Iraq to Privatize Electricity

By Ben Lando, UPI. Posted September 10, 2007.

Two of Iraq's many needs right now are more electricity and more investment. A law being drafted could satisfy both, paving the way for foreign and domestic private companies to build power plants, a step toward fully privatizing the electricity sector.

"It should be short coming," a senior U.S. official working in Baghdad on Iraq's electricity sector told United Press International on condition of anonymity on the sidelines of an Iraq energy conference.

A top legal adviser is working on it with the Electricity Ministry, the source said, adding it "could be" before Parliament before the year's end.

Others UPI spoke to refused to go on the record but confirmed the law was being worked on in a parliamentary committee as well, with the help of another U.S. official in Baghdad.

"Yes, we have plans for privatization," Iraq Electricity Minister Karim Waheed Hasan told UPI. "We have two projects which should be under execution very soon. We are planning to announce many stations, many power plants."

Earlier this year Iraq's Parliament approved an oil refinery investment law that gave special terms to the private sector to build refineries. Iraqis suffer from a fuel crisis largely associated with a lack of refining capacity.

The oil refinery law is the first step in a long walk toward fully privatizing the downstream oil sector, Oil Minister Hussain al-Shahristani told UPI after the law was passed. Many in Iraq's government, to some extent, are keen on splitting open the long-nationalized upstream sector as well.

The electricity law hasn't been made public, and details are unclear. Hasan said he hopes two power plants will be completed by next year and "in the future, yes," the entire sector will be privatized.

"I think there is nothing to stop having it privatized but still it needs more legal framework in order to get the satisfaction and assurances for the investor to go in this sector," said Ali al-Dabbagh, an Iraqi government spokesman.

Iraqis suffered through the summer heat with little power -- and what they got was inconsistent -- to power fans and air conditioners. (Backup generators were hostage to the fuel shortage.) Electricity generation reaches about 40 percent to 50 percent of demand, Hasan said during a presentation at the Iraq Oil, Gas, Petrochemical and Electricity Summit, organized by the London-based Iraq Development Program, though the sector has more capacity than demand.

Baghdad and Irbil provinces receive less than eight hours of power a day, while only Diyala and Dohuk provinces receive more than 16 hours, according to the presentation. Throughout the summer, however, regular reports from Iraq told of days on end without electricity.

Insurgents target the electricity sector, especially the towers and lines running between cities. From April 2003 through the third week of August 2007, at least 318 electricity sector workers were attacked, according to an expert in threats and vulnerability to the energy sector worldwide who spoke on the condition of anonymity. There were also at least 166 attacks on power lines and towers, stations and generators and substations. The expert cautioned that the numbers were likely very low, considering the number of incidents that aren't reported.

Also keeping electricity from Iraqis is the inability to power the power stations. Iraq as a whole suffers from a fuel shortage, and the electricity sector is no exception. Two-thirds of the natural gas Iraq produces, mostly as a side product to pumping oil, is flared off as waste because there's no infrastructure to send it anywhere that could use it, such as a power station.

Pipelines are also a frequent target of attack, cutting the supply of oil some power plants run on.

To fix this, Hasan is promoting his "master plan," which will quadruple the per capita consumption of electricity in Iraq (by giving more people more access to more power) by 2009 and increasing generating capacity by 60 percent by 2015. This would cost $25 billion, Hasan estimated.

But electricity and the oil sector are mutually dependent, since electricity is needed to power the refineries and pipelines and other aspects of the oil sector.

Kamal Field al-Basri, senior economic adviser to Iraq's prime minister and executive director of the Iraq Institute for Economic Reform, estimates the oil sector, hit by decades of abuse, misuse and sanctions, requires $56 billion to fully stand on its own feet.

Iraq's oil sales are the biggest earner for the country, making up more than 60 percent of the gross domestic product and funding more than 90 percent of the federal budget last year. But in a war zone, with more than 50 percent living in poverty and nearly that many unemployed, and a lack of quality-of-life services, the money is tight.

Many are looking outside Iraq for the funds.

"Iraq cannot generate the required investment internally, but we're looking for international support for that," Basri said. "We can satisfy about 42 percent of that need internally, but the rest we need from the international side" through grants, loans and other investment.

Not everyone agrees on what form that should take. Even the powerful and strongly nationalistic oil unions, which have vowed to defeat a proposed oil law because it gives too much to the private sector, say limited private investment is necessary.

There are many parties interested in keeping the oil sector nationalized but more willing to let the free market into other areas of the economy.

And then there's the United States, which, since the days of the Coalition Provisional Authority, has been helping Iraq reform its economy.

"There is some suggestion that we want to privatize and we are transferring from central government to market economy, which is needed," said Abdul-Hadi al-Hasani, deputy chairman of the Energy Committee in Iraq's Parliament. He said the electricity bill is "in the draft process."

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