Reuters/Ankara/Abu Dhabi

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

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

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

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

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

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

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

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

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

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

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

Construction of the Taqa project was originally scheduled to start in mid-2013 and was aiming to create a combined power generation capacity of up to 7,000 MW. “Due to the very high investment cost, if the tensions in the region could have been eased, progress might have been possible,” another energy industry source said.

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

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