The Iraqi Kurdistan Regional Government (KRG) is looking to renegotiate contracts with independent power producers as part of a reforms programme designed to cut costs for the government amid an ongoing fiscal crisis.

“We have very unfair… contracts with [independent power producers],” said the KRG’s Deputy Prime Minister Qubad Talabani in an interview with MEED.

“I think the independent power producers understand that this needs to be reviewed because they’ve gotten away with a really good deal for a very long period of time and they’ve made significant profits out of this.”

Under existing power purchase agreements (PPAs) the KRG has so-called “take or pay” agreements where the government is committed to pay for a certain percentage of the power produced, even if this power isn’t consumed. In some cases the KRG is committed to paying for 100 per cent of the power produced by an independent power producer.

The deputy prime minister told MEED that the KRG is not looking to force power producers to accept a new deal against their will.

“We have to sit down with them in a fair way,” he said. “We aren’t going to impose any solution on them, but we are going to come up with an arrangement that meets international standards. One that ensures they make their profit, and we get a reasonable deal. Our deals right now do not meet industry standards.”

Between 2003 and 2012, available power capacity in Iraqi Kurdistan surged 10-fold to reach 2,750MW, largely as a result of its successful independent power project (IPP) programme.

Jordan-based Mass Global is the largest generator in the Kurdistan region of northern Iraq and owned 2,250MW of capacity in mid-2012. It has developed three IPPs under 15-year build-own-operate (BOO) agreements with the KRG Electricity Ministry, all of which have been built on a fast-track basis.

The first IPP faciltiy was commissioned in Erbil in 2008. As of mid-2012, it comprised eight 125MW gas turbines in an open-cycle configuration.

Mass Holding’s second facility located in the city of Sulaimaniyah entered production at the end of 2009 and a third power plant, located in the city of Dohuk, started operations in early 2011.

The decision to renegotiate contracts with IPPs comes amid an ongoing fiscal crisis in Iraqi Kurdistan that has left the region’s government struggling to pay civil service salaries.

In 2014, the KRG ran a large budget deficit after Baghdad froze payments to the KRG due to a disagreement over independent oil sales. At the same time, an escalation in the war against the militant group Islamic State in Iraq and Syria (Isis) led to increased spending on defence.