Iraq denies plans to sell power plants to keep the lights on

Fears of creeping privatisation in Iraq's electricity sector are a lightening rod for controversy

A man checks the wiring on electric cables reaching out to homes in Saadoun Street in the Iraqi capital Baghdad on July 29, 2018, as chronic power shortages have forced residents to buy electricity from private entrepreneurs who run generators on street corners across the country. - Iraqi Prime Minister Haider al-Abadi sacked his minister of electricity on July 29 after three weeks of protests against corruption and chronic power cuts in the energy-rich country where successive conflicts have devastated infrastructure. (Photo by SABAH ARAR / AFP)

The Iraqi Ministry of Electricity denied any plans to sell state power plants to the private sector as a solution to the country's chronic power shortages and falling budgets.

The allegations were made by Alia Nsaif, a member of parliament aligned to former prime minister Nouri Al Maliki's State of Law coalition.

The grouping is opposed to the current government of Prime Minister Mustafa Al Kadhimi.

Ministry spokesman Ahmed Moussa told The National that a Kurdish company, which was already investing in the power sector, put forward a proposal to buy two power plants in the southern province of Basra.

“We are against selling our assets and this is the ministry’s stance on the reported privatisation of the national grid to help tackle the crippling power cuts,” Mr Moussa said.

“We, however, raised the issue with the Cabinet, which referred it, in turn, to the technical and law advisers. This is a routine procedure,” he said.

The multi-sector Kurdish engineering firm KAR Group has already signed contracts with the government, in 2014, to invest in the oil and power sectors.

In July last year, proposals were also made for KAR Group, which operates a power plant at Khormala, northern Iraq, to sell electricity to the Iraqi grid.

Since 2010, KAR Group has been looking at independent power producer contracts, or IPPs, where companies form a joint venture with the Ministry of Electricity to produce power and sell electricity back to the ministry, often over a period such as 20 years.

IPPs are common in countries which lack investment capital in the near-term to build or operate power plants, and are sometimes seen as a step towards privatisation.

Last month, the ministry acknowledged it lacked operational funds, partly as a result of the ongoing collapse in oil revenues to the Iraqi state, following the coronavirus pandemic.

Left unresolved, a lack of operational and investment funding could prove disastrous when summer temperatures further strain demand.

Political rivalry 

Controversy was stirred last week after MPs claimed that Mr  Khadhimi had approved the deal with KAR in the draft budget for the current fiscal year, which endorsed the sale of state assets including two power plants, Rumaila and Shatt Al Basra. KAR had been interested in an IPP at the latter since 2011.

The power plants are of great strategic importance for Iraq, serving most of the south and the restive city of Basra, which has suffered frequent power cuts and protests in recent years.

But Iraq has long had a culture of fearing privatisation of state assets in different sectors, and areas considered strategically important are tightly bound to the state.

Despite this, the private sector has had opportunities since 2003 to take part in vital sectors including the maintenance of the country’s power plants, to help tackle the crippling power cuts.

Successive Iraqi governments have contracted international power companies, in particular Germany's Siemens and the US firm GE, to instal electricity turbines and repair the power grid.

A host of other international firms have also participated in the sector, including PowerChina, Swedish-Swiss company ABB and Iran's Mapna.

While power generation capacity has steadily increased, it has been unable to keep up with rapidly rising demand, and suffers from an inefficient power grid, where electricity losses can be as high as 50 per cent. Financial losses caused by the coronavirus now present a threat.

A maintenance worker repairs power lines, cut due to heavy rainfall, in the Iraqi capital Baghdad, on November 23, 2013. Flooding and heavy rain across Iraq has caused widespread structural damage across the country. AFP PHOTO/SABAH ARAR (Photo by SABAH ARAR / AFP)

Iraq subsequently loses billions of dollars a year, funds which are not recouped for the ministry due to generous electricity subsidies. For the vast majority of consumers, electricity is extremely cheap, if bills are paid at all.

In a country that sits atop some of the world’s biggest oil reserves, the power plants produce only 54 per cent of the electricity needed, according to Mr Moussa. He argues that tariff reform is needed to meet the growing demand.

“The state subsidises 90 per cent of production costs, let alone the power piracy phenomenon and illegal tampering with the grids in squatter settlements," Mr Moussa says. In some Iraqi cities, years of conflict and uncontrolled rural-urban migration has led to large informal settlements. With little government support, some of these communities have been accused of stealing electricity and even municipal water supplies, interfering with water and power lines.

"The private sector’s help is vital but not through sale of state assets,” he added, although he would not comment on whether the ministry was in favour of removing subsidies.

Plans to meter consumers and reform tariffs to reflect the cost of production — something that might attract more foreign investment — have proven politically controversial and difficult to implement.

This further puts a strain on the grid, particularly during summer when air conditioning use causes a surge in demand. But opposition to private sector involvement in electricity production and distribution remains staunch in parliament.

Yousef Al Kalabi, an opposition MP for the Iraqis Coalition in parliament, told The National that instead of blaming already disgruntled consumers and advising them to economise, the government must address the most significant constraints on the private sector.

“We strongly support partnership with the private sector. But definitely against the sale of our assets to foreign companies which only care about profitability and their shares in stock exchanges," Mr Al Kalabi added.

Many years of conflict, international sanctions, terrorism and corruption have resulted in shortages in electricity supply for domestic, commercial or industrial purposes.

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