Power sector in Iraq

19 March 2013

Some progress has been made in raising generating capacity

The inability to provide around-the-clock electricity supplies to the population of Iraq remains one of the worst policy failures of the 10 years since the ousting of Saddam Hussein’s Baathist regime.

Continued power shortages are a political issue in Iraq, responsible in part at least for the widespread protests in Sunni-populated areas against the government of Prime Minister Nouri al-Maliki in recent months.

The current average electricity supply, estimated at 8,000MW, falls significantly short of demand of about 13,500MW. In the peak summer period, consumption rises to 15,000MW. The country’s power grid is able to supply little more than half of demand. The result is that the average Iraqi consumer enjoys just 10-12 hours of power a day, and substantially less at times.

The government is well aware of this failure, but continues to find it a struggle to evolve a coherent strategy to remedy the situation. The main thrust of the Electricity Ministry’s policy is the GE/Siemens megadeal, designed to add some 11,000MW of power generating capacity through 80 gas turbines, which was signed with the US and German companies in 2008.

Missed targets

The ministry, responsible for electricity policy and planning, and management of the system, is working to a sector masterplan that aims to provide a substantial boost in generation capacity. However, it is struggling to meet the timetable and was repeatedly been forced to revise down targets, which sometimes bear little relationship to reality. In May 2012, the ministry forecast that electricity production would reach 12,330MW in April 2013. The actual first quarter 2013 average fell some 4,000MW short of that prediction.

Slippage is endemic. According to the US Special Inspector General for Iraq Reconstruction’s (Sigir’s) latest report, issued in October 2012, actual supply in June 2012 was about 12 per cent below the ministry’s forecast for that month, and the amount forecast for June 2012 was not achieved until September.

Under the original electricity masterplan unveiled in 2009, peak demand was forecast to rise from 11,248MW to 14,729MW in 2013, by which time the ministry hoped installed capacity would have caught up with peak demand. The masterplan envisaged generating capacity growing from 7,436MW in 2009 to 14,717MW in 2013.

Despite the continued shortfalls, some progress has been made in raising generating capacity. According to Sigir, output in the third quarter of 2012 – 7,300MW – represented a 1,000MW increase over the average supply in the previous quarter and was the largest quarterly output ever achieved by the Electricity Ministry. Senior Iraqi officials acknowledge that the expansion process is not going according to plan, and that the ministry’s stated goal of reaching a capacity of 20,000MW by 2015, while still technically feasible, looks unlikely.

That has not stopped the authority from planning expansions. This year, it is aiming to increase capacity to 10,000MW ahead of the peak summer months, and to reach 13,000MW by the end of the year, a figure that would represent a tripling of supply since 2004.

At a practical level, the main focus is to ensure that the GE/Siemens megadeal projects are commissioned. Senior project sources say the schemes are going relatively well, although some of the 11 plants are experiencing delays. Three 500MW combustion-turbine facilities at Diwaniya, Amara, and Nasiriyah are furthest behind in the contracting process, according to Sigir.

Fuel issues

Another key unknown is whether the megadeal power plants will have the right sort of fuel available. UK/Dutch Shell Group/Mitsubishi-led South Gas Company development aims to capture 600 million cubic feet a day of flared gas, which will furnish substantial volumes to power stations. But the programme is still years away from first gas, which means alternative fuel sources will be needed in the interim.

“The idea was that gas turbines would be tri-fuel: able to run on heavy fuel oil, crude oil or gas,” says a project source. “But you need to change nozzles on the machines and modify the gas turbines depending on the fuel that is available.”

Feedstock issues remain a bugbear. According to the Electricity Ministry, the power supply shortfall has been exaggerated by the Oil Ministry’s inability to deliver adequate fuel to run power plants. In August 2012, the Electricity Ministry said power plant production was at least 1,250MW below what it should have been because of a scarcity of oil and low pressure in natural gas pipelines.

Tasked with delivering a huge increase in generating capacity, the ministry has considered various options to ensure a smoother contracting process. It has faced criticism over its handling of the tendering process, which compares unfavourably with that of the Kurdistan Regional Government (KRG). The northern provinces enjoy near 24-hour supply.

The government in Baghdad has grown increasingly disenchanted with its relationship with foreign contractors. In September last year, the Office of the Deputy Prime Minister for Energy Affairs – headed by Hussein al-Shahristani – said the companies that have been contracted to build power plants were new to Iraq and it did not expect them to fulfil their commitments according to their contract obligations and contract period.

Delays are a common gripe, with long gaps between the signing of the initial contract and project execution. “There is a need to expedite the evaluation for the technical and commercial bids, and to ensure that all the engineering, procurement and construction (EPC) companies have a letter of credit that can be provided,” says one senior source in Iraq. The ministry’s approach to tendering is geared to lowest-priced lump-sum bids. However, the tender evaluation process has been criticised for a lack of transparency, and project sources suggest that the MoE’s preferred method is to pick and choose contractors rather than let the tender process take its course. 

The ministry either tenders most power plant contracts or invites selected EPC companies to implement them. For the final remaining plants in the GE/Siemens megadeal, it is assumed that companies will be invited rather than engaged through open tender.

Improvements in the tendering process are only slowly being felt. This stands in marked contrast to the Kurdish region, where foreign advisers note a keener understanding of how to award contracts speedily. “The results stand for themselves – the KRG is able to put contracts in place but the ministry in Baghdad still can’t bring in advisers, be they legal, financial or technical, to help them get on with the projects,” says one consultant active on Iraqi power projects.

Substantial capacity development is needed on the procurement side, but there are some simple remedies at hand that could speed up the tendering and contract award process. Bringing a consultant on board to help with the engineering and procurement process would help. It would provide a mentoring process under which the foreign expert could work alongside senior ministry officials and guide them through the procurement and tender evaluation process, through to contract awards.

The ministry has at least shown a commitment to learning on the job. For example, when it signs contracts with EPC companies, the firms will run the power plants for the first year of operation, which enables ministry officials to learn first-hand how to operate their facilities more effectively. Change is also needed in the financing process. The ministry receives all its funding from the state budget, and there is no immediate prospect of arranging project financing for electricity schemes.

The 2013 budget allocated ID6.1 trillion ($5.3bn) to the electricity sector. Spending on electricity accounts for 21 per cent of the budget.

“The main issue in any sector in Iraq is … how are they going to fund all these projects and reboot the old power plants,” says the Iraq-based source. “The lack of [funding] will delay projects and thwart the modernisation of the system.”

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