In terms of projected spending over the next five years, Iraq is the only country in the region whose power sector can compete with that of Saudi Arabia. Between 2012 and 2017, Iraq’s Electricity Ministry plans to spend about $27bn on new power generation, transmission and distribution projects.

According to the energy master plan, about 24,400MW of new capacity will be added between 2012 and 2017

The improvements are required urgently. The average Iraqi household receives power for only 7.6 hours a day. This figure includes homes in the semi-autonomous region of Iraqi Kurdistan, where citizens have 24-hours-a-day access to electricity. As a result of the shortfall, families receive about half of their power needs from household and neighbourhood generators.

Building up enough power generation capacity and the associated infrastructure to source power from the grid is a huge task made greater still by the steadily rising demand for electricity. The plan requires large investment sums, cooperation between ministries and a strong regulatory framework. Iraq struggles on all three counts.

Commissioned power capacity in Iraq

By this summer, the Electricity Ministry expects to have access to about 9,000MW of capacity. Of this total, 6,200MW is fired by gas, steam or hydropower. A further 1,500MW is diesel-fired and power imports and barges account for 1,300MW. This falls significantly short of Iraq’s predicted peak demand for 2012 of 13,500MW.

As outlined by the country’s energy masterplan, about 24,400MW of new capacity will be commissioned between 2012 and 2017. This includes 13,000MW of gas-fired capacity that will come online before 2015, and 7,000MW of thermal power capacity and 400MW of renewable energy by 2015.

A further 4,000MW will be added by the conversion of simple-cycle power plants to combined-cycle technology.

About 1,500MW of new capacity will be brought online in 2012. This will be followed by 7,500MW in 2013 and 2014 and 3,500MW in 2015. Iraq will need to invest $27bn between 2012 and 2017, or $4.5bn every year to achieve this.

Following a busy year awarding engineering, procurement and construction (EPC) contracts for new power plants, the country has a significant number of infrastructure projects in development. According to the Electricity Ministry, 8,408MW of gas-fired capacity is currently under construction. In addition, 3,170MW of steam-powered capacity and 1,300MW of diesel-fired capacity is being built.

The ministry has also announced plans for a further 5,674MW, which is currently in tendering. This includes 3,014MW of gas-fired capacity and 2,660MW of steam-powered capacity. “Contracts for the projects are being finalised and [the projects] will be handed over to companies within the next two months,” says Kosay Sattar, director general of the ministry’s planning and studies office.

Iraq’s spending on electricity projects peaked last year with the signing of several large contracts. The Electricity Ministry’s allocation in the country’s 2012 budget is healthy at $5.6bn. About $1.5bn of the total has been set aside for operating expenses and $4.1bn is to be spent on capital investments.

While the ministry has been allocated a large portion of the overall government budget, the sheer volume of contracts has naturally prompted some concerns from private companies regarding payment. Contractors that have previously been awarded contracts have lamented the difficulties associated with securing fees.

But according to one regional EPC contractor whose firm recently signed an agreement for a power plant, payment is a manageable risk. “This is always a concern to an EPC contractor. That’s why we always try to secure our payments under the contract as much as we can,” he says.

“Moreover, considering the critical power availability situation in Iraq and the fact that the Electricity Ministry is very willing to put the mega-deal power plants in operation as soon as possible, we do not believe that any substantial payment default will occur if we fulfil our contractual obligations in good time and show actual progress on-site as planned.”

Private power projects

As an alternative to government procurement, Baghdad launched a tender for a series of independent power projects (IPPs). The strategy was aimed at sharing the financial burden of rebuilding the power sector as well as attracting international expertise.

The programme, which totalled 3,250MW of power capacity in its original form, was scaled back to 2,750MW in four projects at Samawa, Shat al-Basra, Diwaniya and Amara. The ministry then cancelled the tender in mid-2011, citing disappointing bid submissions and the poor quality of bidders. involved. International developers had avoided the tender due to security issues, lack of guarantees for the projects and the obligation to assume fuel risk.

The ministry then launched tenders for EPC contracts to build the projects. Contracts were awarded for IPPs at Amara and Diwaniya, but were later annulled as a result of corruption allegations. A contract was awarded to Greece’s Metka for the largest of the proposed IPPs, the 1,250MW Shat al-Basra IPP in Basra province. The other three projects are being retendered and awards are expected to be made soon.

Nevertheless, the Electricity Ministry says it has not given up on the private power model. It plans to reassess its plans and tender a handful of small power projects initially to test the framework. Two or three IPPs, each with a capacity of 200-300MW, would be tendered under the latest plans. The sites for the projects are yet to be selected.

Kurdistan independent power projects

While Baghdad’s plans for private power have been largely unsuccessful to date, the same cannot be said of the situation in Iraqi Kurdistan. The region’s population now has access to electricity 24 hours a day. This has been achieved through bilateral negotiations with Jordan-based Mass Global, which has developed more than 90 per cent of the region’s power generation capacity.

The company has been responsible for three power projects in Kurdistan at Dohuk, Sulaimaniyah and Erbil. The Dohuk power project has a total capacity of 500MW, Suleimaniyah has a generation capacity of 750MW and Erbil can produce 2,250MW.

Mass Global plans to increase the overall capacity of each of the projects by converting the plants from simple-cycle to combined-cycle. In December 2011, the company awarded a contract to Turkey’s Enka to convert its Erbil IPP from simple to combined-cycle technology. US-based Bechtel has been selected to carry out the design of the conversion project, which will add a further 500MW capacity to the plant.

With sufficient power-generating capacity to meet current demand, the Kurdistan Regional Government has decided to formalise its IPP-building programme from bilateral negotiations to an open tender process. It has received about 50 expressions of interest to build IPPs at locations across the autonomous region.

Qualified developers will be invited to submit bids to build projects driven by natural gas, heavy fuel oil or hydropower. The winning bidders will design, supply, construct, commission, operate and maintain the IPPs. The plants will add 6,000MW of power capacity in total, which will be carried out in 2,000MW phases of several IPPs each.

Beyond Kurdistan, Baghdad is also planning a move towards combined-cycle, gas-fired power plants. The Electricity Ministry has said it will award contracts between 2012 and 2013 to add 1,925MW of extra capacity to the grid by converting simple-cycle power plants. Between 2014 and 2017, the ministry plans to award contracts for 2,250MW of extra capacity through combined-cycle conversions.

These plans are highly ambitious, as is Iraq’s renewable energy programme. The ministry announced plans for several solar and geothermal projects in 2011, totalling 830MW and including 80MW of solar power projects. It has since revised its scheme down to 38MW of wind and solar farms across six sites in the governorates of Al-Anbar, Al-Muthana, Wassit and Mayssan.

Sattar says renewable energy projects will be granted priority access to the grid. But scepticism remains rife since the country’s large-scale power infrastructure continues to lag significantly behind demand.

It is more likely that Baghdad will become more dependent on power imports in the short term to cover the gap between demand and supply. In December 2011, a 400kV transmission line was completed, linking Amara in the Missan province to Iran’s Karkheh Dam hydropower plant.

Many barriers to increasing power capacity

Plans for the power sector are ambitious and if all are fulfilled, Iraq will become one of the region’s dominant markets for developers, contractors and suppliers. However, many barriers remain. Constantly evolving plans, frequently cancelled tenders, and risks associated with payments, security and corruption continue to hold the sector back.

Nevertheless, progress is desperately required. In a recent survey by the Planning Ministry’s Iraq Knowledge Network, 82 per cent of the 30,000 households polled said they receive 10 hours or less supply of electricity a day. Nine out of 10 families supplement public supply by employing household and neighbourhood generators.

On average, residents in Dohuk, Sulaimaniyah and Basra receive the most hours of electricity each day, while households in Ninewa, Tameem, Salah al-Din, Wassit, Babylon and Missan receive the least. Overall, electricity supply is the worst-rated service offered in Iraq.

More worryingly, about 35 per cent of households surveyed said electricity should be the government’s top priority. In comparison, only 27 per cent said security should take precedence. When citizens of a war-torn country consider electricity a greater priority than their own safety, the government must take action. As one businessman with ties to Iraq tells MEED, “the person who sorts out the power sector will be a hero”.

Overall, the country’s electricity supply has been ranked the worst-rated service offered to citizens

> Download MEED’s Iraq Power research report