For a prime example of a dysfunctional power network, look no further than Iraq. It is not entirely the country's fault, but many Iraqi citizens think their electricity supply is in its worst shape in decades, even less capable of delivering reliable power than the power networks of some of the world's poorest countries.
Iraq, with oil revenues projected to reach US$70 billion (Dh257bn) this year and a budget surplus, is not among the world's poorest countries, although it is among the least secure, and in need of a comprehensive infrastructure overhaul following decades of war and misrule.
Among the many problems that need fixing in Iraq, the electricity situation is especially galling to the country's long-suffering citizens, who were expecting improvements after the ouster of the former Iraqi dictator, Saddam Hussein. Few improvements have materialised during the US occupation of Iraq, now in its fourth year, despite $4.3bn of American government spending aimed at curing the Gulf nation's power woes.
"Shortage of electricity is the main problem that the Iraqi people suffer from," an anonymous Iraqi journalist wrote recently on a weblog site run by McClatchy Newspapers, based in Baghdad. "After March of 2003, we hoped that the situation would be better, but soon we realised that the situation [had become] the worst in all times."
Neglect of Iraq's power system began in the early 1980s, when Saddam Hussein directed the country's resources to a war against Iran. Electricity shortages worsened in the 1990s, following Iraq's invasion of Kuwait and the ensuing Gulf War. According to the weblogger, Saddam used power disruptions during this period to punish Iraqis threatening to revolt.
So it is not hard to imagine how frustrated and disillusioned most Iraqis must have felt when the arrival of US and British troops in their country failed to stop the frequent power cuts.
For their part, US authorities have been frustrated by the numerous attacks on Iraqi power installations that have combined with corruption and government ineptitude to fritter away the considerable sums spent on trying to rebuild the country's decrepit electricity infrastructure.
The resulting situation is not just inconvenient to Baghdad families forced to swelter through the summer without reliable refrigeration, air conditioning or even simple electric fans. It is affecting all sectors of Iraq's economy. Even basic food production has suffered, with power cuts preventing farmers from drawing water from wells or pumping it from rivers and canals to irrigate wheat fields.
Iraq's weather this year has made a bad situation worse. The past winter, one of the coldest on record, brought less than 40 per cent of the season's normal rainfall, cutting hydroelectricity supplies by about 50 per cent. The summer has brought drought.
In April, Charles Ries, the US State Department's co-ordinator for economic transition in Iraq, accurately predicted that the country would be unable to meet spiking summer power demand, even though new power plants were due to come on line.
But inclement weather has merely highlighted the untenable underlying state of Iraq's electricity infrastructure. No country with a decent power grid would have allowed power cuts to shut down a significant part of its most important industry, as Iraq did in January when its northern oilfields and main refinery were idle due to electricity shortages. Iraq's Oil Ministry blamed the Electricity Ministry for the interruption. The Electricity Ministry said the Oil Ministry had failed to supply power plants with enough fuel oil.
Even the recent downturn in violence in Iraq may be exacerbating the power shortage. It has sparked a surge in economic activity, helping to drive up electricity demand.
So what, if anything, would help?
Throwing money at the problem is not the answer. Iraq is not short of money. It is short of electricity.
Above all, it needs security of power supply - something that could be vastly improved by hooking up the country's inadequate transmission network to neighbouring grids.
Iran has already got the message. In March, its government announced plans to link the country's electricity grid to Iraq's at nine border points. Mahmoud Ahmadinejad, the president of Iran, laced his offer with anti-American rhetoric, blaming much of the damage to Iraq's electricity infrastructure on US bombing. But that does not make the power-sharing agreement less constructive.
Syria has supplied electricity to Iraq intermittently since 2003.
Turkey also supplies electricity to parts of northern Iraq, and last year agreed to a more extensive link-up between parts of its power grid and Iraq's that would allow it to extend power exports further. However, in January it cut supplies to Duhok, an Iraqi border town, on the pretext that Iraq's government had failed to supply Turkey with agreed amounts of gas. At the time, the Turkish army was shelling Kurdistan Workers Party (PKK) bases in northern Iraq. The Kurdish separatist movement has been blamed for numerous attacks in Turkey.
Despite, or even because of, such setbacks, Iraq should seek further links with neighbouring power grids. It should certainly connect its electricity network to the GCC power grid, of which the northern portion is due to be completed next year, through its border with Kuwait.
The flow of benefits would not be one-way. The Gulf region, facing its own power crisis, desperately needs more gas to fuel power plants. Iraq has plenty of gas in deposits that could be developed far quicker than, say, the UAE's technically challenging deep reserves of toxic sour gas. Iraq is even planning to export gas to Europe from a large field in its western desert. Middle Eastern energy companies could help with gas development, and their participation might be more acceptable to Iraq than that of western oil producers.
For their part, GCC countries more stable than Iraq are better positioned to build and maintain new power plants. GCC states with power stations fuelled by Iraqi gas could share the extra electricity output with their northern neighbour.
As a practical way to help Iraq, that could be even more useful than the UAE's recent cancellation of $4bn in Iraqi foreign debt.
@Email:tcarlisle@thenational.ae
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Launched: March 2017 on UAE Mother’s Day
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Based: Dubai with operations in the UAE and US
Sector: Tech
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Stage of funding: Seed
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