The job of rebuilding a war-torn nation like Iraq is big business. In a country with such vast natural assets, the international business community is climbing over itself to get a piece of the action.
However, it’s not all about extracting the sticky black stuff.
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The rebuilding of Iraq’s interior is critical for enabling its people to get back on their feet. In desperate need of repair, the power generation sector currently supplies only a fraction of the electricity the country requires. Ongoing insurgency, military disruption and corruption have served to undermine redevelopment efforts, but recent indications – particularly from large multinationals and the Iraqi government – have pointed towards a brighter future.
IRAQ’S CRIPPLED INFRASTRUCTURE
The export of oil is Iraq’s big cash commodity. With projected reserves of 112 billion barrels marked against a sale price pushing the $150 mark, it doesn’t take a mathematical genius to work it out; Iraq plus oil equals lots of money.
However, oil does not provide all the answers. Sitting on vast reserves is one thing but extracting and piping it out is quite another. While hugely important for revenue generation – and paying back its crippling debt – Iraq is not yet benefiting from its natural riches.
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By GlobalDataThere is a clear need for more power stations, plant equipment, high voltage transmission, networks for distribution and portable generators. Electricity generation at its best meets half of estimated demand and actually fell below pre-war levels in 2006.
Last summer the Iraqi power grid was on the brink of collapse. In Baghdad sporadic supplies provided electricity for just five hours a day – half as much as the rest of the country.
Many of the provinces disconnected from the national grid altogether due to the demand being placed on them by the capital, and the diminishing returns they were receiving for themselves.
As the summer months approach yet again, the race is on to meet soaring demand. Much needed generating capacity is needed amid temperatures that can reach as much as 45°C.
OPENING UP TO FOREIGN INVESTMENT
One of the major problems Iraq’s Electricity Ministry has encountered has been in attracting foreign investment. Electricity Minister Dr Karim Waheed has made numerous trips abroad in recent months to secure supplies of generators as the government races to increase capacity.
A big breakthrough came back in May, when an agreement was reached with General Electric for the purchase of eight natural gas-powered generators. The contract, worth $275m to GE, is for the provision of four 150MW generators together with four smaller ones that would produce 40MW each.
To put this into some kind of perspective, the country needs 9,500MW a day and currently operates on around 5,000. While certainly not a silver bullet, the new generators will significantly boost power production by adding an extra 760MW to the grid. And perhaps more importantly, open the door to further investment.
Speaking just a few days ago, Waheed said he was hopeful of this opening up further deals with GE. “If we succeed with this contract we have another proposal with GE to buy 12,000MW over three years,” he said.
This was followed by reports that an agreement had been made with Siemens to provide equipment to strengthen the power grid. Siemens will assist in building a total of 16 power plants with a capacity range of 160 to 270MW.
Waheed’s deputy, Salam Kazaz, said that ongoing negotiations were aimed at adding a further 3,250MW to the country’s power network within two years. The ministry is also about to sign a contract with a Korean company to provide 144 new generation units that will run on heavy fuel with a total capacity of 360MW.
WHAT’S IN THE PIPELINE?
Six power plants are due to finish construction by 2009. A gas-operated plant in southern Baghdad will open by the end of 2008 with a capacity of 200MW while its second stage with 200MW more will open early next year.
The al-Musayab gas-operated power plant will open in 2009 with a capacity of 320MW. Additionally, there will be a new thermal plant in southern Baghdad providing 110MW and al-Taji and al-Dora power plants will provide a total capacity of 320MW.
Add to this the construction of the gas-powered electrical station in Nasiriyya, four other projects in Baghdad, new stations in Samarra, Haditha and Salah ad-Deen, and the completion of work at plants in Hila and Kerbala.
Senior Deputy Minister of Electricity Raad al-Haris said that the ministry was currently in negotiations with an unnamed Russian company regarding the completion of work at Yousfiyya Electrical Station, with a planned capacity of 660MW. Abandoned by Russian workers two years ago over security concerns, they have agreed to reactivate their contract.
Al-Haris also indicated that the ministry is in the process of advertising a number of tenders for the construction of new power stations. The tender for building the Diwaniyya Electrical Station has been awarded to a Jordanian company and will provide the network with 250MW. A tender for the 500MW Rumaila Station will also soon be awarded.
COMBATING CORRUPTION
Waheed is keen to cut out the rot that has so plagued development in the past; his direct predecessor is currently under investigation for corruption charges and the minister before him was jailed in 2006 for his role in the misappropriation of hundreds of millions of dollars.
“The biggest corruption has been in the ministries of electricity and defence,” said opposition leader Mithal al-Alusi. “Millions of dollars have been paid from the state’s budget and gone into the pockets of contractors and saboteurs.”
Just recently, the director of an Iraqi firm that won the contract to build the Japanese funded Samawa power station was arrested on corruption charges after probes into rising costs of $118m.
Waheed is desperately trying to turn this around. One of his aims is to talk directly with suppliers to avoid artificial price increases and corruption.
This supports his key objective of creating an environment where foreign companies have the confidence to invest. And the recent GE and Siemens deals might just be the stepping stone to that.
Also central to Waheed’s vision is a new electricity law to further open up the sector to foreign investment. It will also help to streamline decision-making and project management under the creation of one ‘super department’ rather than ten individual ministries.
REGIONAL SOLUTIONS FOR POWER GENERATION
The Electricity Ministry has also looked to its neighbours as it seeks to solve Iraq’s power problems. Iran recently allocated $1bn in loans for infrastructure projects.
Proposals include building a number of power transmission lines between Iran and Iraq. One line into Eastern Iraq is already operational. A second is planned to run between Marivan and Panjwin, but a third, from the Iranian port of Abadan, has already encountered some of the problems so well known to the ministry. Completed and ready to come online, recent unrest in Basra has prevented its opening.
Local agreements with Syria will also play an important part. Officials from the Ministry of Oil say production work has already started at the Akkaz gas field to supply Iraq’s power stations. Natural gas will also be exported to Syria for conversion to LNG. Once production at akkaz has been expanded, there are reports that some of the gas may find its way to the EU via the Nabucco pipeline project.
24-HOUR ELECTRICITY BY 2009?
Waheed hopes to provide round-the-clock electricity by 2009, with significantly increased megawatt capacity by 2015. The Ministry estimates that it will cost $27bn to repair and build infrastructure in that timescale.
Pouring money onto the situation doesn’t necessarily solve the problem, as international donors have found out to their cost. The investment package for reconstruction is a tangled web relying on partnership, expertise and, crucially, stability. As Iraq looks to foreign investors, the reconstruction cost look likely to spiral well above the $55bn estimated by US officials back in 2003.
Raad al-Haris gets to the heart of the matter: “Fuel, security and electricity are all interconnected – one cannot move forward without the other,” he says. “If we can provide fuel and improve the security, electricity will improve. If nothing changes, the electricity situation won’t change either.” These changes won’t happen at the flick of a switch but the signs are encouraging.
