The puzzle of electricity in Iraq

Weak infrastructure, corruption and lack of fuel are behind the chronic power shortage in Iraq.

The ongoing protest movement in Iraq is developing fast and, judging by the list of reforms proposed by Prime Minister Haider Al-Abadi yesterday, is shaking up the political landscape. The movement was triggered by power shortage amid a scorching heatwave that is engulfing the country. It is a puzzle why electricity remains in short supply more than 12 years after the fall of Saddam. Iraq earned large financial windfalls from the oil price boom of recent years, and directed a lot of resources towards investment in the electricity sector. Iraq is also one of the world’s largest and fastest growing oil producers, so it should not have trouble finding energy to operate its power plants. So where is the problem?

A recent study by the World Bank on the electricity sector in Iraq clarifies some aspects of the puzzle. I summarise the main points below.

·         What is the extent of problem?

There is a serious shortage of electricity in Iraq. Demand for power in Iraq was estimated at 13.7 gigawatts in 2010, but supply fell well short at 8.3 gigawatts. This restricted electricity supply to eight hours per day on average. The problem is clearly one of insufficient supply rather than excessive consumption. Iraq’s electricity consumption per capita (1,187 kilowatt hours) is much lower than countries with similar income level such as Serbia (4,359 kilowatt hours) and South Africa (4,581 kilowatt hour).

·         What are the causes of the problem?

1. Weak and inefficient infrastructure. Iraq’s nameplate power generation capacity in 2010 was 15.3 gigawatts, but it has one of the most inefficient generation systems in the region. This meant that the maximum technical capacity was 12.3 gigawatts. Shortage of water and fuel reduced production by 3 gigawatts, and aging by a further 1 gigawatt. Beyond generation issues, the transmission and distribution infrastructure is very weak due to under-investment and depreciation.

2. Widespread corruption. Electricity projects require many signatures and approvals, encouraging bribes and short-cuts at every step of the way. This slows down the investment process, and results in the under-execution of capital budgets. So although large allocations were made to the electricity sector, a big share were returned unspent to the central government at the end of each year. Corruption also comes in another variety: In 2011, the Ministry of Electricity signed contracts for electricity generation with a company that was bankrupt and another that did not even exist!

3. Shortage of fuel feedstock supply. 37 out of 47 power plants operate on natural gas. Former Prime Minister, Nouri al-Maliki, famously complained on TV about importing gas-operated power plants, when Iraq had no gas to supply them with. In reality, Iraq does not lack natural gas: large quantities of associated gas are produced but then flared due to the lack of infrastructure to refine and consume it. The government has therefore resorted to importing natural gas from Iran, but there are issues with the stability of this supply and the logistics required to transport it to the power plants.

·         Is the electricity shortage problem likely to be resolved anytime soon?

The issues here are structural and systematic. The problems of weak infrastructure, inefficient use of resource, red tape and corruption take time to resolve. There have been many false dawns and many broken promises. The World Bank report cites the Ministry of Electricity projections of meeting all demand by 2014, which seems laughable now. Abadi’s reforms include a clause calling for coming up with “a set of measures to end the problems of electricity production, transmission, distribution and tariffs within two weeks”. To say this is unrealistic would be an understatement.