Iraq to revisit private power

30 October 2011

Baghdad plans to relaunch IPP programme due to power shortages. Lessons must be learnt from the failure of previous attempts at attracting the private sector

Iraq has long suffered as a result of a vastly insufficient power generation supply/demand margin. The Electricity Ministry had hoped to turn this around in 2010 when it launched the country’s first independent power project (IPP) programme. However, the scheme fell apart in May when the quality of the bids, and the bidders was called into question.

The ministry is now considering a relaunch of the programme. Details of the new scheme are not available at this stage, but if it is to avoid the fate of the first scheme, its deals will need to be structured differently.

Many international firms shied away from Iraq’s IPP programme due to the high risks associated with the deals. Iraq’s refusal to guarantee access to gas feedstock was central to this. The government said that the developers would have to secure the gas supply and that the situation would be reviewed in four years.

The lack of relevant legislation, regulation and an established project model also scared off developers. The government indicated that contract commitments would take precedence should they be signed before the electricity law, but the issue continued to trouble investors. These problems, coupled with the fragile security situation, meant the IPPs were too risky for many.

Another problem the firms had with the Iraq IPP was payment. Engineering, procurement and construction contractors have complained that contract signings and payments happen long after contract awards in Iraq. This issue is especially important for IPP developers as they rely on being paid over several decades. In a country where governments and ministers come and go several times a year, it will be an additional source of worry for investors.

Much is at stake. The development of new projects, as IPPs or otherwise, should be one of the Iraqi government’s key priorities. Demand is growing six times as fast as capacity and as other sectors of the economy recover in the post-war period, Iraq will need more power.

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