Central to the reconstruction of Iraq and to the economic future of the country is electric power. Significant progress in restoring power supplies has been made but the pace is slow and is being hampered by security problems and the shortage of fuel.
There can be few tougher challenges in the world for power industry professionals right now than the restoration of adequate electricity supplies in post-conflict Iraq. It is hard to underestimate the importance of the task, given the fragile security situation in the country.
Like dropping a stone in a pond, the restoration of power to Iraq will send out ripples in ever-widening circles enabling industry and commerce to operate, affecting every facet of Iraqi society. But under the sweltering city heat of 49°C and 100 per cent humidity, the slow progress in re-establishing reliable power supplies is proving to be a continuing source of discontent.
Responsibility for the overall reconstruction effort in Iraq lies with the US government and the Coalition Provisional Authority (CPA), and is supported by the US Agency for International Development (USAID). The role of principal contractor for the repair of Iraq’s infrastructure has been given to San Francisco-based engineering and construction firm Bechtel Group. The group’s Bechtel National division was awarded an initial contract in April by USAID. The contract calls for the repair, rehabilitation or reconstruction of vital elements of Iraq’s infrastructure. This includes assessment and repair of power generation facilities, electrical grids, municipal water systems and sewage systems. The CPA and USAID have now approved Bechtel’s infrastructure implementation plan, triggering a major mobilization of work in the project’s priority areas.
Iraq’s power system has a nameplate rating of about 10 GW, with up to 4500 MW currently available
Although the Pentagon has insisted on only US firms being chosen as prime contractors for reconstruction contracts, opportunities for local and international firms will arise from the many sub-contracts. From May through to July, Bechtel National held a series of contractor-supplier conferences to inform the worldwide contracting community of its role in USAID’s Iraq Infrastructure Reconstruction Programme. Potential sub-contractors for work under the programme are required to register and by the middle of August around 9100 firms from 95 different countries had done so. Bechtel has awarded 75 subcontracts, 41 of which have gone to Iraqi companies, many focusing on security and surveying activities.
Bechtel itself has 160 people in camps and offices at four locations throughout Iraq and is managing approximately 300 Iraqi engineers provided by Iraq’s Ministry of Housing and Ministry of Education to complete the assessments, develop the scopes of work, help manage the Bechtel subcontractors, and perform inspections.
The infrastructure contract provides for funding of up to $680 million over 18 months, of which $229 million will be used for electric power rehabilitation. To date, $61.4 million has been allocated to rehabilitate the turbine and control system at the Doura power station, rebuild water treatment centres at power plants throughout Iraq, purchase parts and equipment for transmission line repair work, and provide technical assistance.
The funding is only a small fraction of the cost of the full extent of work envisaged. McKinsey has estimated that $10-15 billion will be needed just for electricity and telecommunications.
The individual taking up the challenge of getting Iraq’s power industry operational is Bechtel National’s Dean Hagerty, who has been appointed head of power for Iraq. Hagerty has been in the region since late April 2003, initially making regular sorties from Kuwait, but now based in Baghdad. When Bechtel first arrived, electricity generation in Iraq stood at 1275 MW. This amounted to 23 per cent of the pre-conflict level of 5500 MW. “Most of the plants here are basically worn out due to the lack of spare parts. With a nameplate rating of about 10 000 MW for the country, they have about 4500 MW potentially available, 1000 MW of which is hydropower”, explains Hagerty.
Iraq’s power infrastructure is largely based on 1960s technology
Bechtel’s primary objective is to get power supplies back up to 4000 MW before the end of the summer. Hagerty said, “The system is still fragile. It has been necessary to introduce a rotating blackout schedule over all of the country. This three hours on, three hours off schedule will continue for some time.”
Iraq’s power infrastructure is, to a large extent, based on 1960s technology. It utilises a mixture of technologies and specifications from a wide variety of suppliers, including a significant amount of Russian technology. Prior to the first Gulf War in 1990, the country had an estimated generating capacity of 9500 MW but a large amount of damage was done to power plants and the transmission and distribution infrastructure during this conflict.
The intervening years did little to restore the shortfall and in November 2002, the UN estimated total power generation capacity as 4300-4400 MW. Much of the disrepair has been down to mismanagement, under-investment and lack of maintenance, hampered by an international trade embargo preventing the import of spare parts. A relaxation of the embargo through the Oil for Food programme allowed the import of equipment for the power infrastructure but it seems likely that relatively little equipment actually found its way to where it was needed.
The extent of the decay has only been fully realized following post-war assessments. Many generating units require extensive rehabilitation before they can be operated as a result of under-funding of the industry over recent years. Bechtel has found that routine maintenance activities were deferred due to a lack of funds, which has had a major impact on reliability.
Damage to the power infrastructure caused directly by the war this year has been relatively light. However, the latest coalition report estimates that more than 290 km of transmission lines were looted across the country, affecting 18 transmission lines plus nine ancillary ones. Towers have also been damaged with over 60 pylons down in the eastern section of the country and the attacks have incapacitated the main transmission line from southern Iraq.
According to Hagerty, the situation is now showing some sign of improvement: “Security is steadily improving and the looting continues to decrease.” Numerous towers were cut down for steel and to obtain the aluminium conductors. The effects of this are still being felt, as the towers are under restoration and the lines being re-strung. This will continue for several months.”
Looting and sabotage is undoubtedly hampering efforts, along with the shortage of fuel. The supply of oil, which fuels much of Iraq’s power industry, has been significantly disrupted, adding to the difficulties.
A frank picture
According to Hagerty, Iraq’s electrical system is currently generating 3500 MW with a maximum output of 4500 MW. National demand is between 5000-6000 MW and the shortfall means that supply is unreliable. A national energy and load-shedding policy was approved by Iraq’s Electricity Commission in order to achieve more planned and equitable electricity usage by Iraqi citizens. Before the war, Baghdad could depend on 16-24 hours of electricity a day while Basra and other cities in the south received far less. Now power is to be dispatched to the previously excluded northern region and Basra’s power plant is supplying more electricity to the city than ever before.
Residents of Baghdad were given a frank but depressing picture of the likely timescale for restoring continuous power to the city at the end of July. Baghdad utility director, Nafeaa Adel Sadah, told a meeting of community leaders that it might take one or two years to achieve and that it would take at least four months to fix a the major transmission line from Basra to Baghdad. “I think there’s a misunderstanding about electricity and a belief that this could be changed in a few months,” said Hank Bassford, the coalition’s regional co-ordinator for Baghdad. “It wasn’t 100 per cent before the war, and now they’re only getting power for Baghdad from Baghdad.”
It is also likely to be a further month before a viable power supply can be restored to Basra as major repairs are needed to the region’s main electricity generating plant and grid network. Many residents of Basra were left without any power for an entire week in early August and this was blamed for clashes between UK troops and rioters.
Coalition officials say that damage increasingly appears to be the result of organized sabotage, rather than mere looting. Two 400 kV lines which link the grid in the north with that in the south have been cut as well as four strategically important lines supplying the south’s main oil refinery at Shuaiba which now only operates sporadically using emergency generators. A key 400 kV line from Bayji to Baghdad has been repaired and re-energized, enabling excess power from the north to be sent to Baghdad.
Without a link to the main grid, little power can be transmitted through what remains of the local system, according to Abdulkerim Ashur, the deputy general director of the Southern Electricity Generating Company. “My grid is so weak at the moment that any defect causes a complete shutdown,” he said. An overload caused by peak summer demand has recently damaged the boiler in one of the two units at the Najibiya power station. The other 1970s installed unit at Najibiya has been out of action since April.
Security has now been stepped up around the region’s four power stations and where lines have been torn down so that repair work can be done.
Bechtel has had to use temporary and supplemental power solutions for specific needs such as opening the port at Umm Qsar, where Aggreko provided 21 MW of temporary power, supplying Baghdad Inter-national Airport and spot generation at water treatment facilities in support of humanitarian requirements.
Contractors will benefit from the local knowledge of Iraqi power sector employees and subcontractors
Initial indications that Iraqi companies would benefit from the lion’s share of the reconstruction contracts appear to have been modified with Bechtel now saying that only 50 per cent of the reconstruction work will go to Iraqis. It remains the case that foreign companies will need the co-operation and goodwill of local people, and jobs will be the best way of achieving this. By working with local companies, outside contractors will be able to access low cost labour with local knowledge. “The emphasis is to perform as much work as possible with Iraqi labour using Iraqi sub-contractors,” said Hagerty.
The fact that there are opportunities for both local and foreign businesses to develop an adequate power infrastructure is without question. However, until the security situation in the country is brought under control, foreign firms will be reluctant to make any commitments. At present, most of the repair work that is being undertaken is carried out under armed guard.
Consideration will also need to be given to contracts Iraq has signed in the past for work in the power sector. It was reported that Iraq has signed contracts for renovating two generation units at the Harithah power plant and another to rebuild the Yusufiyah plant, which ceased operation in 1990. Iraq’s Electricity Authority reportedly signed other contracts to add 3000 MW of generating capacity with French, Swiss, Chinese and Russian companies although trade embargoes blocked these deals.
Another major issue for prospective investors in Iraq will be finance. At present the UN, World Bank and IMF are undertaking 14 scoping missions, including examining the needs of the power sector, ahead of a major international donors conference scheduled for October. The security situation in Iraq will also have a bearing on the extent to which international lending institutions are willing to finance the reconstruction of Iraq.
The question of past debt, which stands at five times Iraq’s GDP, will also have to be tackled through rescheduling and write-downs. The Institute for International Economics estimates this could be in the range of $103-129 billion, excluding reparations to Kuwait. Iraq’s liabilities are mainly ‘loans’ from the Gulf states made in the 1980s during the war with Iran but both France and Russia have $8 billion outstanding to them, with the remaining Paris Club members being owed a further $10 billion.
Income from Iraq’s oil exports will make a vital contribution to financing the country’s recovery but oil will not generate anywhere near enough to pay for the country’s reconstruction. Ambassador Paul Bremer, head of the CPA, told the first meeting of Iraq’s Economic Consultative Council back in June, that Iraq’s economic recovery would depend on the government’s ability to persuade businesses at home and abroad to invest in the country. His proposals included changing economic laws and tax rates, and privatizing state-owned businesses. Foreign investment will rely on confidence and an open economic system.
In order to meet Iraq’s future demand for power, predicted by the UN to be increasing by four per cent per year, it has been estimated that up to 10 000-15 000 MW of new generating capacity will need to be added in the country by 2015. Although the focus of those involved in Iraq’s electricity sector is predominantly on the short-term task of ensuring a reliable supply, some consideration is also being given to longer-term needs of the sector.
Hagerty confirmed that issues such as power requirements, fuel mix and electricity interconnections are being studied but said that until the studies were complete, it was inappropriate to comment. No long-term contracts for electricity have yet been issued. “All those involved are looking at requirements down the line as well as the immediate needs.”