
1484
1239
19 / 8
1467
930
57 / 7
Agriculture
431
392
9/9
2535
2537
- 0/ 1
2179
1992
9/4
Industrial
778
700
11 / 1
1722
1527
12 / 7
1543
1324
16 / 6
Others
219
196
11 / 7
582
510
14 / 2
186
180
3/3
Street Lighting
177
154
14 / 9
325
320
1/6
122
254
- 52/ 0
Million KWh
Percent
3/0
2/9
0/0
7/7
7/5
0/1
4/7
4/5
0/4
Customers
Thousand Costumer
953
905
5/3
1370
1308
4/7
647
621
4/2
Residential
822
782
5/1
1142
1093
4/5
555
534
3/9
Public
22
20
10 / 0
38
34
12 / 1
17
5/9
Agriculture
Thousand Costumer
14 / 3
27
26
2/7
0/0
Industrial
0/0
10
12 / 4
0/0
Others
97
92
5/7
153
145
5/2
64
61
4/9
Street Lighting
0/0
25 / 0
4/6
4/6
0/0
6/7
6/7
0/0
3/1
3/2
0/0
21002
20431
2/8
30915 30383
1/8
23398 22343
4/7
11566
11333
2/1
20290 19605
3/5
15684 15213
3/1
Percent
Kilometer
Percent
5/7
5/7
- 0/ 1
8/9
9/0
- 0/ 1
6/8
6/8
0/1
Set
364
336
8/3
809
774
4/5
383
363
5/5
Mega Volt Ampere
2660
2550
4/3
6228
6039
3/1
3082
2923
5/4
Percent
4/0
4/1
0/0
9/4
9/6
- 0/ 2
4/7
4/6
0/0
Village
13
16
54
69
208
129
Household
218
349
972
1210
4725
2912
33
35
129
181
319
156
16
51
67
237
184
3550
4650
1644
1746
Rural Electrifying
Kilometer

Kilo Volt Ampere
600
750
Capita
897
1053
- 14/ 8
15 / 38
16 / 86
- 1/ 48
19 / 41 20 / 95
- 1/ 54
15 / 54 18 / 75 - 3/ 21
12 / 53
12 / 94
- 0/ 41
19 / 01 20 / 24
- 1/ 23
15 / 87 18 / 43 - 2/ 56
44 / 3
44 / 8
- 0/ 6
40 / 0
38 / 8
1/2
19 / 5
20 / 9
- 1/ 4
18 / 1
18 / 1
0/0
15 / 5
15 / 2
0/3
22 / 6
22 / 4
0/2
16935 13050
- 5/ 8
948
923
- 2/ 6
Loss
Distribution Loss
Percent
Total Loss
General Indices
Percent
31
Investment Guide

Gilan
Mazandaran
Hormozgan
Description
2006
2005
Growth rate
2006
2005
Growth rate
2006
2005 Growth rate
3074
2917
5/4
6410
5771
11 / 1
6600
6032
9/4
Residential
1511
1418
6/6
2910
2659
9/4
2767
2409
14 / 9
Public
362
336
7/7
669
583
14 / 8
704
674
4/4
Agriculture
33
28
17 / 9
206
189
9/0
231
165
40 / 3
Industrial
703
713
- 1/ 4
1778
1601
11 / 1
2598
2488
4/4
Others
265
253
4/7
504
458
10 / 0
292
268
9/0
Million KWh
Million KWh
Street Lighting
200
168
19 / 0
343
282
21 / 6
28
- 71/ 1
Percent
2/1
2/2
- 0/ 1
4/4
4/3
0/1
4/6
4/5
0/0
Customers
Thousand Costumer
841
811
3/7
1482
1403
5/6
341
320
6/6
973
650
3/5
1236
1173
5/4
283
267
6/0
32
30
6/7
53
48
10 / 4
13
12
8/3
Residential
Public
Agriculture
Thousand Costumer
33 / 3
13
11
18 / 2
50 / 0
Industrial
0/0
11
10
10 / 0
0/0
Others
127
123
3/3
169
161
5/0
41
38
7/9
Street Lighting
0/0
0/0
1/6
0/0
Percent
Kilometer
4/1
4/1
0/0
7008
6879
1/9
16900 16388
3/1
11161 10734
4/0
21399 20607
7/2
7/1
0/1
1/7
15589
15302
1/9
3/8
6468
6347
1/9
Percent
3/9
4/0
- 0/ 1
6/6
6/7
0/0
3/1
3/1
0/0
Set
237
220
7/7
489
445
9/9
359
317
13 / 2
Mega Volt Ampere
1840
1746
5/4
4139
3852
7/5
2063
1950
5/8
Percent
2/8
2/8
0/0
6/2
6/1
0/1
3/1
3/1
0/0
Village
11
27
28
30
Household
364
690
17
117
590
745
19
55
26
135
115
Rural Electrifying
Kilometer
32
30
45
36
53
Kilo Volt Ampere
825
1400
25
450
4450
6440
Capita
718
750
- 4/ 3
1278
1360
866
904
14 / 05
13 / 7
0 / 35
16 / 12 14 / 86
1 / 26
18 / 39 17 / 67 0 / 72
8/4
7 / 89
0 / 51
11 / 03 10 / 83
0/2
10 / 02 9 / 59
49 / 2
48 / 6
0/5
45 / 4
46 / 1
- 0/ 7
41 / 9
39 / 9
2/0
22 / 9
24 / 4
- 1/ 6
27 / 7
27 / 7
0/0
39 / 4
41 / 2
- 1/ 9
- 6/ 0
- 4/ 2
Loss
Distribution Loss
Percent
Total Loss
0 / 43
General Indices
Chapter 1
Percent

Yazd
Kish
Description
2006
2005
Growth rate
2006
2005
3604
3274
10 / 1
365
336
8/7
Residential
657
616
6/7
113
97
16 / 1
Public
199
180
10 / 9
132
130
1/5
Agriculture
535
505
6/0
Industrial
1967
1746
12 / 7
55
44
24 / 2
Others
130
123
5/7
44
45
- 2/ 2
Street Lighting
116
105
10 / 5
21
19
9/9
Percent
2/5
2/5
0/0
0/3
0/3
0/0
Thousand Costumer
388
370
4/9
18
17
3/4
Residential
318
304
4/6
14
13
7/7
Public
11
10
10 / 0
25 / 0
0/0
Industrial
16 / 7
Others
50
48
4/2
- 50/ 0
1/9
1/9
0/0
0/1
0/1
0/0
7614
7391
3/0
280
277
1/1
5841
5633
3/7
572
570
0/4
0/1
0/2
0/0

Customers
Agriculture
Million KWh
Million KWh
Thousand Costumer
Growth rate
Street Lighting
Percent
Kilometer
Percent
2/3
2/3
0/0
Set
149
135
10 / 4
1152
064
8/3
233
231
0/9
Percent
1/7
1/7
0/0
0/4
0/4
- 4/ 1
Village
13
12
Household
100
476
12
75

Mega Volt Ampere
Rural Electrifying
Kilometer

Kilo Volt Ampere
575
425
Capita
477
509
- 6/ 3
10 / 08
10 / 01
0 / 07
6 / 89
7 / 18
- 0/ 29
7 / 27
8 / 12
- 0/ 85
6 / 89
7 / 18
- 0/ 29
18 / 2
18 / 8
- 0/ 6
31 / 0
29 / 0
2/0
54 / 6
53 / 3
1/3
15 / 1
13 / 2
1/9
Loss
Distribution Loss
Percent
Total Loss
General Indices
Percent
33
Investment Guide
1-7-2) Consumers Combination

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

45
40
40
35
35
34
15
25
20
15
10
Chapter 1
20
30
Street Lighting
Commercial
Industrial
Agriculture
Street Lighting
Commercial
Industrial
Agriculture
Public
Residential
Public
10
Residential
25
30
AN
IJ
BA
ER
AZ
IA
EN
M
AR
EBIL
ARD
st AN
ea YEJ
BA
AR
AZ
JAN
AYE
ARB
t AZ
wes
TURKEY
GI
LA
N
N
ARA
AND
MAZ
ZANJAN
TEHRA
N
AH HAMEDAN
SH
N
A
QUOM
RM
MARKAZI
KE
TAN
IL
AM LORES
SEMNAN
KHORASAN
ISFAHAN
CHAHR MAHAL
AN
ST
ZE
KU
IRAQ
BOYER AHMAD
YAZD
KERMAN
R
EH
SH
BU
KUWAIT
PAKISTAN
TABRIZ
AN
OZG
RM
HO
SISTAN o
BALUCHESTAN
SAUDI ARABIA
N
AI
HR
A
B
AR
AT
Q
OMAN
Figure 1-7-1 Electricity Consumption in Different Areas of Iran
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 Centers
To 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 rst and
second power consumers.
1-7-4) Power Consumption Patterns
It is obvious that the consumption
pattern would be changed during different
35
Investment Guide
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 rst and Khorasan the
second foremost power consumers.
Diagram 1-7-5: Residential Consumption

Percentages to Overall Residential
consumption (2005)
Diagram 1-7-4) Percentages of Different

Consumers in 2004
4%
6%
32%
Residential
Street Lighting
Commercial
Industrial
Agriculture
Public
34%
12%
12%
Diagram 1-7-6: agricultural consumption

percentages to overall agricultural
consumption (2005)
3%
6%
5% 1%
1%
3%
8%
3%
3%
7%
5%
9%
4%
2%
1%
2%
26%
11%
7%
Diagram 1-7-7: business consumption

percentages to overall business
consumption (2005)
18%
1%
2%
5%
11%
15%
Chapter 1
15%
Azarbaijan
Yazd
Hormozgan
Mazandaran
GIlan
Kerman
Fars
Gharb
Sistan and Bluchistan
Semnan
Zanjan
Khuzestan
Khorasan
Tehran
Bakhtar
Isfahan
13%
16%
8%
5%
14%
2%
4%
24%
3%
Yazd
Hormozgan
Mazandaran
GIlan
Kerman
Fars
Gharb
Semnan
Zanjan
Khuzestan
Khorasan
Tehran
Bakhtar
Isfahan
Azarbaijan
Diagram 1-7-8: Industrial consumption

percentages to overall Industrial
consumption (2005)
5%
6% 4% 4%
3%
3%
5%
36
Yazd
Hormozgan
Mazandaran
GIlan
Kerman
Fars
Gharb
Semnan
Zanjan
Khuzestan
Khorasan
Tehran
Bakhtar
Isfahan
Azarbaijan
2%
6%
3%
7%
7%
3%
2%
2%
1%
2%
7%
7%
42%
Azarbaijan
Isfahan
Bakhtar
Tehran
Khorasan
Khuzestan
Zanjan
Semnan
Gharb
Fars
Kerman
GIlan
Mazandaran
Hormozgan
Yazd
Diagram 1-7-9: Percentage of

Power Demand Distribution during
Months of a Year (2005)
8%
Diagram1-7-10: Average Peak Power Consumption during

Different Months of a Year (2005)
7%
8%
8%
30000
8%
25000
8%
9%
9%
8%
20000
9%
8%
10%
15000
April
May
June
July
August
September
October November
December
January
February
March
10000
5000
March
February
January
December
November
October
September
August
July
June
April
May
Diagram 1-7-11: Maximum Consumption Requirement during

Different Months of a Year (2005)
400000
600000
200000
March
February
January
December
November
October
September
August
July
June
May
April
37
Investment Guide
1-8) performed plans with private

sector participation
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.
Two specic 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.
Briey, in B.O.O contracts, the investor
is required to nance 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.
specications of thermal power plants of private sector and large industries in year 2006 (Megawatt)
Specications of units
Power plant name
Operation year
Nominal power
Turns ration of
transformer
total
Actual power
Capacity of unit
Unit number
winter
summer
Private sector
(Zargan (Steam Units
1354-1371
15 / 230
290 / 00
145 / 00
290 / 00 290 / 00
(Zargan (Gas Turbine Units
1357-1377
11 / 230
128 / 00
32 / 00
102 / 00 102 / 00
(Chelsotoon (Jonoob Isfahan
1384-85
15 / 75 / 230
954 / 00
159 / 00
840 / 00 780 / 00
Total of private sector
1385
528 / 00
264
500 / 00 440 / 00
1900 / 00
600 / 00
14
1732
1612
Large industries
(Traktorsazi (Gas
1349
6 / 3 / 230
24 / 00
12 / 00
16
16
(PetroshimiTabriz(Gas
1357
10 /5 / 230
60 / 00
60 / 00
115
115
(Zob Aahan (steam
1357
10 /5 / 230
55 / 00
55 / 00
115
115
(Zob Aahan(Gas
1354
10 /5 / 230
26 / 00
26 / 00
10 / 5
10 / 5
(Foolad Mobarakeh(steam
1356
24 / 00
12 / 00
15
10
(Foolad Mobarakeh(Gas
1356
130 / 00
26 / 00
95
65
(Petroshimi Razi(Gas
1370
15 / 230
210 / 00
70 / 00
150
150
(Petroshimi Fajr(Gas
1383
15 /7 / 230
108 / 00
108 / 00
90
90
(Petroshimi Mobin(Gas
1362
20 / 00
10 / 00
14
14
40 / 00
40 / 00
30
30
63 / 00
160
160
(Mes Sarcheshme(steam
(Sarcheshmeh(Gas
1372
252 / 00
(Chadormaloo(Gas
1376
70 / 00
23 / 33
50
50
Total of Large Industries
1384
585 / 00
117 / 00
100
100
738 / 00
123 / 00
100
100
2342 / 00
745 / 33
37
1385
Total sum of country
38
Chapter 1
45111 / 50
1060 / 50 1025 / 50
40368 / 0337955 / 22
nominal power, gross generation and internal consumption of power plants of private sector and large industries at the end of year 2006
Nominal
power
(MW)
Average
actual power
(MW)
Maximum generatedl
power at grid peak
load (MW)
Gross
generation
(MWh)
(Zargan (Steam Units
290
290
96
1372342
100401
(Zargan (Gas Turbine Units
Power plant name
Internal
Internal
consumption consumption
(MWh)
(percent)
Net
generation
(MWh)
Operation of actual
capacity of power
(plant (percent
7/3
1271941
54 / 0
Private sector
128
102
87
444465
23040
5/2
421425
49 / 7
(Chelsotoon (Jonoob Isfahan
954
735
559
3595837
17157
0/5
3578680
55 / 8
Total of private sector
528
420
73914
592
0/8
73322
2/0
1900
1547
5345368
40 / 5
(Traktorsazi (Gas
20
12
(PetroshimiTabriz(Gas
70
60
(Zob Aahan (steam
139
(Zob Aahan(Gas
742
5486558
141190
2/6
120
98
791440
61351
7/8
730089
75 / 3
26
13
29687
120
0/4
29567
26 / 1
(Foolad Mobarakeh(steam
210
190
180
1252173
88062
7/0
1164111
75 / 2
(Foolad Mobarakeh(Gas
108
100
90
522738
1798
0/3
520941
59 / 7
(Petroshimi Razi(Gas
252
190
(Petroshimi Fajr(Gas
585
500
219
1830825
391687
21 / 4
1439138
41 / 8
(Petroshimi Mobin(Gas
738
600
230
539851
5400
1/0
534451
10 / 3
103320
8206
7/9
95114
92 / 5
10214
2/3
429366
62 / 4
Large industries
0/0
(Mes Sarcheshme(steam
24
12 / 75
11
(Sarcheshmeh(Gas
130
80 / 38
41
439580
480
1/0
475
0/2
5510094
566842
10 / 3
4943252
33 / 0
7771004
4/0
184762968
54 / 0
(Chadormaloo(Gas
40
30
Total of Large Industries
2342
1908 / 13
869
45111 / 4
40732 / 5
33350 / 3
Total sum of country
39
Investment Guide
Table 1-8-1: completed or under way projects performed by private sector on B.O.O. basis
Date and capacity of synchronization
Name of investor
40
Name and total capacity of power plant

2005
2006
2007
2008
2009
Arian mahtab gostar
Rood shoor (2000MW)
2000
Azaraab
Chabahar (250MW)
250
Sarmaye gozari tamin ejtemayee
Shahrood (500MW)
500
Sherkate Melli Sakhteman
Asalooyeh (500MW)
500
Mapna
Mashad (954MW)
636
318
Hirbodan
Qeshm (160MW)
160
Semnan (120 MW)
Qom (330 MW)
Mapna
Ali Abad (954 MW)
636
318
10
Satkab
Zanjan1(500 MW)
500
11
Zanjan2(500 MW)
500
12
Snat Energy Tamin
Zanjan3(500 MW)
500
13
Sarmaye gozari Bank Melli
Zanjan4(500 MW)
500
14
Azaraab
Khorramabad1
500
15
Khorramabad2
500
16
Sarakhs (500 MW)
17
Kashan (500 MW)
500
18
Asalooyeh (1000 MW)
1000
19
Khoozestan (1000 MW)
20
Hormozgan (500 MW)
21
Hormozgan (500 MW)
22
Khuzestan (500 MW)
23
Kerman (1500 MW)
24
Yazd (1000 MW)
25
Isfahan (2000 MW)
26
Bakhtar MW)
27
Tehran (1000 MW)
28
Sistan (500 MW)
29
Others (5*300 MW)
Table 1-8-2: completed or under way projects performed by private sector On B.O.T. basis
Date of synchronization
Name of investor
Name and total capacity of power plant
2005
Chapter 1
2006
2007 2008 2009 2010 2011
610 122
Mapna International-IHAG
Jonoob Isfahan (832 MW)
Mapna International-Quest Energy Middle East
Fars (735 MW)
735
Mapna International
Pareh sar (890 MW)
890
Zenel
Haris (1000 MW)
1000
SKS
Zanjan (827 MW)
828
blackout of regional electric power company in year 2005 (Megawatt)

reason
Blackout
Percentage of
Percentage of
Percentage of
regional generation
transmission to total
regional event to
to total generation
transmission
total event
8412
6/4
6/0
1/5
5/4
7875
10 / 6
3/0
11 / 5
5/1
1754
5/4
0/7
0/0
1/1
8674
10 / 3
2/1
20 / 5
5/6
Transformer
Line
Voltage
Total shortage resulted
Event in
Total sum
outage
outage
drop
of transmission
grid
of blackout
6909
328 / 3
0/ 0
3466
2471 / 6
0/0
4409 / 6
Percentage of
region to total grid
Regional Electric Company
Azerbaijan
851 / 4
14 / 4 479 / 7
Isfahan
2570 / 2
12 / 0
Bakhtar
633 / 9
72 / 2
0/ 0
760
Tehran
582 / 0
894 / 6 94 / 3
2373
Khorasan
Khuzestan
6/ 7
4/ 0
0/ 0
1063 / 8 1578 / 7 527 / 9
299
0/0
1389
5/9
0/3
0/0
0/9
17066
1065 / 8
21288
17 / 2
14 / 9
5/0
13 / 8
Zanjan
72 / 3
190 / 2
0/ 0
263
0/0
802
2/9
0/2
0/0
0/5
Semnan
103 / 8
0/ 0
0/ 0
104
0/0
329
1/2
0/1
0/0
0/2
Sistan o baloochestan
248 / 1
420 / 1 108 / 7
2190
2184 / 8
4499
0/7
1/9
10 / 1
2/9
Gharb
1/ 2
14 / 6 279 / 1
874
433 / 5
1740
2/4
0/8
2/0
1/1
Fars
528 / 7
385 / 8 341 / 0
45227
693 / 5
48218
12 / 5
39 / 4
3/2
31 / 2
3021 / 7
20014
7/8
13 / 6
14 / 0
12 / 9
59 / 6
942
3/2
0/3
0/3
0/6
Kerman
247 / 8
304 / 0 221 / 9
15563
Guilan
44 / 2
110 / 4 26 / 7
294
Mazandaran
448 / 2
141 / 2 1275 / 6
3115
0/0
4248
6/2
2/7
0/0
2/7
Hormozgan
117 / 9
261 / 3 383 / 4
12145
6317 / 0
19208
4/1
10 / 6
29 / 3
12 / 4
Yazd
21 / 5
4/ 4
32 / 5
4161
540 / 0
5292
3/2
3/6
2/5
3/4
Total
7542
4408
3771
114808
21525
154684
100 / 0
100 / 0
100 / 0
100 / 0
Percentage Of total
4/ 9
2/ 8
2/ 4
74 / 2
13 / 9
100 / 0
41
Investment Guide
Blackouts of regional electric companies with distinction

of reasons in year 2006
60000
50000
Because of generation except for fuel

Lack of fuel
Because of transmission
Incident in grid
(KWh)
40000
30000
20000
Semnan
Zanjan
GIlan
Khorasan
Gharb
Bakhtar
Mazandaran
Yazd
Isfahan
Azarbaijan
Tehran
Hormozgan
Kerman
Khuzestan
Fars
10000
Share of different reasons in national grid

blackouts in 2006
%0
%12
Because of transmission
Incident in grid
Lack of fuel
%14
%74
Share of different reasons in national grid

blackouts in 2005
6%
8%
Because of transmission,
Incident in grid
Lack of fuel
22%
64%
42
Chapter 1
Chapter 2- Iran Power Generation Industry, an International

Perspective
43
2.1 Introduction
44
2-2 International Electricity Tariffs
45
2-2-1 Electricity Sale Tariffs and Their Codication in Iran
45
2.2.2. International Electricity Tariffs
47
2-3 International Price of Energy Carriers
50
2.4) Comparing Per Capita Generation of Electrical Energy
52
2.4.1) Per Capita Generation of Electrical Energy in Different Countries
52
2-4-2 Composition of Costumers
54
2-4-3 Studying Other Specications of Mentioned Countries
55
2-4-3-1 Regional Countries
55
2.4.3.2 Other Countries
57
2-4-4- Generation of Various Types of Power Plants
58
2-5- Universal Visions of Electrical Industry
59
2-5-1 Prediction of Consumption Requirement
59
2-5-2 Prediction of Generation Capacity and Fuel Prices
60
2-6 Worldwide Electricity Market
62
2.1 Introduction
For 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
Iran Power Generation Industry, an International Perspective
U.S.
China
Industry
Households
Operation
Index
Consumption
per Capita
Net Generation
per Capita
Capacity
per Capita
Electricity
Import
Electricity
Exports
1,291.50 356.558 1,806.758 1,672.92 10.339 2.975

127.21 241.301 982.758
913.97
0.000
276.08
1,398.97
0.000 1,896.80 7,725.21
1,295.34 57.84 n.a.
n.a.
7,184.44 46.49 0.186 0.122
Japan
Russia
144.59 214.418 869.066
792.47
24.000 8.240 1,482.98 6,010.71
India
1,049.70 126.344 598.754
558.53
0.058
Germany
82.40
119.666 561.574
521.86
47.200 46.800 1,452.29 6,815.36
Canada
32.21
114.802 569.408
523.81
29.320 23.582 3,564.49 17,679.58 16,263.86 56.62 0.061 0.047
France
60.21
111.940 535.453
431.97
72.200 6.200 1,859.08 8,892.70
7,174.09 54.60 0.127 0.045
Brazil
182.03
82.458
358.607
371.70
0.006 38.200 452.98
1,970.02
2,041.93 49.65 0.079 0.037
10
U. K.
60.09
74.560
373.262
349.23
3.000
5.100 1,240.71 6,211.23
5,811.39 57.15 0.116 0.055
1.748
120.36
570.40
5,480.96 46.27 n.a.

532.09
54.10 0.040
0.029
n.a.
6,333.43 53.57 0.176 0.065
11
Italy
58.03
69.550
268.181
300.41
0.500 51.500 1,198.59 4,621.70
5,177.09 44.02 0.186 0.147
12
Spain
40.22
57.979
245.238
229.27
8.300
9.500 1,441.64 6,097.81
5,700.80 48.29 0.137 0.054
13
Korea, S.
48.20
56.651
325.722
302.92
0.000
0.000 1,175.28 6,757.40
6,284.38 65.63 0.074 0.051
14
Ukraine
47.67
52.815
170.030
152.86
12.200 6.936 1,107.97 3,566.94
3,206.82 36.75 n.a.
n.a.
15
Australia
19.73
48.800
215.022
199.97
0.000
0.000 2,473.14 10,897.13 10,134.33 50.30 0.082 0.054
16
Mexico
103.72
45.818
206.719
191.57
1.070
0.390
441.76
1,993.08
1,847.02 51.50 0.091 0.063
17
S. Africa
44.48
40.481
215.926
198.84
10.263 8.294
910.06
4,854.24
4,470.18 60.89 0.048 0.019
18
Iran
67.15
31.502
142.859
133.43
0.919
1.489
469.15
2,127.54
1,987.10 51.77
19
Sweden
8.97
32.461
130.822
134.46
11.500 24.300 3,618.72 14,583.95 14,990.00 46.01 n.a.
n.a.
20
Taiwan
22.60
31.916
165.959
154.34
0.000
0.000 1,412.02 7,342.34
6,828.38 59.36 n.a.
n.a.
21
Turkey
68.11
31.846
133.916
125.14
0.600
1.200
467.57
1,966.19
1,837.36 48.00 0.106 0.099
22
Poland
38.60
29.449
141.101
121.12
15.100 5.000
762.87
3,655.20
3,137.69 54.70 0.095 0.056
23
Argentina
38.74
27.844
88.175
87.15
2.500
7.650
718.72
2,276.02
2,249.64 36.15 0.037 0.025
24
Norway
4.56
26.631
105.556
106.07
5.500 13.400 5,846.03 23,171.62 23,283.81 45.25 0.089 0.046
25
Indonesia
234.89
25.117
106.647
99.18
0.000
0.000
106.93
454.02
422.24
48.47 n.a.
n.a.
n.a.
63.27
24.158
110.356
104.81
0.296
2.479
1,744.18
1,656.59 52.15 n.a.
27 Saudi Arabia 25.16
27.557
143.820
133.75
0.000
0.000 1,095.42 5,716.98
5,316.79 59.58 n.a.
n.a.
6,268.39 49.78 0.194
26
Thailand
28 Netherlands 16.22
381.82
3.800 20.800 1,287.29 5,613.46
20.884
91.069
101.69
24.65
20.577
89.365
83.11
0.000
0.000
834.61
3,624.66
3,370.94 49.58 0.055 0.028
Romania
22.38
20.364
52.423
46.67
3.046
0.962
909.91
2,342.38
2,085.29 29.39 0.073 0.067
Pakistan
156.13
17.958
77.483
72.06
0.000
0.000
115.02
496.28
Egypt
74.72
16.961
87.081
80.14
1.000
0.153
227.00
1,165.45
33 Switzerland
7.44
17.442
63.078
55.56
33.200 30.100 2,343.89 8,476.56
7,466.61 41.28 0.133 0.081
34 Kazakhstan
15.11
17.140
60.421
53.72
5.975
3.506 1,134.53 3,999.38
3,556.00 40.24 0.026 0.015
5.20
16.569
79.992
79.29
7.000 11.900 3,183.65 15,370.12 15,235.73 55.11 0.112 0.065
29
Venezuela
30
31
32
35
Chapter 2
Net Electricity
Consumption
(10 6
(TWH)
Watt
KWH
$/KWH
person) (GW)
290.34 927.925 3,891.720 3657.517 23.972 30.390 3,195.97 13,403.89 12,597.25 47.88 0.087 0.051
Finland
36 Czech Rep.
44
Net Electricity
Generation
Country
Installed
Capacity
No.
Population
Table 2-1 General Statistics of Iran Electrical Industry in Comparison with Other Countries in Year 2004
49.25 n.a.
n.a.
1,072.53 58.61 n.a.
461.54
n.a.
10.25
16.165
78.178
56.51
26.300 10.100 1,576.91 7,626.29
37
Malaysia
23.09
15.671
74.009
68.73
0.100
0.000
678.61
3,204.83
38
Philippines
84.62
14.702
50.183
46.67
0.000
0.000
173.74
593.04
39
Austria
8.16
15.014
59.321
60.67
13.400 18.900 1,839.35 7,267.33
7,432.42 45.10 0.152
n.a.
40
Belgium
10.33
14.242
79.053
79.87
8.300 14.650 1,378.59 7,652.11
7,731.13 63.36 n.a.
n.a.
5,512.13 55.21 0.085 0.056

2,976.16 53.91 n.a.
551.53
38.97 n.a.
n.a.
n.a.
Population
(10 6 Person)
Net Per
Capita
Electricity
Generation
Net Per
Capita
Electricity
consumption
Electricity
consumption
Net electricity
Generation
Table 2-2 Per Capita Generation and Consumption Requirement in Iran in Comparison with Other
Countries Year 2004
Thermal
plants
Nuclear
plants
Other
plants
Total
(10 9 KWH)
Population
(10 6 Person)
(KWH)
(KWH)
Europe
441.388
138.550
201.420
781.358
3,439.93 3,217.47
584.72
5,883.06
5,502.60
N. America
818.161
111.608
180.348
430.62
11,135.94 10,367.72
Asia/Oceania
791.251
76.020
207.326 1,074.598 5,103.04 4,748.39
S&C.America
80.067
3.025
129.114
212.206
881.43
Africa
80.667
1.800
21.277
103.744
505.44
Eurasia
237.883
37.453
67.022
342.358
Middle East
105.433
0.000
6.505
111.938
World
Iran
Description
No.
Description
10 Iran worlds Share
2,554.851 368.456
1,110.118 4,795.40 4,464.58
3,572.39
1,428.47
1,329.19
819.63
443.22
1,988.68
1,849.26
469.59
872.11
579.56
538.46
287.36
4,549.22
4,157.84
182.28
3,108.39
2,890.03
2,604.72
2,423.03
2,306.71
2,150.17
1,307.27 1,194.80
566.60
526.80
813.012 3,736.319 16,599.09 15,441.26 6,372.70
29.890
0.000
4.420
34.310
155.71
145.14
67.50
1.170
0.000
0.544
0.918
0.94
0.94
1.06
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 Codication 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
45
Investment Guide
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
efciency improvement in Iran electrical
industry. Meanwhile, the averaged enduse 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 specications
of it and among different consumption
sectors the most subsidies have been
paid to residential and agricultural
consumers. For instance, in residential
sector, dening 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
codied in three steps:
Costing
Pricing
Tariff
Costing 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 prices

Considering 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)
600
587
550
533
500
477
450
400
350
473
436
394
337
331
250
150
444
411
300
200
Residential
Other Consumptions
Agricultural
Public
Industrial
195
176
142
277
223
200
265
258
205
226
191
191
284
263
221
100
2000
46
Chapter 2
2001
2002
2003
2004
Diagram 2-2-2 Average Amount of Subsidies to Different Tariffs at the End of 2000-2004 (Rials per KWh)
500
403
400
Residential
Agricultural
Public
Industrial
Other Consumptions
358
340
356
300
270
200
209
164
100
107
11
292
232
208
188
179
141
205
242
102
120
106
55
21
25
10
-86
-100
2000
2001
2.2.2. International Electricity Tariffs

Although 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.
2002
2003
2004
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.
Diagram 2.2.4) Average International

Electricity Price in 2002
Diagram 2.2.3) Electricity

Tariffs in 2004 and 2005
400
300
200
100
Residential
Industrial
Agricultural
Public
Others
4.88
AverageCents per Kilowatthour
6.73
8.46
7.86
500
Residential
Commercial
Industrial
Other
AverageCents per Kilowatthour
10
47
Investment Guide
It is worthy of attention that residential

electricity prices in the U.S. are quite
different for different states and the price
uctuation is between 5 to 16.73 cents
per KWh. (Diagram 2.2.6)
Diagram 2.2.5) Average Electricity Price in the U.S.
Cents Per Kilowatthour
14
12
10
8
6
4
Residential Sector
Commercial Sector
Industrial Sector
Transportation(Average)
All Sectors (Average)
2
0
1960
48
Chapter 2
1965
1970
1975
1980
1985
1990
1995
2000
Diagram 2-2-6) Residential Average Prices in the U.S. with Distinction of the States
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
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.
49
Investment Guide
Diagram 2.2.8 Residential and Industrial

Electricity Prices in Turkey
Diagram 2.2.7 Residential and Industrial

Electricity Prices in Kazakhstan
6
25
Industrial
Industrial
Residential
Residential
35000
30000
25000
20000
15000
10000
Chapter 2
Litter (Gas oil)

Meter Cubed (Gas)
Litter (Fuel Oil)
5000
2005
2004
2003
2005
2004
2003
2002
Diagram 2.3.1 Amount of Consumed

Fuel of Power Plants in Iran (million)
50
10
15
2002
20
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
Irans 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.
Diagram 2-3-2 Average International Price of

Power Plant Fuels with Distinction of Year
300
Due to Diagram 2-3-2, fuel costs have

had almost a at trend with low uctuation
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.
200
150
100
50
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Diagram 2.3.3) International Price of Power Plant Fuels

with Distinction of Fuel Type and Year
700
Natural Gas
Oil
Coal
600
(Cents / 10 6 Btu)
(Cents / 10 6 Btu)
250
500
400
300
200
100
0
1990
1995
2000
2005
51
Investment Guide
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 Irans
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
Diagram 2-4-1 Per Capita Electrical Energy

Generation of Some Regional Countries in 2005
4000
2000
1000
Chapter 2
Armenia
Afghanistan
Iran
Azerbaijan
Pakistan
Tajikistan
Turkmenistan
Turkey
Iraq
Kyrgyzstan
Kazakhstan
52
3000
Diagram 2-4-2 Per Capita Electrical

Energy Generation in Some Countries
Compared to Iran (2005)
Diagram 2-4-3 Per Capita Electrical

Energy Generation in Some Developed
Countries Compared to Iran (2005)
20000
7000
4000
15000
5000
6000
3000
2000
10000
5000
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
Australia
U.K.
Iran
Germany
U.S.
Canada
Iran
Brazil
Turkmenistan
Turkey
Saudi Arabia
Egypt
1000
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
53
Investment Guide
rate compared to the U.S. and Canada,

and Australia has a middle rank between
them.
2-4-2 Composition of Costumers
Below Diagrams show the composition
Consumption pattern of Iran

12%
19%
0%
Commercial
Transportation
Residential
Industrial
Agricultural
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
Consumption pattern of the U.S.
32%
31%
Commercial
Transportation
Residential
Industrial
0%
36%
33%
37%
Consumption pattern of the U.K.
Consumption pattern of Azerbaijan
1%
34%
Residential
Others
Industrial
Agricultural
3%
3%
71%
34%
54
0%
Commercial
Transportation
Residential
Industrial
Agricultural
28%
Consumption pattern of Kyrgyzstan
32%
31%
Consumption pattern of Turkmenistan

25%
Residential
Others
Industrial
Agricultural
33%
9%
23%
Chapter 2
14%
36%
Residential
Others
Industrial
Agricultural
Consumption pattern of Pakistan
Consumption pattern of Turkey

3%
12%
25%
Commercial
Transportation
Residential
Industrial
Agricultural
Commercial
Transportation
Residential
Industrial
Agricultural
1%
30%
48%
45%
23%
Consumption pattern of Egypt

4%
Consumption pattern of Saudi Arabia

2%
11%
Commercial
Residential
Others
Industrial
Agricultural
14%
28%
Commercial
Residential
Industrial
Agricultural
38%
56%
11%
Diagram 2.4.4 Consumption pattern in some countries
business costumers. In studying regional

countries, agricultural costumers gain a
more important role.
2-4-3 Studying Other Specications
of Mentioned Countries
2-4-3-1 Regional Countries
Regional 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
55
Investment Guide
56
Chapter 2
{Million KWh}
80000
60000
Diagram 2-4-7 Per Capita Electricity

Consumption in Some Regional Countries (2005)
3500
7000
3000
6000
2500
5000
1500
3000
1000
2000
500
1000
Armenia
Afghanistan
Iran
Azerbaijan
Pakistan
Tajikistan
Turkmenistan
Turkey
Iraq
Kyrgyzstan
Kazakhstan
Million KWh
140000
Armenia
Afghanistan
Iran
Azerbaijan
Pakistan
Tajikistan
Turkmenistan
Turkey
Iraq
Kyrgyzstan
Kazakhstan
2000
Million KWh
Armenia
Afghanistan
Iran
Azerbaijan
Pakistan
Tajikistan
Turkmenistan
Turkey
Iraq
Kyrgyzstan
Kazakhstan
Armenia
Afghanistan
Iran
Azerbaijan
Pakistan
Tajikistan
Turkmenistan
Turkey
Iraq
Kyrgyzstan
Kazakhstan
KWh per capita
Diagram 2-4-6 Electricity Consumption in

Some Regional Countries (2005)
Diagram 2-4-8 Electricity Import in Some
Regional Countries (2004)
5000
120000
4000
100000
3000
2000
40000
20000
1000
Diagram 2-4-9 Electricity Export in Some

Regional Countries (2004)
4000
18
3000
14
Thousand KWh per capita
16
2500
2000
1500
12
10
8
6
1000
4
500
2
0
U.S.
U.K.
Iran
Brazil
Saudi Arabia
Canada
Egypt
Diagram 2-4-12 Electricity Import in

Some Countries (2005)
40
Diagram 2-4-13 Electricity Export in

Some Countries (2005)
35
35
30
30
25
20
15
25
20
15
10
0
U.S.
U.K.
Iran
Brazil
Saudi Arabia
Canada
Egypt
10
U.S.
U.K.
Iran
Brazil
Saudi Arabia
Canada
Egypt
Diagram 2-4-11 Electricity Per Capita

Consumption in Some Countries (2005)
3500
U.S.
U.K.
Iran
Brazil
Saudi Arabia
Canada
Egypt
2.4.3.2 Other Countries

For 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.
Diagram 2-4-10 Electricity Consumption

of Some Countries (2005)
4000
Thousand Million KWh
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.
57
Investment Guide
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 rst 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.
Table 2-4-1 Share of Different Types of Power Plants in Some Countries
Generation (%)
58
Chapter 2
Thermal
Hydro
Nuclear
U.S.
70.6
6.8
20.2
U.K.
73.7
1.3
23.2
Brazil
8.4
83.3
4.1
Pakistan
67.0
30.5
2.5
Turkey
72.7
27.0
Saudi Arabia
100.0
Kazakhstan
84.1
15.9
Canada
26.7
59.6
12.3
Egypt
82.8
17.0
of
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).
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 backedup 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.
Diagram 2-5-1 Prediction of Electricity

Consumption of World till Year 2030
Projeotions
20,000
24.371
21.699
25,000
19.045
Billion Kilowatthour
30,000
30.116
History
27.133
35,000
14.781
15,000
10,000
5,000
2030
2025
2020
2003
0
2015
Visions
2010
2-5Universal
Electrical Industry
Diagram 2-5-2 Electricity Consumption of World with

Distinction of Country Types during 1980 to 2030
20,000
History
Projeotions
15,000
10,000
OECD
5,000
Non-OECD
0
1980
1990
2003
2010
2020
2030
59
Investment Guide
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 2-53 and 2-5-4)
Diagram 2-5-4 Consumption Prediction of Consumers in OECD Member Countries till Year 2030
Diagram 2-5-3 Consumption Prediction of Consumers in OECD Member Countries till Year 2030
10,000
10,000
2030
2030
2015
2003
2015
2003
6,000
4,000
2,000
60
8,000
8,000
4,000
2,000
0
Residential Commercial
Industrial Transportation
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
Chapter 2
6,000
Residential Commercial
Industrial Transportation
some fuel types and less for some others.

For instance, nuclear fuels and coal will
impose few price uctuations, while the
price of fossil fuels, after a sudden drop,
will leap gradually. Diagram 2-5-6 afrms
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.
Diagram 2-5-5 Prediction of Worldwide Electricity

Generation with Distinction of Power Plant Fuel Type
8,000
Coal
Natural Gas
Renewables
Nuclear
Oil
Gigawatts
6,000
4,000
2,000
2030
2025
2020
2015
2010
2003
Diagram 2-5-6 Prediction of Power Plant Fuels till Year 2030
1995-2030 (2004 dollars

Per million Btu)
10
History
Projeotions
6
Petroleum
Natural Gas
Coal
Nuclear
0
1995
2004
2010
2015
2020
2025
2030
61
Investment Guide
2-6 Worldwide Electricity Market
The 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
62
Chapter 2
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 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 secured over these 11
years and prices to consumers stable,
albeit signicantly 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 signicant 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
signicant if supply is only just sufcient
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.
NETA
As with the Power Pool, NETA is settled
every 30 minutes and buyers and sellers
are allowed to sign bilateral contracts that
remain entirely commercially condential

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 Iran
Irans 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
63
Investment Guide
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
briey in the following:
a)Selling
In this section, sellers bid their prices
considering below factors:
1-Prediction of per hour consumption
requirement of next day
2-Average per hour accepted price of
previous day
3-Cost of fuel, consumed materials and
depreciation
4-Technical constraints of generation
5-Constraints of transmission grid
Income of sellers is consisted of two
64
Chapter 2
major parts: Capacity fee and Energy

fee. These factors are discussed in
Chapter 8.
b)Transmission Services
Transmission 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 fulll
their consumption requirement, currently,
the only buyers in Iran electricity market
are Regional Electricity Companies.
Chapter 3- Why Investment in Iran Power Generation Industry?
65
3.1 Why investment in electricity industry of Iran?
66
3.2 Future Demand and Investment Perspectives
67
3.2.1 Forecast for demand in Coming Years.
67
3.2.2 Costs of the electricity
68
3.2.3 How much investment needed?
68
3.2.4 Capacity increase by the state-owned sectors
69
3.1 Why investment in electricity

industry of Iran?
Why Investment in Iran Power Generation Industry?
Generation of electric power in Iran is

not in that rm 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 sufcient 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 lled
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.
66
Chapter 3
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 codied
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 nancing and construction
and sells the generated electricity to
TAVANIR for a time period (concession
period) and through a contract, after
nishing of the period, he/she transfer
back the power plant to TAVANIR
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 doesnt
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
Investment Perspectives
and
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
Table 3-2-1) a Forecast of demand for power up to the year 2025 (MW)
year
Demand
year
Demand
2004-2003
27107
2016-2015
67695
2005-2004
29267
2017-2016
73015
2006-2005
32217
2018-2017
78746
2007-2006
34269
2019-2018
84923
2008-2007
36890
2020-2019
91581
2009-2008
39801
2021-2020
98756
2010-2009
42944
2022-2021
106489
2011-2010
46334
2023-2022
114824
2012-2011
49991
2024-2023
123809
2013-2012
53933
2025-2024
133495
2014-2013
58182
2026-2025
143937
2015-2014
62760
67
Investment Guide
forecast for demand in the next years till

2025-2026.
TAVANIR Co. To do this the cost of enduse 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
3.2.2 Costs of the electricity

The price of the electricity that covers
generation, transmission and distribution
costs is codied annually by the bureau
of economical and tariffs studies in
Table 3.2.2 Investment needed for each type of power plant

year
Averaged Cost
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
301
308
313
335
261
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
68
is reported in the 1st chapter. To make an

estimation of the necessary investment
in the electricity industry to fulll 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.
Table 3-2-2) Averaged Costs of electricity in last years (Rial/KWh)
Chapter 3
Kind of power plant
steam
Combined cycle
gas
Percent of electricity generation in power plants
37.9
16.7
29.4
The necessary investment (R/KW)
6.115.000
47.94.000
3.200.500
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 gures 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.
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.
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 5year development plans, state budget
laws and other related regulations insist
that increase in capacity of electricity
generation should be accomplished
3.2.4 Capacity increase by the stateowned 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 ll the gap. In
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Investment Guide
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 dont 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.
Table (3.2.3) Investment needed to fulll the power demand in the next 20 years
70
Chapter 3
year
2006-2007
2011-2012
2016-2017
2021-2022
2025-2026
Demand (MW)
34269
49991
73015
106489
143937
Needed increase in installed capacity
--
15722
38746
72220
109688
Acumulated needed capital (M Rial)
--
76.000.000
187.000.000
349.000.000
530.000.000
Chapter 4- Iran Power Projects Risks Overviewed
71
4-1 Introduction
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4-2 Risk Classication

4-2-1 Risks of Bidding Stage
4-2-1-1 Risk of Losing the Bid
4-2-1-2 Risk of High Bid Price
4-2-2 Construction & Completion Risks
4-2-2-1 Incompletion Risk
4-2-2-2 Completion Delay Risk
4-2-2-3- Cost Overrun Risk
4-2-2-4 Risk of Non Standard Construction
4-2-2-5 Risk of Project Site Unavailability
4-2-2-6 Force Majeure Risk
4-2-2-7 Capabilities and Related Experiences of Contractor
4-2-2-8 Power Plant Location (Insufcient Transportation Facilities)
4-2-3 Operation Risks
4-2-3-1- Substandard Technical Specications during Operation
4-2-3-2 Extension of licenses
4-2-3-3 Force Majeure Risks
4-2-3-4 Experience and qualications of O7M Contractor
4-2-3-5 Maintenance
4-2-3-6 Tampering and theft of energy
4-2-3-7 Delay in Construction of Distribution Infrastructures
4-2-3-8 Long Term Equipment Failure during Operation
4-2-4 Performance Risks
4-2-4-1 Fuel Supply Risk
4-2-4-2 Risk of Technology Capabilities
4-2-4-3 Management Risk
4-2-4-4 Existing Infrastructures
4-2-4-5 Risk of Rivalry
4-2-4-6 Import Limitation of Power Plant Equipment
4-2-5 Market Risks
4-2-5-1 Risk proper Estimatiion of Electricity Price in the market
4-2-5-2 Risk of True Estimation of Demand for Produced Electricity
4-2-5-3 Risk of Proper Technology Selection
4-2-6 Commercial Risks
4-2-6-1 Risk of Currency Convertibility

4-2-6-2 Risk of Currency Transferability
4-2-6-3 Devaluation Risk
4-2-6-4 Availability Risk
4-2-6-5 Interest Rate Risk
4-2-6-6 Internal Ination Risk
4-2-6-7 Liabilities Risk
4-2-6-8 Decrease in Tariffs for Competition
4-2-6-9 Fuel Price Fluctuations
4-2-7 Environmental & Political Risks
4-2-7-1 Expropriation Risk
4-2-7-2 Regulatory Risk
4-2-7-3 Corruption
4-2-7-4 Delay in issuing Acts and Permissions
4-2-7-5 Risk of Breach of Investment Agreements
4-2-7-6 Other Political Risks
4-2-7-7 Environmental issues
4-1 Introduction
Iran Power Projects Risks Overviewed
In any infrastructure project, risk

identication, risk classication 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.
72
4-2 Risk Classication

Any economic agency will impose some
Chapter 4
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 Stage
Bidding 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 Bid
The 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
unexpectedly high bid price could result

from a variety of reasons, including:
-Bidder collusion;
-Defective specications;
-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
projects 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 Risk
Incompletion 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
nancial problems.
4-2-2-2 Completion Delay Risk
In the case of delay in completion of
the project, the interest cost is increased
and thus the cost of project exceeds the
predicted and fullled costs. Therefore,
long delays in construction might waste
nancial resources of the project and
harm the asset return.
4-2-2-3- Cost Overrun Risk
The 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 nance, even the
project may be stopped.
4-2-2-4 Risk of Non Standard
Construction
After project completion, the project
73
Investment Guide
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 efciency, not only
by decreasing electricity generation the
revenue is decreased, but also may
be ned or at least dispossessed of
some energy efciency 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 certicates
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 Risk

Force 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.,
ooding, earthquake, volcano) prevents
one or both parties from fullling 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),
74
Chapter 4
or where the intervening circumstances

are specically 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
(Insufcient
Transportation
Facilities)
Insufcient 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.
4-2-3 Operation Risks

Generally,
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
Specications during Operation
How to operate and use the grid are
specied via some standards in TAVANIR
Company which are necessary to be
regarded by the investor.
Furthermore, substandard quality and
quantity specications 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 licenses
In 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
dened 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 Risks
Imposing any extraordinary event or
circumstance beyond the control of the
parties such as war, strike, riot, crime,
act of nature (e.g., ooding, 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 qualications
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 efciency of the project. These
capabilities and experiences might result
in realization of initial projected incomes
for the project.
4-2-3-5 Maintenance
Maintenance 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.
75
Investment Guide
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 sufcient
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 nancial
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.
76
Chapter 4
4-2-4 Performance Risks

During project life, from construction
stage to operation stage, there are many
issues which impose the project with
problem. These problems may suffer the
efciency and income of the project.
Main performance risks are as follows.
4-2-4-1 Fuel Supply Risk
Not 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
ned 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
efcient 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 efciency of power plant
employing modern technologies.
4-2-4-3 Management Risk
Performance risks are related to
management issues during all stages of
project life. Management is a vital factor
for project success.
Generally,
the
management
is
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 nancial package.
b)Accepting host country as a Bona de
partner
Private sector investment in infrastructure
projects such as electricity generation in
Iran is a new issue and thus there are
probably deciencies and problems in

ofcial 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 Infrastructures
Any 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
77
Investment Guide
construction and plant locating decision

the issue must be considered.
4-2-4-5 Risk of Rivalry
Proper 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 Risks
Market 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
78
Chapter 4
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 prot 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 Risks
These risks are generally arisen
from
unpredicted
uctuations
of
macroeconomic
variables
related
to nancial activities and currency
conversions. Obviously, identication of
commercial risks in IPP projects is basic
to determine the nancing strategy of
these projects.
The several commercial risks are
surveyed in continue.
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 prot ( interest) of the nancial
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 Risk
The 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 nancial 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 nally decrease

the value of asset rate of return (from
international nancial markets point of
view).
4-2-6-4 Availability Risk
The 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 Risk
This risk is important in the projects in
which the nancing is by foreign nancial
resources. Interest rate risk is dependent
on the conditions of the country which
nances the project or interest rate in
international markets and not in the host
country.
Generally, in such projects the nance
is in the form of long term loans with
oating interest rates. If the risk of interest
rate is not properly considered, nancing
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 nancial
markets) is a control strategy for these
risks.
Also the risk is reducible by the
international hedging agencies.
4-2-6-6 Internal Ination Risk
An intensive and unpredicted ination
condition decreases the total interest and
79
Investment Guide
efciency 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 ination).
If government controls the tariffs during
operation period or any other contract
species the tariffs, the ination 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 ination 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 ination in future
years.
4-2-6-7 Liabilities Risk
If the nancial 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
80
Chapter 4
interest.
4-2-6-9 Fuel Price Fluctuations
During operation of the plant, the fuel
and its supplement is a concerning issue.
Fuel (oil, gas, gas oil and coal) price
uctuations 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 decisionsor 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 rms can be dened as the
risk of a strategic, nancial, or personnel
loss for a rm because of such non
market factors as macroeconomic and
social policies (scal, monetary, trade,
investment, industrial, income, labor,
and developmental), or events related
to political instability (terrorism, riots,

coups, civil war, and insurrection).
Portfolio investors may face similar
nancial 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 guarantees
b)formulizing the internal rate of return
with respect to these risks
Some important political risks are
mentioned below.
4-2-7-1 Expropriation Risk
The 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 Risk
This risk involves any changes in
government policies with respect to
laws and rules, methods of imposing
the ination, foreign exchange rates,
methods and rates of taxing which are
codied in any period.
4-2-7-3 Corruption
Corruption 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 systems 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 investors time
-delay the whole project
-threaten the success of project
nancing
To 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 nancial and
tariff laws in investment agreements.
However, in this case, it is not aimed to
81
Investment Guide
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 Risks

Generally 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 codied
laws
82
Chapter 4
4-2-7-7 Environmental issues

This risk is specially considered in
developed countries in which powerful
environmental NGOs 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 nalizing
project contracts. TAVANIR Company
accompanies the investor to receive
the required permissions from the
Department.
Chapter 5- Supply Chain for Independent Power Production

in Iran
83
5.1. Industry Suppliers
84
5.2. Distributors
85
6-3. Purchasers and Costumers
86
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 identied for each
value activity.
However what is going to be noticed
in this chapter mostly covers the
organizations and rms in connection
with the sponsor of power plant in order
to generate and sell electricity.
Supply Chain for Independent Power Production in Iran
5.1. Industry Suppliers

To clarify the investment process
in power generation industry, we will
rstly 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 briey 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
84
Chapter 5
1-Iranian Oil Rening & Distribution Company
the developmental project requiring

large scale investment. As declared in
previous chapters, the investment gure
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 nanced by just equity. Thus, nance
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
rst one facilitate the free ow 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
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 Mayoralty
However, as considered in previous
chapters, the investment in the power
plant projects has its particular condition.
Therefore, for precise determination of
the suppliers, rstly the contract contents
have to be specied.
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 rm and customers, has
great inuence on the attractiveness
85
Investment Guide
Supply Chain for Independent Power Production in Iran
and protability 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 condent 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
86
Chapter 5
the investor. The complete description

on the issue is provided in chapter 8.
6-3. Purchasers and Costumers

The 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.
Chapter 6- Cost Breakdowns for IPP Projects in Iran
6.1 Categorization of costs
87
88
6-1-2) categorizations of power plants, for the study of their costs structure
88
6-1-3) Initial investment parameters in a power plant
88
6-1-3-1) Land (project site)
88
6-1-3-2) Equipment
89
6-1-3-3) Taxes and duties
89
6-1-3-4) Fuel supply
89
6-1-3-5) Equipment transportation to the power plant site
89
6-1-4) Capital estimation for power plant projects in Iran
90
6-1-5) Generation Costs
90
6-1-5-1) Fuel consumption
90
6-1-5-2) Water Consumption
90
6-1-5-3) Work force
91
6-1-5-3-1 Generation:
91
6-1-5-3-2 Engineering and planning
91
6-1-5-3-3 Maintenance staff
92
6-1-5-3-4 Logistics and nance
93
6.1.5.4 Maintenance Costs
93
6.2 Tax and Tax exemptions
94
6.3 The average cost of generated electricity in country
94
6.4 Return on Investment
94
6.4.1 Payback period
95
6.4.2 Internal rate of return (IRR)
95
6 Cost breakdowns for IPP

Projects in Iran
6.1 Categorization of costs
In 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 specic 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.
Cost Breakdowns for IPP Projects in Iran
6-1-2) categorizations of power

plants, for the study of their costs
structure
In this section, power plants are
categorized by their coefcient 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.
88
Chapter 6
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.
6-1-3-2) Equipment
Equipment 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 duties
There are several tax exemptions
according to the national tax code that
the investor may benet 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:
Table 6-1) Fuel supply costs for Pareh-sar

Cost Items
Cost (Rial)
Setting up a subscription
30.000.000.000
Connecting to the high pressure lines (Subscriber Share)
352.000.000
1-Connecting to the high pressure

lines.
2-Setting up a subscription
The second item is xed 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.
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.
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
379
1.567.000
6.115.000
Combined Cycle
271
1.542.000
4.794.000
Gas Turbine (full scale)
157
972.000
2.856.000
Gas Turbine (small plants)
246
593.000
3.545.000
89
Investment Guide
Table 6-1-2) Costs for construction and setting up of thermal power

generation units starting operation in 2006 (Ref:IPDC)
Power plant
Power plant
Costs in
B Rials
Total in
Rials
67/2
788/0
1631/7
Number of
Units
Costs in M$
Costs in M Euro
Sh. Salimi
4/2
26/0
Steam Units
Gas Turbines
Yazd
Sanandaj
Parand
Shirvan
Jonoob Esfehan
Rood shoor
Orumiyeh
Total
63/4
888/6
1724/4
110/0
934/9
2562/4
26/0
167/6
950/0
3053/8
65/8
174/0
122/0
3068/7
226/8
638/0
3471/3
224/5
350/0
3167/5
107/0
483/0
1825/9
1140/6
4549/5 18679/8
(Ref:IPDC)
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 Costs
As 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 consumption
Thermal 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% efciency for the
power plant the approximate natural gas
consumption for a 600 MW plant is:
90
Chapter 6
NLG Low Heat Value: 38528 KJ/nm3

Power plant capacity: 600 MW= 600000
KJ/s
Efciency= 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 Consumption
Water 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
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 plant
b) Health and general applications
c) Spraying water for Nox reduction
d) Watering of grass and trees in the
eld
6-1-5-3) Work force
Qualied 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-Mechanical
2-Electrical
3-Instrumentation and control
Specialists of chemical engineering,
project control, computers, business,
nance are also required.
The number of work force differs from
power plant to power plant, regarding
the power plant type and technology.
Just to help a rst 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 re ghting 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
sufcient.
6-1-5-3-2 Engineering and planning
The
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,
91
Investment Guide
an instrumentation, an electrical, a
mechanical and a sale expert which
adds up a sum of 11 people. Diagram
summarizes these gures.
6-1-5-3-3 Maintenance staff
This 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.
Engineering and planning subdivision
HSE
Ofcer
Trining
Ofcer
Power Market
Analyst
Statistics
Ofcer
Computer
Engineer
Electrical
Engineer
Mechanical
Engineer
Instrument
Engineer
Diagram 6-1-2- Engineering & planning staff
Maintenance Subdivision
Instruments
Maintenance
Mechanical Equipment
Maintenance
Total of
25 staff
Skilled Worker
7
Technician
8
Engineer & senior

advisor: 10
Diagram 6-1-3- Staff for Maintenance subdivision in the Power plant
92
Chapter 6
Research
engineer
6-1-5-3-4 Logistics and nance

Diagram 6-1-4 shows a typical structure
for stafng of such departments in the
aforesaid power plant which totally suggest
23 personnel for this subdivision.
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
gures are for the year 2005.
Logistics
Administration Staff
Trading Affairs
Financial Manager
Employment & Screening
Financial Manager
Finance Ofcer
Contracts Ofcer
Senior Accountant
Outdoors Orders Ofcers
Accountant
Physical Security
Storekeeper
Diagram 6-1-4 logistic and nance typical stafng structure
The annual
Type of power plant average Maintenance
duration (day)
Maintenance Cost
Rls/KW
Eurocent/KWhr
Rls/KWhr
Small Gas Turbine
35
25.735
0.0532
1.58
Full scale Gas Turbine
40
9.639
0.0609
0.77
Steam Generator
56
32.765
0.0154
1.74
Combined cycle
43
15.041
0.0371
1.18
HRSG
50
25.844
0.0415
2.79
93
Investment Guide
6.2 Tax and Tax exemptions

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 at xed 25%
rate of tax income despite various tax
holidays highlighted as follows:
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
Table 6-2-1) Highlights of Tax Holidays
Activity
Level of Exemption
Duration of Exemption
Agriculture
100%
No Time Limit
Industry and Mining
80%
Years 4
Industry and Mining in Less-Developed Areas
100%
Years 10
Tourism
50%
No Time Limit
Exports
100%
No Time Limit
6.3 The average cost of generated

electricity in country
The price of the electricity that covers
costs are codied annually by the bureau
of economical and tariffs studies in
TAVANIR Co. To do this the cost of enduse 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)
Fiscal Year
94
Cost of generated electricity
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
261
335
313
308
301
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
gures even more.
Chapter 6
6.4 Return on Investment

There are several methods to assess
the protability of a project. Here two
indices, payback period and internal rate
of return are reviewed.
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 eld
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 innity).
The payback period is considered a
method of analysis with serious limitations
and qualications for its use, because it

does not properly account for the time
value of money, risk, nancing or other
important considerations such as the
opportunity cost. Whilst the time value
of money can be rectied 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
95
Investment Guide
capital budgeting metric used by rms

to decide whether they should make
investments. It is an indicator of the
efciency 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 dened as
any discount rate that results in a net
present value of zero of a series of cash
ows.
Net present value (NPV) measures
the excess or shortfall of cash ows, in
present value (PV) terms, once nancing
96
Chapter 6
charges are met. By denition,

NPV = Present value of net cash ows.
For its expression, see the formula
below:
Where:
t - the time of the cash ow
N - the total time of the project
r - the discount rate (the rate of return
that could be earned on an investment in
the nancial markets with similar risk.)
Ct - the net cash ow (the amount of
cash) at time t
In general, if the IRR is greater than the
projects cost of capital, or hurdle rate, the
project will add value for the company.
Simply, to nd the internal rate of return,
the value(s) of r that satises the following
equation should be found:
Chapter 7- Private Sector Participation schemes In Iran

Power Projects
97
7-1 Advantages of Investment in Iran Electricity Industry
98
7.2 Different Methods of Private Sector Participation
98
7-3 Private Sector Participation BOT Basis
100
7-3-1 Introduction
100
7-3-2 Background
100
7-3-3 BOT Contract Structure
101
7-3-3-1 Host Government
101
7-3-3-2 Project Company
101
7-3-3-3 Project Lenders
102
7-3-3-4 Insurers
102
7-3-3-5 Project Shareholders
102
7-3-3-6 Operator and O&M Company
102
7-3-3-7 Builders
102
7-3-3-8 Suppliers of Equipment, Material and Stuff
102
7-3-3-9 Technical, Financial and Legal Advisors
102
7-3-4 Stages of BOT Projects
103
7-3-5 Legal Framework for BOT Contracts
104
7-3-6 Case Studies of Power Plant Construction with BOT Method in Iran 104
7-3-7 Guarantees in BOT Contracts
105
7-3-8 Payment in BOT Contracts
106
7-3-9 Fuel Supply in BOT Contracts
106
7-3-10 Project Ownership and Technology Transfer in BOT Contracts
106
7-3-11 Case Studies of BOT Contracts in Different Countries
106
7-4 Investment on BOO Basis
108
7-4-1 Types of BOO Contracts
108
7-4-2 Structure of BOO Contracts
108
7-4-3 Legal Framework of BOO Contracts
109
7-4-4 Obligations of the Parties to the Contract
109
7-4-4-1 Undertakings by the Investment Company
109
7-4-4-2 TAVANIR Obligations
110
7-4-5 Risk Management in BOO Contracts
110
7-1 Advantages of Investment in

Iran Electricity Industry
Private Sector Participation schemes In Iran Power Projects
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 specic legal framework is provided
for BOO and BOT contracts which claries
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
98
Chapter 7
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., ooding, 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
rst 1980s the privatization, as a method
of managing the large industries with
more efcient 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
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 nancing is the essence of this
method.
BOT, as a contract method, was
originated in nancial medias, when
Turkey bided some power plants
concessions, in the rst 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,
nancing, operation and maintenance of
a facility over the period of the concession
before nally 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 nancing and investment costs,
maintain and operated the facility and
make a margin of prot.
Other available choices for privatization
are:
BOO (Build-Own-Operate): A method
of nancing projects and developing
infrastructure, where a private company
is required to nance 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 nancing 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-FinanceOperate)
DCMF
(Design-Construct-ManageFinance)
MOT
(Modernize-Own/OperateTransfer)
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.
99
Investment Guide
7-3 Private Sector Participation

BOT Basis
7-3-1 Introduction
In 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, nances,
constructs and operates the facility and
eventually, after a specied 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.
100
7-3-2 Background
The rst ofcial 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
Chapter 7
the Suez Canal. This revenue-producing

canal, nanced by European capital
with Egyptian nancial 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
nancing in the western world and
although the privately operated public
facilities became nancial successes,
they were not devoid of shortcomings.
The infrastructure projects had to be
accessible to everybody but optimizing
the economic rate of return conicted
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 trafc
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
fulll 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.
7-3-3 BOT Contract Structure

There are many participants identied
in every BOT project. Diagram 7-31 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 nancing 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 Government
BOT 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 Company
After the identication of the need for
the facility, the government, following a
Host
Goverment
Goverment
Lenders
Insurance
Special
Agreements
Locn
Agreements
Insurance
Policies
Project
Agreement
Project
Company
Shareholder,s
Agreement
Technical Financial
and Legal Advisors
Construction
Contract
Contractors
Supply
Contract
Suppliers
Operation and
Maintenance
Contract
Operator
Sponsors
Diagram 7-3-1 Typical Structure of BOT Contracts
101
Investment Guide
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, nancing 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 prots 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 ofce 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 Lenders

The project lenders have a direct effect
on the most parts of agreements and
guarantees. The lenders are commercial
banks, nance institutions, bond holders
and so forth.
102
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 Shareholders
Generally, a part of project nancing
is supplied by the shareholders. The
Chapter 7
shareholders invest money in exchange

for equity. There is an agreement
between the Project Company and the
shareholder to nance 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 Company
Operator is a company or organization
that manages the operational stage
of the facility. Poor or inefcient
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
condence in the operators experience
and plant operating history is required.
7-3-3-7 Builders
The 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, nancial
and legal consultants. The complexity of
nancing, 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 Projects
The 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 specic 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 denition
Project denition
Financing method
Initial feasibility study
Project management and partnership
assignment
Government decisions
2. Provision of bidding documents by
the government
Bid opening procedure
Prequalication of bidders
Project agreement
Bidding documents
Ground rules of biding
3. Submitting a proposal by the
investors
Organizing the Consortium/structure
of project investor company
Project feasibility study
Proposing the possible contribution
potential
Submitting the proposal
4. Selection
Tender evaluation
Explanation/ modication/ justication
Release of the contract
5.
Provision
of
the
required
implementation framework
Organizing the project company
Equity
nancing
or
company
ownership
Loan contracts
Financial closing
Construction contract
Off-take contract
Insurance contract
O & M agreement
6. Project Implementation
Installations and machineries
Testing
Conrmation
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
103
Investment Guide
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 efcient 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 rst 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
Number
Table 7-3-1 Completed or Underway BOT Projects of Private Sector (statistics of 2004)
104
Chapter 7
Power
Plant Name
Power
Actual
Plant
Capacity
Type
(MW)
Project
Sponsor
Company
Date of Biding or
Agreement
Feasibility Study
and Plant Site
Selection
Plant Land
Environmental
Ownership
Permissions
Pare-sar
CC
890
Pare sar
Company
MAPNA International,
Gruppo Flack, DSD
Dillinger Stahlbau GmbH
Sep, 2000 23
Done
Done
by TAVANIR
Fars
Gas
735
Company
of Fars Gas
Power plant
Quest Energy Middle

east Ltd. & MAPNA
International
Dec, 2004 20
Done
Done
by TAVANIR
South Isfahan
CC
732
Company
South Isfahan
Power Plant
MAPNA International
& IHAG
May, 2002 6
Done
Done
A major part of procedure

has done by TAVANIR and
the rest is on the investor.
Tabriz
CC
1000
Xenel
Dec, 2001 14
Done
Underway
Evaluation Report is already

prepared for the Department
of Environment
Zanjan
CC
828
SKS
Dec, 2006 30
Underway
Done
Done by Zanjan Regional

Electric Company
Ali-Abad
CC
900
Saudi Oger Ltd,

International Power plc &
Sojitz Corporation
Dec, 2001 20
Done
Done
by TAVANIR
Gonaveh
Gas
500
MAPNA
International
Bidding was withdrawn
Done
Ownership is
stopped
Jalal
CC
500
ABB
Aug 22, 2000
Done
neglected
by TAVANIR
Shirvan
CC
1000
Sumitomo, MAPNA
International
May 25, 2002
Done
Done
by TAVANIR
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
nance 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 rst 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
Date of Contract
was halted before sign of any contract.

The contract of Tabriz 1000MW combined
cycle power plant is in nal 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 Contracts
Generally, there are two types of
guarantee provided for the investors
in Iran BOT contracts. The rst type
is the governmental guarantee which
protects the Project Company against
expropriation, nationalization and so
on. Currency transferability warranties
are also classied in this type. This
Date of
Permits
Signature
Financial
Site Provision Infrastructures
Latest Status
Closing
29 Jul, 2001
If required, permits are Extendable.
Not Closed yet
Completed
Developing
The Project Company is currently

preparing construction plans.
3 Jul, 2005
Permits are received.
Not Closed yet
Completed
Developing
The Project Company is supposed to

declare nancial closing.
4 Jan, 2002
Completed
Jul, 2004 5
Completed
Completed
The plant is in operation now.
Prepared for Signature
Underway
The contract is waiting for nal decision

from TAVANIR for being signed
Under Negotiations
The main context of contract is agreed

upon and the enclosures are under
negotiation.
Underway
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 nancing

dispensed with the project now deleted
from the list of requirements
Completed
Because of construction of a plan

nearby the intended site this project is
deleted from the list of requirements
105
Investment Guide
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
nance and economic affairs.
7-3-8 Payment in BOT Contracts

At rst 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 ofcial costs) is in Rials (ofcial
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 nancial
model, an ination rate of domestic
and foreign currency is considered to
compensate the future uctuations of
currency exchanges.
106
7-3-9 Fuel Supply in BOT Contracts

In international BOT projects, the
proper and reliable fuel supplement is a
Chapter 7
major risk of investment which directly

affects the productivity and efciency 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
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 7-3-2 Case Studies of BOT Contracts in Developing Asian Countries

Country
Project Name
Project Specications
Length of Concession Period
Turkey
Akkuyu Power Plant
1000 MW Nuclear Power Plant
15 years
India
Dabhol Power Plant
2450 MW Power Plant In 2 Phases
Electricity Purchase guarantee for 12 years
Thailand
Second Stage Expressway
32 km Expressway
30 years
Thailand
Bangkok Elevated Road and Train System (BERTS)
1.60 km monorail and Expressway
30 years
Thailand
Skytrain Project in Bangkok
20 km monorail
30 years
Thailand
Phone Communication System of Bangkok
2 million Numbers
25 years
Philippines
Pagbilao Airport
700 MW Fuel Power Plant
25 years
Pakistan
Karachi Power Plant
5280 MW Fuel Power Plant
Negotiations in year 1999
Malaysia
North-South Highway
850 km Highway
30 years
China
Guangzhou-Shenzhen-Zhuhai Expressway
PhaseI:122.8 km, PhaseII:110 km
30 years
Table 7-3-3 Case Studies of BOT Contracts in Developed Countries

Country
Project Name and Specications
Australia
F4 Toll Road
F5 Toll Road
Sydney Airport Link
Sydney Water-Treatment Plants
Collie Power Plant
Victoria Toll Road
Melbourne Tolled Bypass
Canada
Northumberland Strait Crossing Bridge

Toronto Airport Extension
United Kingdom
United States
Channel Tunnel
Dartford Crossing
Second Severns Bridge
Sky Bridge
Manchester Metro Link
Birmingham Relief Road
Caltrans Transport Projects
Florida High Speed Rail
Texas High Speed Rail
Honolulu High Speed Rail
Arizona Transport Projects
Dulles Toll Road
107
Investment Guide
7-4 Investment on BOO Basis
Another 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.
108
7-4-1 Types of BOO Contracts

Most 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
efciency during the operation years,
and will be forfeited if the efciency is
lower than the nominal one. The forfeit
is dened with negotiation between two
Chapter 7
parties; however, the amount of ne will

be higher than the cost of fuel supplied
by TAVANIR. There are some nancial
incentives considered by the Ministry of
Energy for high efciency power plants.
7-4-2 Structure of BOO Contracts
The 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 conrmation by TAVANIR
Company and sending the evaluation
forms.
Evaluating
the
nancial
and
management qualications of the
applicant to invest in electricity industry
by the Evaluation Committee.
Proposition of the site by TAVANIR to
the investor.
Conrming 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
considered. The conditions of this sell will

be discussed in the Chapter 8.
The most important factors in
prequalication of the applicant are:
The nancial 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
qualied
technical
team
accompanying the investment company
It is notable that the most signicant
factor is the nancial 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
governments role in economic activities
and privatize government enterprises.
If private sector (domestic or foreign)
proposes a power plant construction, in
the case of fullling 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
specied.
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 fullling 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,
nancing,
insurance, equipment procurement,
transportation, construction, nalization,
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 conrmation 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,
109
1- The discussion is the same for BOT contracts.

Investment Guide
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 nancing 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 Obligations

1.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 rst 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
110
Chapter 7
1-The discussion is the same for BOT contracts.
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 sufcient 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 prot (interest) of the nancial
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 modied
to compensate any possible revenue loss
of the investment company.
Chapter 8- Iran Power wholesale Market
111
8-1 Competitive Electricity
112
8-2 Competitive Electricity Market Design
112
8-2-1- Power Pool
112
8-2-2- Bilateral Contracts
113
8-3 A Case-Study of Electricity Market (United Kingdom)

8-3-1- New NETA market structure in England
113
113
8-3-1-1- Power pool
113
8-3-1-2- NETA
114
8-3-1-3 Why was it believed the Power Pool failed?
114
8-4- Electricity Market in Iran

8-4-1- Bilateral Contract or Direct Sell to End-User
114
115
8-4-1-1- Selling Rate of Electricity
115
8-4-1-2- Transmission Cost
115
8-4-1-3 Fines due to failing to dem
116
8-4-1-4- Method of Payment
116
8-4-1-5- Fuel Cost
116
8-4-2 Electricity Supply to Wholesale Electricity Market
116
8-4-2-1 Electricity Sell
117
8-4-2-3 Fines due to failing to demonstrate the declared
118
capacity
8-4-2-3 Method of Payment
119
8-4-2-4 Fuel Price
119
8-4-2-5 Transmission Cost
119
8-4-3 Long Term Sell Contract with TAVANIR or IGMC

8-4-3-1 Selling Rate of Electricity
120
120
8-4-3-1-1 Base Rates Associated with First Year of Contract 120

8-4-3-1-2 Hourly and Seasonally Coefcients
121
8-4-3-1-3 Increase in power purchase Rates in subsequent
121
Years after the Contract

8-4-4 Sell of Electricity under Guaranteed Fees
121
122
8-4-4-2Payment Method
122
8-4-4-3Fuel Rate
122
8-4-4-4Transmission Costs
122
8-1 Competitive Electricity

Market
Iran Power wholesale Market
In 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
which impossibility of saving and
continuous process of generation and
consumption and time varying nature
of consumption rate make it difcult
to balance the different elements and
evaluate the share of each section
in the nal 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.
112
Chapter 8
8-2
Competitive
Market Design
Electricity
There are several models to design

free market and to establish competitive
environment in electricity market in
different countries.
In a general classication, one can
categorize available models into two
main categories. These two market
mechanisms are:
-Power pool
-Bilateral contracts
Following the specication of these two
mechanisms will be described.
8-2-1- Power Pool
In 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 pricebased 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 oneway 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
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 rst 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 ve 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 rst 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 pool
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 signicant if supply is only just
sufcient 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
113
Investment Guide
contracts have accounted for more than

90 per cent of electricity consumption.
8-3-1-2- NETA
As with the Power Pool, NETA is settled
every 30 minutes and buyers and sellers
are allowed to sign bilateral contracts that
remain entirely commercially condential
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.
114
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
Chapter 8
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 signicantly 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 signicant 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 sufcient condence
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-red plants built by
the retail supply companies; and
Vertical integration of generation and
retail supply.
8-4- Electricity Market in Iran

In 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
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
specically 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 efciencies 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 Electricity

Naturally, the negotiations between
shareholders of contract dictate the
price and the market manager has no
impression on the cost and the selling
condition. Its obvious that the customer
might buy, in the case of competitive
prices with the prices of wholesale
market.
8-4-1-2- Transmission Cost
Iran 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 efciently
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
4-2 Adjustment Factors of Transmission Costs-Table 8

Concession Period of Contract
Description
Adjustment factor for Transmission Cost

in the year of closing Contract
Till 5 Years
Till 10 Years
10 Years and More
1/00
1/05
1/10
115
Investment Guide
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 nalization.
According to the Table 8-4-2 the base cost
is dened 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 nes and their method
of calculation will be dened 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 Payment
Method of payment is a case of mutual
agreement specied in the bilateral
contract and there is no legal restriction
on it.
8-4-1-5- Fuel Cost

The 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, rstly the
consumed fuel is estimated (using the
average efciency of thermal power
plants and also the generated energy
116
Chapter 8
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
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 xed 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 Sell
As 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
coefcients 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 xed for
all power plants. The coefcient of this

fee for different times is calculated using
the below coefcients.
1-Hours of a day:
Working days in peak-load hours, with
coefcient 2.5 and in low-load hours, with
coefcient 0.25
At weekend (Thursday and Friday)
in peak-load hours with coefcient 1.5
and in low-load hours, with coefcient
0.25, and in medium-load hours, with
coefcient 0.7
2-Months of a year
Hot months (June, July, August,
September) with coefcient 1.2
Other months (8 remaining months)
with coefcient 0.9
The 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 Pricing
In this method, each individual
generating rm 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
117
Investment Guide
Diagram 8-5-1 Average Price of electricity Sell in Electricity Market during a Year
(weekly average, March 2005 to March 2006)
48000
MWh/Rial
44000
40000
36000
39286
38229
38088
38667
39291
39696
40791
41517
41989
42527
44058
44085
44522
46629
45949
44502
47323
48284
49055
49260
49550
49286
49530
49176
49176
48887
48509
48251
47540
47540
47328
45602
45403
44758
42859
42197
42179
41452
40210
39884
39606
38436
37338
37338
37245
37736
38692
39437
40777
42444
44078
43518
44732
45380
52000
32000
28000
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
24000
Diagram 8-5-2 Hourly Average of Price during a Year

52000
48000
MWh/Rial
44000
40000
36000
32000
28000
24000
20000
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
16000
Houre
is referred to as uniform pricing: all

generators supplying electricity are paid
the same price per unit of electricity.
Given a sufcient amount of competition,
the market price determined by this
system should equal the industrys true
marginal cost of production.
b)Pay as Bid
Under 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
118
Chapter 8
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 specic time
period, but can not generate the claimed
capacity, it has failed to demonstrate the
declared capacity. The ne for this is
calculated as following:
Week 1
Week 2
48154
47490
41578
38693
38529
38453
39127
38629
41924
47127
Week 52
40372
8-4-2-3 Method of Payment

The 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:
Diagram 8-5-3 Average Accepted Prices in

Peak, Low and Medium Loads (2005)
40522
Fine= Capacity fee* 20* (Claimed

capacity-Generated
capacity)*
Coefcients
Coefcients are the same as mentioned
in Section 8-4-2-1.
Capacity fee: This is the sum of products

of declared generation capacity minus
internal consumption and transmission
loss per hour and provision rate.
Average of
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 Price
The 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
Average of
Average of
Low-Load Hours Medium-Load Hours Peak-Load Hours
(Average of Peak-Load Hours, Average of Medium-Load

Hours, Average of Low-Load Hours)
the generator.
To calculate the margin, rstly the
consumed fuel is estimated (using the
average efciency 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 Cost
Selling the electricity to the wholesale
electricity market, the generator takes
the advantages of transmission and
distribution grid, free of cost. However,
119
Investment Guide
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 qualied 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 specied. These
long term contracts, might guarantee the
electricity buy in a specied 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.
120

The 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
coefcients. 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 rst year of
contract
-Energy conversion rate (electricity
generation) in rst 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 coefcients specied 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)Bidding
In 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
Chapter 8
1-These contracts are classied in BOO contracts. The Procedure is different in BOT contracts.
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 gure.
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.
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 8-4-2-2
8-4-3-3
The same as 8-4-2-3
8-4-3-4
The same as 8-4-2-4
8-4-3-5
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
8-4-3-1-2 Hourly and Seasonally

Coefcients
As discussed in previous sections,
capacity fees and energy generation
rates are the product of base rate and
time-related coefcients. In this section,
the coefcients (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
Average of Monthly Price during Years 2004 till 2006
43653
40032
38987
38480
43779
45754
41413
49522
48415
47001
44903
40861
43667
38596
41440
38550
39846
37854
44466
41907
34977
35182
33749
30000
20000
10000
86
Apr
Feb
Dec
Oct
Aug
Jun
Apr
Feb
Dec
Oct
Aug
Jun
Apr
MWh/Rial
38994
40000
42057
50000
121
Investment Guide
Table 8-5-3 Adjustment Factors

Description
Contract Period
Adjustment Factor
Till 5 years
Till 10 years
years and more 10
Base Capacity Fee, Average of Energy Conversion
0/98
0/94
0/90
Rate, Average of Electricity Generation Rate
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).
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 Method
The method is the same as discussed
in Section 8-4-3-3.

Via this method, the selling rate of
electricity is xed during the Forth Plan.
The rates are as below:
1-Medium load hours: 110 Rials per
KWh
2-Low load hours: 50 Rials per KWh
3-Peak load hours: 280 Rials per
KWh for guaranteed electricity supply
by generator and 150 Rials per KWh for
non guaranteed electricity supply
8-4-4-3Fuel Rate
This rate is the same as discussed in
Section 8-4-3-4.
8-4-4-4Transmission Costs
The Generator does not pay any charge
to the Grid Management Company for
use of transmission and distribution grid
via this method.
Table 8-5-4 Coefcients of Weekdays

hours
Peak Load
Medium Load
Low Load
Working Days
2.5
0.25
(Holidays (Friday & Thursday in Iran
1.5
0.7
0.25
Peak Load
Medium Load
Low Load
First 6-Month of Year
24-20
20-8
8-0
Second 6-Month of Year
21-17
17-5
Days
Table 8-5-5 Peak, Medium and Low

Months
hours
5-0
24-21
1-In Iran, the new year begins in April
122
2-Hot months (Jun, Jul, Aug, Sep) = 1.2, Other 8 Remaining Months =0.8
Price Adjustment
Factor in long term =
contracts
Chapter 8
Consumer price
index (CPI) at the (a)
beginning of the year
of due payment
x
Consumer price
index (CPI) at the
beginning of the year
of contract closing
Average conversion
rate of Euro in the (1-a)
year before due
payment
.
. (102) (Year of due payment-
Year of closing contract)
Average conversion
rate of Euro in the
year before closing
contract
a is a parameter ranging from 0.25 to 0.75 and will be agreed upon in the contract.
Chapter 9- Financing Power Projects
123
9-1 Introduction
124
9-2 development trend of nancing methods for investment 124
plans
9-2-1 Traditional Finance Theory
124
9-2-2 Modern Finance Theory
124
9-3 Financing Methods
124
9-3-2 Debt Financing
124
9-3-2-1 Istisnas
124
9-3-2-2 Commercial Banks
125
9-3-1 personal assets
125
125
9-3-2-1 Istisnas
125
125
9-3-2-3 Line of Credit & Letter of Credit
125
9-3-2-4 Asset Based Financing (Household Mortgages)
125
9-3-2-5 Trade Credit
126
9-3-2-6 Equipment Suppliers (Vendors)
126
9-3-2-7 Commercial Finance Companies
126
9-3-2-8 Brokers
126
9-3-2-9 Insurance Companies
126
9-3-2-10 Bonds
126
9-3-3 Equity Financing
126
9-3-3-1 Angel Investors
126
9-3-3-2 Infusion of Money by Partners
127
9-3-3-3 Venture Capital
127
9-3-3-4 Initial Stock Offering
127
9-3-4 Internal Financing
127
9-3-4-1 Accounts Receivable Financing
127
9-3-4-2 Leasing-to-Ownership or Leasing
127
9-3-4-3 Retained Earnings
127
9-4 Project Finance

9.4.2 History
9.4.2 A basic project nance scheme
128
128
128
Sources of nancing
9-1 Introduction
Financing 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, equitys share varies
from 10% to 40% of total capital. The
Rest can be funded through several
nancing methods.
In this chapter some different methods
of nancing is enumerated. Although
some mentioned methods have not been
implicated in Iran till now or may seem
less relevant to IPP projects at rst glance,
but to create a clear and comprehensive
perspective of opportunities, the methods
are introduced in this chapter and it is
the investors choice to chase up any of
them.
9-2 development trend of

nancing methods for investment
plans
Financing Power Projects
9-2-1 Traditional Finance Theory

Most of traditional nance specialists
believe that debt nance is more
attractive than equity nance, 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
efciency because of the high risk of the
rm and the cost of capital increases.
Thus a particular concern is the relative
use of debt versus equity nancing and
there is an optimal debt-equity ratio.
124
Chapter 9
The nancial cost of capital in a rm is

a weighted average of the return on
debt and equity paid by rms. The value
of a rm is affected by how the rm is
nanced.
9-2-2 Modern Finance Theory
The modern theorem, opposing the
classical nancing 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 efcient market, the value of a rm
is unaffected by how that rm is nanced.
It does not matter if the rms capital is
raised by issuing stock or selling debt. It
does not matter what the rms dividend
policy is. Therefore, the Modigliani-Miller
theorem is also often called the capital
structure irrelevance principle.
9-3 Financing Methods

9-3-1 personal assets
The rst source to supply the required
assets for any business is personal
assets. For this type of nancial resources,
risk and return calculations are not that
important to be of rst 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.
9-3-2-1 Istisnas
This is an agreement under which
one of the parties (Moustasnii) requests
the other party (Snaii) to manufacture
or build an asset which is paid for in
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
nished products that have undergone
a transformation process, and not goods
purchased as is.
Istisnaa thus provides medium-term
nancing to cover nancing requirements
for the manufacture, construction or
supply of nished products.
In 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
sufcient cash ows 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 nancing 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
nancing.
- Long Term Loans
These loans usually apply to assets
your business is purchasing, such as
equipment, buildings, land, or machinery.
With long term debt nancing, 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 ow.

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 xed 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 companys cash ow needs.
A letter of credit is a guarantee from
a bank that a specic 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 companys 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 nancing 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
nanced against accounts receivable
and less often, against inventory since
receivables are among the most liquid of
a companys 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 dened as the purchasing
of a companys accounts receivable on
a non-recourse basis.
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Investment Guide
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 Credit
Trade credit exists when one rm
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 wellestablished source of funding. Most of
the vendors offer funding to businessmen
looking to buy their equipment. This
nancing 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 nance 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 nance
companies are secured by a specic
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.
126
9-3-2-8 Brokers
In some countries, Brokers are also
Chapter 9
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 costumers portfolio- and thus lower
interest.
9-3-2-9 Insurance Companies
In many countries, life insurance
companies are important sources of
nancing. 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 persons 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 nancing
resources for large companies.
9-3-3 Equity Financing
There 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 nancing, the investor is owner.
In this method risk is shared as well as
its potential incomes. Some prevalent
methods of equity nancing are discussed
in this section.
9-3-3-1 Angel Investors
An angel investor (known as a business
angel or informal investor in Europe) is an
afuent individual who provides capital for
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-potentialgrowth 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 nancial
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 Offering

At the last stages of nancing, 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 Financing
Internal nancing is the name for a rm
using its prots as a source of capital for
new investment rather than distributing
them to rms owners or other investors
and obtaining capital elsewhere. This
type of nancing is available for most of
businesses.
9-3-4-1
Accounts
Receivable
Financing
This form of nancing is a type of
secured loan in which accounts receivable
are pledged as collateral in exchange for
cash. The loan is repaid within a specied
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 (ofcial 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 Earnings
Retained earnings are used for funding
innovation and growth programs and
127
Investment Guide
for fullling the xed or working capital

needs of the company. Since it means
dependence on inner resources to
meet up the scal requirements of the
company, this type of nancing is a low
cost method.
9-4 Project Finance

Project nance is the nancing of longterm infrastructure and industrial projects
based upon a complex nancial structure
where project debt and equity are used
to nance the project, and debt is repaid
using the cashow 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 nancing 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
difculties 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
nancially sound.
Project nance is often more complicated
than alternative nancing methods. It
is most commonly used in the mining,
transportation,
telecommunication,
energy and public utility industries.
Risk identication and allocation is
a key component of project nance. A
128
Chapter 9
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 (unnanceable). 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 nancing to take place.
The nancing of these projects must
also be distributed among multiple parties,
so as to distribute the risk associated with
the project while simultaneously ensuring
prots for each party involved. Usually,
a project nancing 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 ow
9.4.2 History
Limited recourse lending was used to
nance 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 nance for high-risk
infrastructure schemes originated with
the development of the North Sea oil
elds 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
insurance, loans, management, and

project operations. Such projects were
previously accomplished through utility
or government bond issuances, or other
traditional corporate nance structures.
Project nancing in the developing
world peaked around the time of the
Asian nancial crisis, but the subsequent
downturn in industrializing countries was
offset by growth in the OECD countries,
causing worldwide project nancing to
peak around 2000. The need for project
nancing remains high throughout
the world as more countries require
increasing supplies of public utilities
and infrastructure. In recent years,
project nance schemes have become
increasingly common in the Middle East,
some incorporating Islamic nance. The
new project nance 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 nance
scheme
Project nance is used by private sector
companies as a means of funding major
projects off balance sheet. A typical project
nance structure is outlined below.
Project nancing is commonly used
as a nancing method in capitalintensive 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 sufciently creditworthy to obtain
traditional nancing or are unwilling
to take the risks and assume the debt
obligations associated with traditional
nancings. Project nancing 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 nancings
are extremely complex. It may take a
much longer period of time to structure,
negotiate and document a project
nancing than a traditional nancing,
and the legal fees and related costs
associated with a project nancing can
be very high. Because the risks assumed
by lenders may be greater in a nonrecourse project nancing than in a more
traditional nancing, the cost of capital
may be greater than with a traditional
nancing.
The following types of insurance
typically are obtained for all project
nancings and cover the most common
types of losses that a project may suffer.
1.Property
Damage,
including
transportation, re and extended
casualty.
2.Boiler and Machinery.
3.Comprehensive General Liability
4.Workers Compensation.
5.Automobile Liability and Physical
Damage.
6.Umbrella or Excess Liability
The following types of insurance often
are obtained in connection with a project
nancing. Coverages such as these are
more expensive than standard insurance
and require more tailoring to meet the
specic needs of the project.
1.Business Interruption
2.Performance Bonds
3.Cost Overrun/Delayed Opening
4.Design Errors and Omissions.
5.System Performance (Efciency).
6.Pollution Liability
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Investment Guide
Sponsor
Landower
Other Equity
Participants
Contract Creating
Govement
Project Company:
Providing Equity
Long-Term
Lease
Bank
Syndicate
International
Organisations
or Export area
Agencies
Non-recourse
debt Inter-creditor
Agreement
EngineerProcureConstract
Contract
Power Purchase
Agreement
Special
Purpose
Project
Company
Managment
Contract
Operation and
Maintenance
Contract
Purchase
Orders
Vendors
130
Chapter 9
Manager
Operator
EPC
Contractor
Fuel Supply
Contract
Fuel
Supplier
Subcontracts
Fuel
Transportation
Contract
Subcontractors
Ulility
Pipeline
Railroad.
etc.
Chapter 10- Legal Framework for IPP projects in Iran
131
10.2 Legal framework for IPP projects in Iran.
132
10.1 Introduction
132
10.3 Other Regulations & Laws Concerning Investment in Iran
132
Power Industry
10.3.1 The constitution
133
10.3.1.1 Article 43
133
10.3.1.2 Article 44
133
10.3.1.3 Article 47
136
10.3.1.4 Article 50
136
10.3.1.5 Article 77 [Treaties]
136
10.3.1.6 Article 81 [Foreign Business]
137
10.3.1.7 Article 139 [Property Claims]
137
10.3.2 Laws by Parliament of Islamic Republic of Iran
137
10.3.2.1 Foreign Investment Promotion and Protection Act 137

(FIPPA)
10.3.2.2 Law of the 4th development plan
141
10.3.2.3 The regulations of investment in free
141
commercial-industrial regions of Iran

10.3.2.4 maximum use of the technical, engineering,
141
industrial and executive power of the domestic

resources in national projects (2003).
10.3.2.5 Iranian Tax Code (2002)
141
10.3.2.6 The law of registration of the companies (1931)
141
10.3.3 Regulations by council of
141
10.3.4 Circulars, CoPs and Standards by Minister of Energy
141
Legal Framework for IPP projects in Iran
10.1 Introduction
132
Chapter 10
The 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 sufcient 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 20052006. These laws insist on attracting and
supporting investments by private sector
in power industry.
BOO and BOT methods are considered
as rm bases for the public private-sector
participation. And also some clear laws
are codied 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 lled by the investors regarding
their technical, nancial and management
qualications.
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 ve 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 rm 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
- Regulations by council of ministers

-Circulars, CoPs and Standards by
Minister of Energy
10.3.1 The constitution

10.3.1.1 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
fullling 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 iniction 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 largescale 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, cattleraising, 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 signied 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
133
Investment Guide
specic date.
The decision regarding general
policies on development of nongovernmental sector through entrusting
activities and ownership of stateowned rms 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 efciency of some
state-owned rms, the implications of
the transfer and ceding activity of the
relevant rms 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 efciency of economic
rms 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 nancial and administrative
burden on the government that is as a
result of its controlling role in economic
activities.
Increasing the general level of
134
Chapter 10
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
denite 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 condential
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 rms 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 rms and institutions, publicly-held
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 nonState 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 nancial
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 policymaking 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
efciency and empowerment of the
cooperatives.
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Investment Guide
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
xed 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 rms.
The general policies of this part will
be announced later on.
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Chapter 10
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 ow of information,
creating equal opportunities for all to
benet from gradual offering of the shares
of large rms 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 prot 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 rms 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
nancial
facilities
(administered funds) to strengthen
cooperatives, to modernize and renovate
non-state rms 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
rms 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 rms 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 inuence and control of
aliens over national economy.
3. Preventing creation of monopolies,
by the non-state rms by putting in place
laws and regulations
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 ourishing
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 statesowned 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 doesnt 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 FIPPAs 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 ofces, 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
Irans foreign investment regime was
dened under the Law for the Attraction
and Protection of Foreign Investments
(LAPFI). Moreover, in line with reforms
in the overall economic framework, Irans
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 ratied in May 2002.
FIPPA replaced the LAPFI which was in
137
Investment Guide
pace through a concerted effort aimed at

transparent communication of the latest
status of Irans dynamic economic and
foreign investment framework.
Some
specic
enhancements
introduced by FIPPA for foreign
investments in Iran can be outlined as
follows:
Broader elds 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 nancing, Buy-Back nancing
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 efcient support for foreign
investment undertakings in Iran,
,Further liberalization of foreign
exchange mechanisms as enjoyed by
foreign investors
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 dened 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
dened in a very broad and diversied
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 noncommercial risks which would simply
commit the Iranian Government not
only to facilitate the free ow of
capital repatriation but also the full
and fair compensation against acts of
Government towards expropriation as
Introduction of new legal options

governing the Government-Investor(s)
relations.
138
effect since 1955. FIPPAs replacement

of LAPFI has further enhanced the legal
framework and operational environment
for foreign investors in Iran.
Chapter 10
Clearly, the ratication of FIPPA and the

approval of its implementing regulations
by the Council of Ministers represented
a signicant complement to a whole host
of reforms taking place in Irans general
macroeconomic framework and structural
mechanisms.
The trend in foreign
investment applications in Iran since the
ratication 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
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, prot 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 prot 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 prot 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 newcomers, 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, rst - 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--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.
139
Investment Guide
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
140
Chapter 10
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 condence 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
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 greeneld projects or in
existing rms
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
dened 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 Prot Sharing arrangements. In
other words, any type of investment in
which the investor does not have an
equity stake and/or is not qualied
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
elds or national projects in which

a direct participation in not, by law,
permissible.
Irrespective of the type of investment,
the foreign capital, as dened under
FIPPA, is not only dened 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 nancial
facilities (shareholders loans and third
party nancing). The
term Foreign
Capital under FIPPA may cover both.
It depends on the investors wish
and consent on how the loan to be
treated in the context of FIPPA. Such
investors/nanciers 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 nancing 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, FIPPAs
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
141
Investment Guide
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 specic eld 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
142
Chapter 10
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 nancial regulations of the
government
10.3.4
Circulars,
CoPs
and
Standards by Minister of Energy
This collection contains some technical
standards and regulations that make
investor to present his/her services inside
a specic 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
Chapter 11- Steps to invest in Iran Power Generation Industry
143
11.1 The organizational structure in Ministry of Energy
144
11.1.1 Iran Power Generation, Trans
144
11.1.1.1 Deputy of coordination and operation supervision
144
11.1.1.2 Deputy of planning
145
11.1.1.3 Deputy of development and economic affairs
145
11.1.1.4 Deputy of coordination and nancial supervision.
146
11.1.1.5 Deputy of Human Resources and Productivity Enhancement146
11.1.1.6 Deputy of Logistics
146
11.1.1.7 Subsidiaries of TAVANIR Co.
146
11.1.1.7.1 The regional electricity companies.
146
11.1.1.7.2 Generation Management Companies.
146
11.1.1.7.3 Power Generation Utility and Repair Companies
146
11.1.1.7.4 Power Distribution Companies.
146
11.1.1.7.5 Iran Grid Management Company.
148
11.1.1.7.6 Iran Power Development Company.
148
11.1.1.7.7 Iran Power Plant Projects Management Co. (MAPNA) 148
11.1.1.7.8 Iran Power Plant Repairs Co.
148
11.1.1.7.9 Iran Energy Efciency Organization (SABA)
149
11.2 Departments of most concern to investors
149
11.2.1 Iran Power Development Company
149
11.2.2 Deputy of Planning in
150
11.2.3 Iran Grid Management Company.
150
11.2.4 TAVANIR Co.
150
11.3 Steps to invest in Iran Power Generation Industry
151
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)
Steps to invest in Iran Power Generation Industry
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 Efciency 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 eld of operation
and development of the electric power
industry within the framework of the
policies of Ministry of Energy, conducting
the afliated companies improvement
of efciency 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 elds of supervision and
planning in restructuring process of the
144
Chapter 11
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
nance
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 bureau
Generation Technical bureau is working
as a subset of Deputy of coordination and
operation supervision and because of its
bulky workows releases part of its work
to generation technical ofces in regional
electric companies and has supreme
supervision on them in the following
elds:
-Supervision on commissioning of
Table 11.1.1 Organizational Chart in Ministry of Energy

TAVANIR Co.
-Iran Water Resources Management Co.
- SATKAB Co.
- Water & Waste Water Engineering Co.
- Shahid Abbaspour Technical University
- Niroo Research Institute
- Water Research Institute
Institute for Energy and Hydro Technology
Minister of
Energy
Personnel
Screening
Physical
Security
Performance
Assessment
International
Affairs
Public Affairs
Deputy of legal
and parliamentary
affairs
Deputy of Power
and Energy
Deputy of Water
and Waste Water
Deputy of
Human Resource
Development
Deputy of Planning
and Economic
Affairsb
newly built power plants.

-Dening the technical specications
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 codication 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 nancial 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
-Codication of electricity tariffs.
-Customizing related technologies,
designing and making parts necessary in
electricity industry.
-Codication 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.
145
Investment Guide
11.1.1.4 Deputy of coordination and

nancial supervision.
-Devising the roadmaps of the electricity
industry for the management of the
company.
-Investigating of nancial issues of the
electric power industry.
-Continuous monitoring of the systems
and codication of the nancial instructions
and recommending necessary actions
toward improvement.
-Holding general meetings of the
afliated 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 afliated 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 nancial and staff as well as
general services support.
146
11.1.1.7 Subsidiaries of TAVANIR Co.

11.1.1.7.1 The regional electricity
companies.
While regional electric companies are
afliated 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 afliated companies, generation,
transmission and distribution and sell
and supply of electricity to all consuming
sector in the region.
Chapter 11
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 elds 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 elds 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
Diagram 11.1.2 Organizational structure of TAVANIR and its subsets

Iran Power Generation,
Transmission and distribution
Management Co. (TAVANIR)
Regional
electricity
Human resources &
utilization assist
Coordination &
nancial
supervision assist
Supplying
assistant
The expansion
assistant
Scheduling
assistant
The coordination and

AZERBAYJAN
supervision assistant
Other companies that are

dependant to TAVANIR
Distribution of
electricity power
Management of the
electricity production
ISFAHAN
The administrator ship of the power plant projects of Iran MAPNA
TABRIZ city, west and east AZERBAYJAN

states, ARDABIL State
West AZERBAYJAN- TABRIZ
BAKHTAR
ISFAHAN city, ISFAHAN and

CHARMAHAL states
ISFAHAN- SHAHID MOHAMAD

MONTAZERI
TEHRAN
MARKAZI, HAMADAN, LORESTAN

states
SHAHID MOFATEH west SHAZAND
KHORASAN
West, north west and south west, east,

north east, and south east and center of
TEHRAN state and QOM state
.REI- SHAHID MONTAZER GHAEM

QOM- BESAT- utilization of TARASHT power
plant, SHAHID RAJAEI, DAMAVAND
KHOOZESTAN
MASHAD city, south and north of

KHORASAN state
TOOS- MASHAD- the Gas power plants of

KHORASAN
ZANJAN
AHVAZ city, KHOOZESTAN and

KOHGILUYE states
SABA company- AHVAZ (RAMIN) - utilization

of DEZ and SHAHID ABASPOUR power
plant and dam. south west of ABADAN
SEMNAN
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
QAZVIN AND ZANJAN states
SISTANO BALOCHESTAN
SEMNAN state
WEST
SISTANO BALOCHESTAN power plants
FARS
KERMANSHAH, KORDESTAN, ILAM

states
BISTOON
KERMAN
SHIRAZ city, FARS and BOOSHEHR

states
South of FARS utilization of FARS electricity
GUILAN
South and north of KERMAN state
ZARAND-KERMAN
MAZANDARAN
GUILAN state
GUILAN-LOUSHAN, SHAHID BEHESHTI
HORMOZGAN
MAZANDARAN, west of MAZANDARAN

and GOLESTAN states
NEKA- SHAHID BEHESHTI
YAZD
HORMOZGAN state
PERSIAN GULF- HORMOZGAN
YAZD state
YAZD
147
Investment Guide
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
eld 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.
148
11.1.1.7.6 Iran Power Development

Company.
This organization afliated by TAVANIR
Co. is responsible for construction thermal
power plants, transmission and optic ber
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
Chapter 11
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 countrys 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.
MAPNAs 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 afliation 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
spare parts needed by power plants

of the country. In fact it was one of the
most essential actions for achieving self
sufciency in the electric power industry.
This company, at present is an afliated
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 Efciency
Organization (SABA)
Iran Energy Efciency 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 eld.
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 Companys 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
concern to investors
of
most
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 organizations
149
Investment Guide
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 qualication forms to
investors and taking them back lled by
them.
-Holding tenders and announcing the
winner.
-General Conrmation 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 conrmation and
sufciency of the licenses.
-Pursuing issuance of construction
license.
-Signing fuel contract (in the long term
contracts of energy conversion)
-Conrmation
of
the
nance
agreement.
-Conrmation 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.
-Conrmation of connecting to the
grid.
-Pursuing the issuance of operation
license.
-Synchronization of the rst unit of
power plant
-Conrmation 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
150
Chapter 11
rates) for conrmed 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 nance 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.
-Conrmation 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
negotiates with the investor and nally

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
Variety of aluminum cables
Alumtek
Alumrad
Aluminum Rods
Iran Transfo
Variety of transformers
Pars Switch
Variety of switches
IRAN meter manufacturing Co.
Variety of meters (electricity, gas, )
Maghareh Sazi Iran
Insulators
Niroo Trans
Kinds of measurement trances of owing and voltage

Electrical and hydro mechanical equipment
Iran Water & Electrical Equipments Engineering Co
Consultation
MATN
The operation in the technical improvement in the energy and electrical industry
Electrical industry services
MOSHANIR
Construction
ETANIR
The power transmission equipments
Pars Niroo
The power transmission and building equipments
Nasb Niroo
Power plants and power transmission
PEIMA GHARB
Building and equipments
PEIMANBAR
Power transmission
Guilan Niroo
Switch Centers
Niroo Resani Boostanoo
Building the high and intermediate pressure lines
Isfahan Power plant Repair Co.
Repairing the power plants
Khuzestan Power Transmission Repair Co.
Maintenance of switching centers and transmission lines
Services
RANIR
IT services
Tehran Financial Services
The nancial services and auditing
Bargh Araa
General Services
Poshtibani Sanate Bargh Guilan
General Services
Kish Water & Power
Supplying of the electricity and water
SABA investment
Investment and partnership in the industry of water and electricity
Industrial city of Alborz
Municipal services
Industrial city of Kaveh
Municipal services
Niroochap
Printing Services
Niroo commercial & engineering equipments
Inspection services, supplying equipments
151
Investment Guide
and future prospects. Also methods

of investment in this environment
were reviewed according to their legal
framework. In this chapter the work ow
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
lled qualication forms.
3.3 TAVANIR Co. after studying
qualications 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.
152
4. Conrming 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
Chapter 11
of the power plant to TAVANIR Co.

4.2 TAVANIR Co. submits qualication
forms to the applicant.
4.3 The applicant after lling the forms
in a period of one month submits the lled
forms to TAVANIR Co.
4.4 TAVANIR Co. assesses the nancial,
technical and management qualications
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 conrms the application
and qualications 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.
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
conrmed 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 nancing services.
10. Signing nancing agreement.
11. Ordering and transportation of
equipments.
12. Signing EPC contract.
13. The license of connecting to grid:
after nishing 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 ow chart in Diagram 11.4.1. If the
investor is willing to follow B.O.T scheme
which is supported rmly by FIPPA act
(2002), he shall follow the procedure in
the owchart shown in diagram11.4.2.
Table11.3.1- List of licenses in the process of investment

line
license
The issuing organization
Time of issuing
Investment License
(For foreign investments)
Ministry of Finance
and Economic Affairs
Before closing the contract
The license of Construction
Ministry of Energy
Before starting Construction
Environmental Permit
Iran Department of Environment
Before starting Construction
Operation License
Ministry of Energy
Before commercial operation
The license of connection to the Grid
IGMC
Before synchronization of rst unit
153
Investment Guide
Diagram1.4.11 Procedures for Investment in Iran power Generation Industry on BOO Basis
start
Receipt of application from
the investor
Public announcement to
invite private sector for
investment.
Forecast of Power Consumption

Demand for different regions
throughout the country
Assessment of proposed
power plant
No
Acceptable?
Declaring reasons for

rejecting the application to
the applicant and ministry
of energy
Yes
Sending qualication form to applicant?
Receipt of the lled forms
Examine the forms to check the qualication
No
Acceptable?

rejecting the application to
the applicant and ministry
of energy
Yes
Preparing the general agreement for investment
of the applicant in the specied power plant
Submitting the general agreements

to applicant
Presenting information of
the Grid to the applicant.
Receipt of permit bond
Asking the applicant for feasibility

and environmental studies
Receipt of feasibility and environmental

studies from the applicant
Assessment of the reports

rejection to the applicant and
ministry of energy
No
Acceptable?
Yes
Requesting for proposal
Releasing permit bond to

the applicant
Receipt of nancial proposal

rejection to the applicant
and ministry of energy
nalization of the contract

and its enclosures
Acceptable?
Yes
No
Issuing the
construction
license?
Yes
Proposed
pricings in
frame of
approved rating
scales?
Preparing draft of the contract(Power

Purchase/Energy Conversion)
Declaring the reason of

not issuing the license to
applicant
Declaring the rejection

of the proposal pricings
to the applicant
No
Request for licenses in related
to conrmation of pricings?
Submitting
License?
Determination of the purchaser

of generated electricity
154
Request for Construction License

from the Ministry of Energy
Assessment of proposal in
comparison with last tenders
and a reference nancial
model
Releasing the bond

to the applicant
Chapter 11
Signing contracts
End
Declaring the reason of

not issuing the license
to the applicant
Releasing the bond to

applicant
Flowchart 11.4.2 Procedures for Investment in Iran power Generation Industry on BOT Basis
Taking investment license

from the ministry of nance
& economic affairs
Order to IPDC to
run the project
Budget allocation
Does the project need to be

tendered?
Yes
No
Signing a MoU with

investor
General announcement and

pre-assessment of investors
Choosing/ Conrming
the investor
Choosing a consulting Co. for
feasibility studies/preparing site/
preparing ECA contract
conrming the
closing date
Negotiating on
a predetermined
schedule
Holding tender and

choosing qualied
investor
Choosing project site
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 nance
& economic affairs
Taking environmental
permit
Start on construction
Taking associated permit

for awarding the contract
without tendering
Connecting to fuel and Grid lines
Supplying of equipments
No
IPDC undertakes
costume duties?
Transporting the equipments

to the site
Yes
Receipt of shipment
documents
COD conrmation
Installation of the equipments

Supervision on construction
process before starting
operation
Necessary tests before

starting operation
Operation in concession
period
Transferring back the

power plant to TAVANIR
Operating the power plant

for the rest of its life
155
Investment Guide
156
Chapter 11
157
Investment Guide
158
Chapter 11
159
Investment Guide

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In The Name of GOD

In the name of God

Rapid Social and economic developments in the Islamic Republic of

Chapter 1- Outlook to Iran Power Generation Industry

Chapter 2- Iran Power Generation Industry, an International Perspective 43

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

Chapter 1- Outlook to Iran Power Generation Industry

1-2 Current Generation Capacity

1-3 Prediction of Power Demand in Coming Years

1-4 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 Plants

1-4-3 Geographical Distribution of Existing Power Plants

1-5 Underway Power Plants

1-5-1) Different Types of Underway

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

1-6) General Indices of Electricity Generation in Iran

1-7) Analysis of Electricity Consumption in Iran

1-7-1) Per Capita Energy Generation

1-7-2) Consumers Combination

1-7-3 Major Consumption Centers

1-7-4) Power Consumption Patterns

1-8) performed plans with private sector participation

1-2 Current Generation Capacity

Outlook to Iran Power Generation Industry

1-3 Prediction of Power Demand

Nowadays, electrical energy plays a

other hand, Iran is a developing country

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

Average Actual Power

Maximum Generated Power

Maximum Imported Power

with Maximum Modied Demand

Maximum Modied Demand

4524 177652 419

Maximum Exported Power

Nominal Power of Power Plants

Maximum Supplied Load

15201 170737 2391

Gross Generation of Power Plants

14874 163590 2276

4353 170219 412

Maximum Daily Generated Energy

Net Generation of Power Plants

Maximum Daily Required Energy

Generated Power Factor

Operation Factor of Power plant

Per Capita Power

Transmission and Sub

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

Growth 2005 to 2006

Annual Growth 1995 to 2005

Overhead Medium Voltage

Underground Medium Voltage

Sum of Medium Voltage Grid

Underground Low Voltage