Taipei  - Saudi Arabia has threatened to halt oil exports to Taiwan over Taipei's reluctance to invest in Saudi Arabia's power and water desalination plant, a newspaper said on Monday.

According to the United Daily News (UDN), Saudi Arabia feels cheated by Taiwan's delay in investing in the Independent Water & Power Provider (IWPP) project, so it has threatened to suspend oil exports to Taiwan.

Saudi Arabia supplies 100 million barrels of oil to Taiwan every year, accounting for half of Taiwan's oil imports. "If Saudi Arabia stops oil import to Taiwan for two weeks, Taiwan will face an oil crisis," the paper said.

But the state oil monopoly Chinese Petroleum Corp (CPC) denied knowledge of Saudi Arabia's threat to stop oil exports to the island.

"We have had a good relationship with for many years. Saudi Arabia has signed a long-term oil supply contract with CPC which is renewed almost automatically every year. We have not heard about Saudi Arabia's threat to stop oil export," a CPC press officer said, asking not to be named.

Saudi Arabia switched diplomatic recognition from Taiwan to China in 1990, but Riyadh and Taipei have maintained close trade ties.

According to the UDN, the Taiwan government in 2006 instructed the Taiwan Power Co, Taiwan Water Works Corp and Taiwan Cogeneration Corp to invest in IWPP, a power and water desalination plant in south-west Saudi Arabia.

The 190-billion-US-dollar project is scheduled to start operation in 2010.

The Taiwan firms have teamed up with Saudi Arabia's Al Raihi and Al Khorayef companies to form a joint venture to prepare to bid for the project, and has passed the first-phase qualification screening.

Of the 38 companies that took part in the first-phase qualification screening, 11 have moved into the second-phase qualification screening.

However, Taiwan's enthusiasm in the IWPP project seems to have cooled because of Taiwan's presidential election in March and the change of government upcoming on May 20.

Taiwan's Economics Ministry has been dragging its feet on approving the investment plan, apparently wanting to leave it to incoming President Ma Yinh-jeou's government to handle it, UDN said.

In 2008, Taiwan has twice requested delay in submitting bids - from February to May and then May. The deadline for submitting tender is June 2.

If Taiwan withdraws from the project, the daily said, the two Saudi Arabian firms may sue Taiwan for damages and the Saudi Arabian government could suspend oil exports to Taiwan.

The office of incoming president Ma Ying-jeou, who will be inaugurated on May 20, has not commented on the news report about Saudi Arabia's threat to halt oil exports yet. (dpa)