Frustration in Iraq over the lack of power provision came to a head in mid-2010. Those worst affected by blackouts in the south took to the streets to protest. In the end it became too much for Electricity Minister Karim Waheed, who handed in his resignation. The frustrations were understandable. Peak demand for power is estimated by international consultant Parsons Brinckerhoff, in agreement with the Electricity Ministry, to be around 12 gigawatts (GW). Although installed capacity is recorded to be 9,197MW, the actual output is much lower than this owing to the poor state of the power plants. According to the Iraq Energy Institute, stations were delivering just 4,792MW in August 2010. Parsons Brinckerhoff’s estimates put this at 6,740MW. This means that in the best case scenario, Iraq is only meeting two thirds of demand and in the worst case, less than half. Without new investment only 6,741MW will be in place by 2015 and 2,457MW by 2025.

Private involvement for Iraq power sector

Parsons Brinckerhoff is the author of the Iraq 20-year masterplan published in December 2010. It states that the cost of this unmet demand is $40bn per annum. “We calculate that the opportunity cost of not meeting demand is $3 a kilowatt hour,” says Jeff Larkin, country manager for Parsons Brinckerhoff.

Lack of finance is costing the country $40bn per annum in power provision costs

Parsons Brinckerhoff

A major decision that influenced the generation programme was taken by the US to divert $1.3bn earmarked for new generating capacity into the security and governance budget prior to the first elections in 2005. About $2bn was invested in the transmission and distribution network but the generation sector lost out.  Instead it was intended that investment in new capacity would come from the private sector.

Five years on and private involvement is gathering pace. The Electricity Ministry has now received bids for four independent power projects (IPPs), three of 500MW at Diwaniya, Amara and Samawa, with a fourth larger 1,250MW IPP at Basra. The bid deadlines were extended by 30 days to mid-February and advisers saw up to 15 companies pitch for the schemes. Evaluation of these was due to take place in April with financial close expected between June and September. However, the extended deadlines are likely to lead to financial close later in the year.

Achieving financial close will be a major challenge for the projects. Sources close to the schemes say they are concerned that a lack of support from export credit agencies (ECAs) will lead to a lack of investment from banks.  Only the UK and US’ ECAs currently provide cover to Iraq and insiders say this must increase. Banks concur that support from ECAs and multilaterals will be critical to the successful financing of the schemes and that the appetite for lending is low.

Pursuing the IPP programme is just one of several major steps which have been taken over the past few months. Perhaps the biggest achievement is the news that the Oil Ministry has agreed to provide feedstock to new capacity coming online after 2015. This is a major step forward. A lack of feedstock guarantee in the past was cited as a reason for a lack of investment in generating capacity.

Gaining support

Confidence has also been buoyed by the appointment of Dr Hussein al-Shahristani to Deputy Prime Minister for Energy in December 2010. Al-Shahristani, a nuclear scientist by background, is an advocate of better coordination between the electricity and oil ministries. Under his supervision the Oil Ministry will move forward with increases in oil and gas production and the Electricity Ministry will aim to deliver the 13GW of new capacity committed to in 2009, with the huge gas turbine megadeal signed with Siemens and the US’ GE.

The GE deal will see around 7,000MW of turbine capacity provided for 10 plants with a further 3,190MW from Germany’s Siemens.

Project delays continue in Iraq’s desalination developments. Plans for a giant seawater processing facility for injection into its southern oil fields are expected to be delayed due to the amount of engineering and financing the project requires. The estimated $10bn Common Seawater Supply Facility is intended to process 15 million barrels a day (b/d) of seawater from the Gulf to provide as much as 12 million b/d of treated water to fields awarded in Iraq’s first and second oil licensing rounds. Success of these projects depends on financial support, timely execution of the schemes and coordination between government departments.

Investment requirements are high, but lack of finance is costing the country $40bn a year in power provision costs. “This is a conservative figure. Delaying anything costs the economy dearly, the country needs to move forward rapidly,” says Larkin.