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Iraq: The long road to recovery

Issue 4 and Volume 6.

Racked by three wars in as many decades, Iraq, one of the richest oil nations in the world, is desperate to rebuild its electricity system, writes Chris Webb.

The Al Doura power plant in Baghdad, like many power stations in Iraq, was in a state of disrepair. It was restored by USAID who are working closely with the MoE to increase Iraq’s power capacity by 1200 MW, by mid-2025.
Credit: USAID, T. Hartwell
Click here to enlarge image

The full extent of electricity shortages in Iraq are in marked contrast to the country’s vast oil riches. It is almost seven years since the US-led invasion ousted Saddam Hussein, and the country remains beset by chronic power shortages and a crumbling electricity infrastructure incapable of providing more than a few hours of electricity a day.

Unreliable electricity supply is seen as the biggest single hurdle on the road to reconstructing war-torn Iraq. But attracting investment into the sector, seen as crucial to economic growth, has not been easy. Iraqi ministers are now pinning their hopes on a new regulatory framework for electricity designed to open up the market to independent power producers (IPPs) and kick-start greater outside involvement in the industry.

Iraq’s Council of Representatives is currently considering a draft law to grant authority to the Ministry of Electricity (MoE) to engage domestic and foreign private companies in the production of electricity.

The law would provide an open and transparent framework for the relationship between the MoE and private power generators. A Regulatory Office would handle all regulation and contract work for IPPs and public private partnerships (PPPs). The move is intended to give investors regulatory certainty, and signals the first step in an unprecedented effort to open up electric power generation, transmission and distribution to outsiders.

SHOCK AND AWE

Prior to the 1991 Gulf War, Iraq had a total installed generating capacity of 9295 MW and a peak demand of about 5100 MW. International Energy Agency figures show some 87 per cent of the population had access to electricity. But the electricity system suffered severe damage during the conflict, in which a number of key transmission lines were put out of service, and many substations were damaged.

After the war, some of the damage was repaired and about 4500 MW of generating capacity was available in 1999, when Iraq reorganized its electricity sector. The shake-up included separation of the sector from the Ministry of Industry, and the formation of the Commission of Electricity (CoE) to oversee it. Power supply remained insufficient and unreliable, however, and programmed load shedding and unplanned power outages were frequent.

Although the power system was not significantly damaged by the current conflict, which began in 2003, capacity was further reduced to some 3300 MW largely as a result of a combination of further breakdowns, lack of spares and interruption of major maintenance cycles.

In July 2004 the PCO, the agency responsible for coalition projects, said electricity demand was 6400 MW, contrasting unfavourably with an availability of just 4470 MW. Soaring temperatures in summer months were to widen the shortfall still further, pushing demand to between 6800-7500 MW as Iraqis reached for the air-conditioning.

In 1990, its installed capacity of 9295 MW consisted of 120 generating units in various thermal, gas turbine and hydroelectric power stations. In the war that was to follow approximately 70 per cent of Iraq’s installed power generating capacity was damaged or totally destroyed.

All major power stations were damaged and nearly 80 per cent of the country’s installed gas turbine units were affected to some degree. Only 50 units remained available after the war, representing a generation capacity of 2325 MW, while construction work on three new large thermal power stations at Yousifiya, Al-Shemal and Al-Anbar was suspended due to the punitive sanctions which followed.

INFRASTRUCTURE CONTRACTS

The task facing the newly formed MoE is daunting. Over the coming decade, the MoE’s General Plan has identified 24 GW of generation projects, along with a range of transmission and distribution initiatives. The ministry has also identified a number of fuel-related projects such as the construction of methane gas gathering, treatment, and delivery facilities, which will help bolster the power sector.

To this end, two major contracts were signed in 2009, one with GE and another with Siemens, for a total of 10 840 MW of new generation equipment, together worth some $5 billion. They provide for the delivery of core generating equipment such as turbines and generators.

In September, Canada’s SNC-Lavalin Group and the Iraqi-owned URUK Engineering Services each won contracts worth $85 million to install six of the turbines delivered by GE. SNC-Lavalin will install two 125 MW turbines in Hilla in Babil province in the next 18 months, while URUK will build a power plant with four 40 MW generators in Taji, Baghdad province.

The awards signal the Iraq government’s determination to restore power to the grid after many years of conflict, neglect and sanctions. But the MoE foresees a further $7 billion investment will be needed for plant construction, related fuel facilities, commissioning and transmission expansion, and is eagerly looking to the private sector to participate.

The ministry hopes its latest initiative will go some way towards attracting outside interest. The MoE and Iraq’s National Investment Commission have established a joint committee to recruit developer-investors; they will be needed initially to spearhead construction of 4000 MW of generation and the initiative marks an unprecedented and formal commitment to attract private money into the sector.

That is not to say that in the post-war period the sector has been starved of investment. In the period between 2003 and 2006, the United States lavished around $5.1 billion on rebuilding the oil and electricity sectors, along with a further $3.8 billion in Iraqi funds.

But mindful of the need for still greater investment, Iraq last September hosted a conference in Baghdad for international power companies setting out its needs for the electricity sector up to 2012. The government has set itself a target to add 12 GW over the next few years.

Part of the programme will be funded by a loan, agreed in August, from the International Monetary Fund. The loan is for $5.5 billion over five years at one per cent interest. The IMF stipulated that it be spent on development projects, and most of it will go to improving the power system.


The Baiji thermal power plant, which is one of the most important in Iraq, is slated for rehabilitation
Credit: USDOD, H. Weddington
Click here to enlarge image

Yet there remains a number of cumulative factors that are frustrating attempts to meet a growing demand for power in the country as fast as ministers would like. And some are out of the government’s immediate control. Iraq’s minister of electricity, Kareem Waheed says the country does not have enough fuel to run some of its power plants and the country’s budget problems are limiting the ministry’s spending power to boost and maintain production. Although the ministry saw its budget more than double from $1.4 billion last year to $3.4 billion in 2009, almost all of the additional money went on operational costs.

As a result, Iraq’s power plants operate at less than half capacity. The problem is exacerbated by the fact that Iraqis have problems operating, maintaining, and sustaining plants installed by the Americans since the war. Before the US and allied invasion, Iraq relied chiefly upon foreign engineeers to operate their electrical system. Many of these technicians fled the country, leaving Iraq with an acute shortage of trained personnel.

The country’s hydroelectric power generation capacity has also been hit by drought, while violent sand storms have damaged a great deal of electricity generation and transmission equipment. And the electricity sector has suffered its own terrible human losses; the ministry says 1000 of its staff have been wounded or killed since the start of military operations.

Stability Returns

The increase in demand is an indicator that a thriving economy may be emerging from three decades of isolation, with more than half a million new jobs created, new industries and new factories. But the shortfall in the demand-supply balance means the MoE struggles to reduce electricity rationing; consequently, many ordinary Iraqis have access to power only for an average of 14 hours per day, and even less in some areas of Baghdad.

Currently, even the more prosperous areas of the capital city enjoy only twelve hours of electricity per day, and this only intermittently. Most areas of the city can expect between six and eight hours of power a day. The majority of the unmet demand is being served by private individual and neighbourhood off-grid generation.

Yet electricity production is growing steadily as damaged infrastructure is brought back into service. To date, the MoE says it has increased electrical output for five straight quarters. In the first quarter of 2009, Iraq reached a new post-war high in electrical output of 155 000 MWh/day, an improvement of over 50 per cent compared to the same period in 2008.

From January to March 2009 output averaged 118 485 MWh/day while, with imports of 13 021 MWh/day from neighbours Iran and Turkey, total supply reached 131 506 MWh/day. This was the third straight quarter that production showed an increase, and was a ten per cent up from the last three months of 2008. The figures represented an availability of 6300 MW, significantly above the 4075 MW supplied under Saddam’s regime in 2003 before the invasion, and considerably more than the 4800 MW available in 2008.

Urgent need for repairs

Low availability of spare parts and poor maintenance contrived to hamper electricity supplies for the best part of two decades. Iraq had one of the largest electricity generation capacities in the region, accounting for around ten per cent of its total prior to the first Gulf War. But a combination of international sanctions and obsolete technology reduced the available capacity to a third of that installed immediately after hostilities. The situation worsened further due to looting after the second Gulf War.

As a result, large-scale maintenance projects became a top priority for the CoE, a body given sweeping operational authority as well as financial resources to get Iraq’s electrical grid back online after the conflict. Eight of the 17 400 kV transmission lines destroyed during the war were repaired by late 2003, along with over 100 of the 750 or so high-voltage towers that had collapsed.

Repair work was also commenced on the 132 kV network, resulting in the majority of the lines and almost half the 262 towers being returned to service. These post-war maintenance projects included repairing cables, cutting high trees near wires and cleaning converters. At the same time efforts were stepped up to build new facilities.

Shortly after the war, Technoprom, a Russian company, began work on a new thermal power station at Yusufia, while another became operational at Kirkuk in 2006, representing a $178 million bite of the more than $18 billion spent by the US on rebuilding Iraq’s infrastructure.

USAID and Bechtel were both active in the sector after the war, each working closely with the MoE to build a number of new power stations and producing 1200 MW by mid-2005. Together with Bechtel’s project at Kirkuk, two other new generation projects in Southern Baghdad and Mussayyib added 440 MW to online capacity. USAID also worked on restoring the Al Doura power plant.

In a second phase of rehabilitation, Bechtel recommended the rebuilding of a number of other stations including work to restore the giant 1320 MW Baiji plant. Additional works included installation of smaller generation units of up to 5 MW at Umm Qasr port and Baghdad International Airport and 50 MW units to support domestic supply in Baghdad.

The MoE has been keen to maintain this momentum of effort in the electricity sector and, in May of this year, Iraq signed a $120 million deal with Pratt & Whitney, part of United Technologies Corporation, to build a gas power station with a capacity of 180 MW. The plant will have four units and will be built in Iraq’s province of Maysan which, like much of the rest of the country, suffers power shortages and rationing.

It follows the 2007 show of support for Iraq’s reconstruction initiatives by the World Bank, which approved $124 million in credit for a major electricity reconstruction project. The project was aimed at doubling the output of the Hartha power station in the southern Iraqi city of Basra, from 400 MW to 800 MW, providing additional generating capacity to the national grid and benefiting household and industrial consumers alike. The total cost of the project was an estimated $150 million.

Hartha was the second power rehabilitation project in Iraq to be funded by the World Bank. The lender approved $40 million in credit in December 2006 for the repair of two hydroelectric power stations in the semi-autonomous Kurdistan region in northern Iraq.

Siemens has had operations in Iraq for over 40 years. The €1.5 billion ($2.3 billion) contract with MoE represents one of its biggest ever orders in the Middle East. It will supply 16 high-efficiency gas turbines with a total capacity of 3150 MW for the expansion of the country’s power system.

The new power plants will run on natural gas or oil and are to be built at Rumaila-Basra, Taza-Kirkuk, Dibis-Kirkuk, Baiji and Sadder-Baghdad. The company’s scope of supplies and services also comprises high-voltage switchgear and transformers in addition to the electrical balance of plant, as well as the instrumentation and control systems for the power plants. Siemens will be supplying the components. The plants will be built by the customer or by contractors.

The Iraqi government’s plans ultimately envisage quadrupling the country’s installed capacity by 2015. Politicians raised the key issue of electricity supplies during the January 2009 provincial elections, and it could well be an issue again in the run-up to the 2010 parliamentary elections, giving further impetus to restoration efforts.

Both the American and Iraqi governments have invested billions in the electricity system, and production is far improved beyond what it was in the years before Saddam Hussein’s fall, yet it is still not sufficient to meet demand. With Kirkuk reportedly the only city in the country enjoying 24-hour power, a milestone achieved only in June, the MoE is only too aware that it has a long way to go. MEE

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