Wednesday, November 16, 2011

Iraq’s Plans To Boost Electricity Supply In Disarray


Iraq has had problems with its electricity supply for the last twenty years, because of wars and sanctions. Today, the government claims that it provides eight hours of power a day, but in actuality it usually only lasts four to five hours. Even that generally consists of 15-20 minutes per hour, and then it goes out, which leads to constant blackouts throughout most of the country. People, who can afford it, buy electricity from private generator operators to keep their lights and appliances on. Deputy Prime Minister Hussein Shahristani who is in charge of energy said that all of this would end by 2013. He claimed that only a few more power plants needed to be completed, and the shortages would end. What the authorities have not told the public is that their grand plans are in disarray, and they are no where near meeting their goals of satisfying the country’s electricity needs.

Public power output only meets roughly half of the country’s demand. From August to October 2011, Iraq produced an average of 7,316 megawatts per day, an all time high since 2003. Demand however, stood at 14,038 megawatts, leading to a 6,722 megawatt gap. The previous quarter from May to July, demand was 11,4848, and supply was at 6,574 megawatts. Those aggregate numbers are also misleading, because they include Kurdistan, which has its own power plants that are not part of the national system. The electricity supply to Iraq’s fifteen non-Kurdish provinces then, is actually lower. Overall, production has been relatively flat since 2009, and has become one of the largest complaints amongst the people in recent years.

Sizing up the public’s mood, the government of Prime Minister Nouri al-Maliki has made grand announcements about what it plans to do to fix this problem. Deputy Prime Minister Hussein Shahristani who is in charge of energy promised that Baghdad was responding with a three-pronged plan. Beginning in March 2011, the authorities said that they were fast tracking the construction of 50 small 100-megawatt diesel power plants to boost power supply by the middle of 2012. In May, a massive $2.77 billion initial contract was signed with South Korea’s STX Heavy Industries to build 25 plants. In July, the Electricity Ministry announced a $1.17 billion deal with Canadian Alliance to build ten more power plants, and a $625 million agreement with Germany’s Machinerbrau Halberstadt to construct five more. Rather than 50, the government had now reduced their plans to 40 facilities, but none of that would come to fruition. First, STX ended up objecting to some of the terms of the deals, which mainly focused upon financial demands made by Baghdad, putting negotiations on hold. Second, Canadian Alliance turned out to be an energy consulting company, not a construction one, and the German firm went bankrupt. Those two contracts were cancelled in August, and the Electricity Minister Raad Shallal al-Ani was forced to resign in the ensuing scandal. In September, the Iraqi cabinet modified STX’s contract to build just nine plants, but the money issues are still in dispute, and there’s an open question whether the agreement will ever be completed. The result is that the plan for 50 new power plants has been largely scrapped.

Next, in May as summer approached, the government promised free fuel to generator operators. This was supposed to boost electricity production immediately for many common Iraqis that have to rely upon private power producers. Many claimed they received no such supplies from the authorities however. Fuel is provided two ways through two different ministries. One is fuel produced by the Oil Ministry at its refineries, and the other source is the Electricity Ministry, which imports fuel. Neither of these operations are coordinated, and the fuel is mostly used for the government’s own power plants. Those factors, along with bureaucratic red tape and incompetence could account for the fuel never being delivered to generator owners. This represented the second major failure of the government’s electricity plans.

Third, in the long-term, the Electricity Ministry has been signing several deals to build and expand power plants across the country. Most of this work is to install 56 turbines bought from General Electricity and 16 from Siemens back in 2008 for roughly $4.3 billion. That was financed by treasury bonds issued by the Central Bank of Iraq and sold by the Finance Ministry. All of this work is to be finished by 2013 to 2015.  There is a dispute over how much progress has been made with them. General Electric recently told the press that over half of the 56 turbines Iraq purchased have been placed in factories. The Special Inspector General for Iraq Reconstruction however, reported that ground was not broken for a plant to actually use them until May 2011. That was at Qaryat in Karbala for a 1,250 megawatt plant to be built by Turkey’s Calik Enerji for a cost of $445.5 million that will use ten of the GE turbines, and is supposed to be completed by April 2013. Some of the other planned construction will be in Shatt al-Basra in Basra for a $349 million, 1,250 megawatt power plant to be built by a Greek company that will use GE turbines, and a $308 million, 1,500 megawatt factory in Rumaila, Basra to be completed by South Korea’s Hyundai Heavy Industries using Siemens’ equipment. Given past problems with executing its plans, it can be expected that Iraq will fall behind in these projects as well.

Despite this frustrating list of failures, the Electricity Ministry has had some successes this year. Eight 30 megawatt plants were finished in September in Anbar, Baghdad, and Basra by Hyundai. The original contract was signed back in June 2008, and was supposed to be completed in April 2009 however. The Ministry also brought in a third floating power plant for Basra from a Turkish company with a capacity of 108 megawatts. Together, the three boats can offer up to 400 megawatts to the southern province. These are some minor victories for a government agency that is widely reviled by Iraqis, but not enough to appease them.

The Electricity Ministry is also in a state of flux. A new minister, Abdul Karim Aftan was confirmed in office in October after Ani was forced out as a scapegoat in the power plant scandal of the summer. Aftan appears to be a technocrat with a degree in mechanical engineering from the University of Mosul, a former member of the Engineers Union, who has worked on 90 electricity projects. He has promised to come up with a new strategy to end the country’s chronic power problems. While he may formulate some more practical plans that means nothing concrete can be expected for now. Current projects and timelines are continuing in the meanwhile, but they may be revised, leading to further delays or the curtailment of goals.

Despite all the rhetoric, Iraq is unlikely to fix its massive electricity problems any time soon. At their best, the original plans were not to have any real impact until the middle of 2012. None of those have panned out however, like the fast tracked power plants or the provision of free fuel to private generator operators. Instead, the Electricity Ministry continues to sign deal after deal, announcing them to the public, but with little to show for them. Some might be completed by 2013, but given Iraq’s poor tract record of executing its projects, that may be wishful thinking. New Electricity Minister Aftan may come up with more realistic strategies, but it will take more time for him to formulate them. In the meantime, production will remain relatively stagnant, as it has been for the last two years, increasing discontent amongst the public, and raising their anger at the government who has been unable to meet their needs or fulfill their own promises with such a basic service.

SOURCES

Alsumaria, “New Electricity Minister vows to elevate Iraq Electricity,” 10/12/11

Arraf, Jane, “Iraq’s government shuts down amid 120-degree temps – and no A/C,” Christian Science Monitor, 8/1/11

Bayoumy, Yara, “Iraq eyes fall in deficit, investment increase,” Reuters, 6/10/10


Drummond, James and Shaw-Smith, Peter, “Iraq forced to wait for universal electricity,” Financial Times, 11/14/11 

Reuters, “Iraq cabinet approves GE, Siemens power deals,” 12/14/08

Reuters, Hurriyet, Turkish Weekly, “Work Starts at $450m Karbala Power Station,” Iraq Business News, 5/9/11

Sowell, Kirk, “Inside Iraqi Politics No. 25,” 10/29/11

Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 7/30/11
- “Quarterly Report to the United States Congress,” 10/30/11

Al-Wannan, Jaafar, “Shahristani: electricity crisis will end in 2013,” AK News, 9/24/11

Webb, Simon, “Iraq signs billion-dollar power deals with GE, Siemens,” Reuters, 9/28/08

Zawya, “Iraq Central Bank Opposes Issuing Treasury Bills To Finance Projects,” 9/27/09

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