VOL. XLVI
No 17
IRAQ
Iraqi Power Industry Requires Up To $10Bn Capital Investment In Next Five Years
The post-Saddam government in Iraq faces the problem of a major shortfall in electric power generation capacity, with around 6 gigawatts (GW) of new plant required by mid-2006, according to independent consultant Isam al-Khalisi. Formerly a senior engineer with Iraq’s National Electricity Administration, he writes in an article exclusive to MEES (see D-Section) that up to $10bn of investment would be required in Iraq’s power generation and supply system over the next five years, in order to rehabilitate damaged and ageing plants and equipment as well as install new capacity.
The war in Iraq led to shutdowns of much of the country’s power network, but Mr Khalisi perceives that most of the consequent damage to the transmission and distribution system will prove relatively easy and quick to repair. However, a full rehabilitation of the entire generation and supply system would require the repair and replacement of much equipment damaged in the aftermath of the Gulf War of 1991. He writes that by 1991 Iraq had built a grid of thermal, gas and hydroelectric plants with a maximum generating capacity of 8.5GW, required to meet a peak demand of less than 5GW. After the war only 1.8GW of generating capacity remained, most of this in hydroelectric plants, which are prone to major weather-related downtime.
Mr Khalisi writes: “Resourceful patching up work and repairs by the facilities engineers and seconded skilled personnel took place between 1991 and 1994. Running down of spares stocks, local manufacture of spares and cannibalizing damaged plants restored the generating capacity to around 3.6GW; most of the Transmission and Distribution damaged assets were rehabilitated in this period. From 1996, when the Oil-for-Food agreement was activated, to the end of 2002, over $4bn of foreign currency was allocated for the electricity industry ($4.7bn approved). This has been used on rehabilitation of generating plants and network, and for the purchase of new generators. By the end of 2002, the total generation capacity was brought up to a little over 4GW, against a potential demand of over 6GW. Throughout this period, scheduled and unscheduled power cuts were imposed on most parts of the country and mandated voltage and system frequency have been compromised. Power shortages will almost certainly remain a feature of Iraq’s electricity supply system for the foreseeable future.”
All Plants Need Repairs
Although UN estimates predicted an increase in Iraqi power demand of 4%/year over the next few years, Mr Khalisi estimates that demand would more likely reach 7.5GW in 2006, leaving a shortfall of 1.1GW between demand and power supply even if there was 100% availability of all power plants. However, the availability of some hydropower plants is less than 50% and all plants need downtime for repair and maintenance, while the official demand estimates do not take into account future requirements for new industrial, commercial and domestic supply. “It is clear,” he writes, “that considerable additional capacity over and above the expected load demand needs to be available to ensure the reliability of the electricity system. In all, around 6GW of new generating capacity needs to be installed between now and mid-2006 to ensure reliable power supply by that time.”
Mr Khalisi said that only a small part of the investment requirement had been budgeted for prior to the recent war, and that allowances needed to be made to replace existing generating units which have exceeded their operational life expectancy. He added: “Budgeting for new generating plants and transmission and distribution network requirements as well as rehabilitation of the existing works, it is estimated that funds in the order of $8-10bn (80% for generation, 16% for distribution, 4% for transmission) will be needed between 2003 and 2007-08, depending on the status of the presently unusable assets. This sum places a burden on a public purse from which there will be many other calls, some more urgent.”
Privatization would be required to meet these investment requirements, Mr Khalisi concludes: “The urgency to rehabilitate old, and build new, electricity generating plants and transmission and distribution networks will place a tremendous weight on a single organization. This would be especially onerous for a state-run organization where several levels of approval must be overcome and where limited funds are distributed on a basis of priorities.” While Iraq has undertaken some privatization and sale of public assets in the last 15 years, he warns: “Privatizing a public service such as electricity is expected to be a contentious issue in the country. The public must, therefore, be aware of the expected benefits.” Among these he lists income from asset sales which may be directed to other public services; tax revenues from new players; outside investment in new projects; more efficient use of funds; and a cheaper and more reliable service to customers.