July 7 (Bloomberg) -- Turkey lost European financing for a hydroelectric plant on the Tigris River after failing to offer environmental protections such as relocating antiquities from the Middle Ages that will be flooded by the dam.

Austria, Germany and Switzerland canceled 450 million euros ($630 million) in state export-loan guarantees because Turkish plans to resettle towns and safeguard cultural treasures weren’t “sufficient” to meet World Bank standards, Vienna-based export agency Austrian Kontrollbank AG said today in a statement.

The decision threatens the Ilisu project, a cornerstone of Turkey’s three-decade-old plan to generate power on the Tigris in a $32 billion electricity-and-irrigation plan in the mainly Kurdish southeast near the Syrian-Iraqi border. The central government has tried to support the region’s growing economy that has been undermined by conflict with Kurdish separatists.

“Our critical view of Ilisu was correct from the beginning -- if protection of people, the environment and culture can’t be guaranteed, then the delivery and credit guarantees must be ended,” German International Development Minister Heidemarie Wieczorek-Zeul said today in an e-mailed statement.

Ilisu calls for a new 1,200-megawatt power station, equivalent to a large coal or nuclear plant, as one of an eventual 22 dams and 19 power plants in the impoverished region. Turkey had planned to relocate antiquities and monuments from Hasankeyf, the region’s only surviving city built during the Middle Ages, with roots dating to the Assyrians.

Animal Habitats, Relics

Critics of the project, which would create a 300 square- kilometer (116 square-mile) lake, include Turkish novelist Orhan Pamuk, who won the Nobel Prize for literature in 2006. The dam would destroy 400 square kilometers of river habitat that includes such species as the Euphrates soft-shell turtle.

“Compliance with international standards is a fundamental element for export guarantees,” Austrian Kontrollbank said. “The export-credit agencies have made strong demands since the beginning of the process.”

Turkey’s environment ministry criticized the decision to cancel the financing as “political.” Turkey has fulfilled all criteria set by the lenders to start work on the dam, the ministry said today in a faxed statement. The government is determined to continue building the dam because it’s key to irrigating the southeast, it said.

Turkey will build the dam with its own money if foreign loans aren’t forthcoming, Eroglu told reporters in Ankara on July 1.

The proposed credits for the Ilisu project are made up of 450 million euros ($627 million) in state guarantees and 750 million euros in commercial loans, according to officials from Yuksel Insaat, a Turkish constructor involved in the work.

3,000-Year History

Turkey is developing hydroelectric, wind and nuclear power to meet electricity demand that’s growing at about 8 percent a year. The nation may need as much as 34,000 megawatts of new generating capacity by 2017, according to a study last year by the state electricity company.

The government had planned to preserve and restore the upper part of Hasankeyf, including historic mosques, stone houses and caves, according to a July 1 briefing. The country also plans a museum to house historic relics that will be removed from the lower parts of Hasankeyf, Environment Minister Veysel Eroglu said at the time.

The town, set in a deep gorge on the banks of the Tigris, traces its history back more than 3,000 years and has remains dating to Assyrian, Roman, Byzantine and Ottoman periods.

When completed, the project will generate 3,800 gigawatt- hours of power annually, or 2.4 percent of Turkey’s current output, according to Energy Ministry figures.

To contact the reporter responsible for this story: Jeremy van Loon in Berlin at jvanloon@bloomberg.net.

Last Updated: July 7, 2009 09:05 EDT