Wednesday, June 9, 2010

Iraqi Government Attempts to Reduce Power Consumption

Beginning in June 2010 Iraqis will begin to receive new power bills that are meant to reduce their consumption. They will be charged for the last two months, prices will be doubled, and the more power they use, the more they will have to pay. Consumers will be charged 50 dinars, roughly $0.04, up from 25 dinars, for using between 1,000-2,000 kilowatts per hour, 80 dinars, $0.07, for using 2,000-3,000 kilowatts per hour, 100 dinars, $0.08, for 4,000 kilowatts per hour, and 135 dinars, $0.11, for 4,000 kilowatts per hour or more.

Click on image for larger view

Electricity consumption has seen a huge increase since 2003, but supply has not kept up with demand. After the invasion, Iraqis were freed from sanctions, flooded with cheap consumer goods, and their buying power began to increase. These all led to greater power usage. The U.S. and Iraqi governments also pumped billions into the power sector to boost output. The problem was that both went up at just about the same rate. In the first three months of 2010 electricity output rose to 5,635 megawatts or 135,230 megawatt hours per day.That was a 7% increase from the last quarter of 2009, but supply still only met an estimated 71% of demand however.

The new plan by the Electricity Ministry is unlikely to work. Prices for power are still relatively cheap. More importantly, according to the Special Inspector General for Iraq Reconstruction, most Iraqis don’t pay their electricity bills because they don’t get a steady supply. Many Iraqis still only get a few hours of power a day. Supply is especially bad in rural areas, and outside the major cities. Therefore it doesn’t really matter what the government charges, as long as they don’t provide 24 hours of power a day, the majority of the population is probably unwilling to pay anything for the service.


Kami, Aseel, “Iraqi electricity bills jump in power saving move,” Reuters, 6/1/10

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 4/30/10


AndrewSshi said...

How much of these weaknesses of Iraqi institutions are weaknesses that were inherited from the monarchy and Ba'ath years and how much of these problems do you think were Bremer, Allawi, and Jafaari not really being able to put Humpty Dumpty back together again? Because it seems to me that pre-sanctions Iraq had decent electricity for one thing.

Joel Wing said...

From what I understand Saddam built up a pretty large welfare state with plenty of services and raised the living standards towards the top of the region with the oil boom in the 1970s. That all began to fall apart with the Iran-Iraq War, and it never fully recovered. Basically, from 1980 to the present Iraq's infrastructure has been falling apart, and much of it is still in dire need of work despite all the reconstruction money spent.

In terms of electricity, just the rough numbers seem to show that it was pretty good in 2003 before the war. I have read stories that Saddam was depriving all the provinces of power to keep the lights on in Baghdad, but I don't know if that was true or something the U.S. came up with to justify the lack of power after the invasion.

The power system ran into 3 problems post-2003. 1st the lack of security undermined the rebuilding of the power system and the lines would routinely get knocked out. 2nd the end of sanctions unleashed a huge buying spree by Iraqis, so demand shot way up. 3rd the Iraqi government is pretty incompetent and has wrecked a lot of their own power plants.

Today more power is produced than under Saddam, but as the chart in the article shows, demand has gone up at almost the exact same rate as the power supply has increased.

Jason said...

You know a high school econ student should be able to figure out that they should the increase the price to bring supply and demand into line. Price-fixing ALWAYS causes shortages. ALWAYS have and ALWAYS will. At a minimum, raise the price just above that of neighboring countries and begin purchasing it from them. Remember when all the gasoline was being smuggled out of Iraq because the price was much lower than its neighbors?

Joel Wing said...

The government shouldve started the payment system they just started long ago, but now it probably wont matter since most Iraqis dont pay their bills because power service is so shoddy.

Jason said...

We have a solution for that. If they don't pay the bill, cut them off completely. Geez. I promise you that markets work.

Joel Wing said...

I know I know, but the fact that no one does shows how dysfunctional the government can be.

Joel Wing said...

I should add that the government probably doesn't cut anybody off because they're afraid of more social unrest. They're just coming out of a civil war, there's still an insurgency and terrorism, it's almost 120 degrees each day right now in Baghdad. The government is probably afraid what cutting people's power off in those conditions would do to most people, especially because almost everyone has an AK in the house as well.

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