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

Saudi Arabia supplies 100 million barrels of oil to Taiwan annually, accounting for half of all 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 and believed it was unlikely to happen.

‘CPC's deals with Saudi Arabia are carried out according to the terms and obligations of the contract, and will be not obstructed by other investment deals or be unilaterally terminated,’ CPC said in a statement.

‘CPC signed the purchase contract with Saudi Arabian state oil firm ARAMCO. ARAMCO is an international enterprise with good international reputation. Over the past dozens of years, CPC has enjoyed good interaction with ARAMCO. Unilateral termination of the contract has never happened and will not happen,’ it said.

‘As precaution, CPC has asked Taiwan's representative office in Saudi Arabia to check the press report, and hopes the public will not panic,’ the statement said.

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

According to 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-dollar project is scheduled to start in 2010.

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

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

However, Taiwan's enthusiasm for the IWPP project has waned because of the presidential election in March and the upcoming change of government on May 20.

Taiwan's Economics Ministry has been reluctant to approve the investment plan and wanted to leave it to incoming President Ma Yinh- jeou's government to handle, UDN said.

In 2008, Taiwan twice requested a delay for submitting bids - from February to May and the deadline for submitting tender is now June 2.

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

The office of incoming president Ma Ying-jeou, who will be inaugurated on May 20, has not commented on the news report yet.