Cablegate: Electricity in Kurdistan Region: Ambitious Plans, Many

DE RUEHGB #2902/01 2411417
R 291417Z AUG 07





E.O. 12958: N/A


This is a Kurdistan Regional Reconstruction Team (RRT) cable.

1. (SBU) SUMMARY: In an August 9 meeting with RRT Officers,
Kurdistan Regional Government (KRG) Minister of Electricity Hoshyar
Siwaily provided a candid overview of the electricity sector in the
three provinces of the Kurdistan Region. Consumers here currently
receive on average eight hours of power per day from the grid with
demand increasing 15 percent per year, businesses receive 24 hours.
New gas-fired power plants under construction will help meet rising
demand and consumer expectations for more electricity per day. In
the long term, however, the ministry must tap the region's potential
for hydro power. Doing so will require significant planning and
capital, some of which will have to come from raising prices. The
minister also rejected allegations that the KRG had been withholding
power from the national grid. The region lacks the controls center
to do that and, even with the power from its two current hydro
plants during the summer takes power from the grid. END SUMMARY.

KRG: A Net Consumer from the Grid

2. (U) Only the provinces of Erbil and Sulaymaniah depend on the
Iraqi national power grid. Dohuk receives its power from Turkey but
it is very expensive ($.033/kwh). Currently two power plants
operate in the KRG; both are hydroelectric power plants at Lake
Dukan and Lake Derbandikhan, both in Sulaymaniah Province. These
plants together are capable of generating approximately 300-400 MW
during the summer months when conditions permit, i.e. sufficient
rain during the winter months. This hydro power is transmitted
through Iraq's national grid but most is distributed back to the
provinces of Erbil and Sulaymaniah.

3. (SBU) The minister emphasized that the region remains a net
recipient of approximately 200 MW from the national grid, which is
sufficient to provide approximately 8 hours of electricity to
residents in Erbil and Sulaymaniah. This amount of electricity
drops significantly during the winter months when the two
hydroelectric dams are storing rain water for the next agricultural
growing season.

4. (SBU) As a net recipient of power from the grid, the minister
complained about allegations contained in the August 5 Associated
Press report that the KRG was withholding power. In fact, he
claimed that the national grid was providing 150 MW instead of the
usual 200 MW during the month of August. He also noted that, even
if the KRG wanted to remove itself from the grid, it lacked the
independent control and distribution system to do so. All the power
for the two provinces was linked to the control center in Kirkuk.

Plans for New Plants

5. (SBU) Meeting rising demand and increasing the amount of power to
the consumers is the Ministry's first priority. "We've got to show
the people something," he commented. The Ministry has two new
gas-powered generation plans in an advanced stage of construction:
the Pir Daud 500 MW plant in Erbil and the Taq-Taq 750 MW plant in
Sulaymaniah. Both are being constructed under BOO (buy, own,
operate) contracts between the KRG and a local investor, Ahmed
Ismail, through his company MAS-Jordan. The KRG will be obligated
to buy the power generated by these stations for $0.028 / kwh for
Pir Daud and $0.029/ kwh for Taq-Taq [note kwh = kilowatts per
hour]. The long-term economics of the deal are unknown since the
capital requirements appear to be higher than the income potential.

6. (SBU) The first half of the Erbil power plant is expected to be
completed in early 2008 and will be able to generate 250 MW. The
Sulaymaniah Taq-Taq plant is scheduled to bring 250 MW online by
July 2008. Both power plants will be dependent upon the
availability of natural gas. The KRG signed a deal with the Dubai
based DANA to build a gas pipeline from the gas fields at Chamchamal
to both plants. Construction is underway and is scheduled for
completion in March 2008. In order not to delay the opening of the
Pir Daud plant in early 2008, the KRG is stockpiling diesel fuel to
run the plant temporarily until the gas pipeline is finished. When
the first stages of both power plants are completed next summer, the
Ministry of Electricity estimates that the power generated will be
sufficient to provide residents of Erbil and Sulaymaniah Provinces
with 16 hours of electricity per day year-round.

7. (SBU) The inister acknowledged that the central government is
opposed to the DANA gas deal but noted that the Chamchamal gas
fields were within KRG territory, the gas was not being sold, and
that power generated by the plants would contribute to the national
distribution system. He also noted a lack of coordination between
the gas pipeline project and the construction of the two plants. If

BAGHDAD 00002902 002 OF 003

the pipeline is not completed before the summer, he will have two
plants with nothing to fire them.

8. (SBU) The Ministry has also signed a deal with a U.S. registered
company JACO for construction of a heavy-fuel powered 260 MW plant
in Dohuk. Preliminary site-grading and construction is now underway
after a delay caused by the company's failure deposit the $3 million
performance guaranty required by the contract. Officials in Dokuk
said August 22 that they expect this plant to be ready to generate
100 MW by Spring 2008. The ECD is dependent on the signing of the
contract and dates for mobilization.

Tariff increases, Long-term planning

9. (SBU) The Minister clearly recognizes that delivering more
electricity to KRG citizens is a long-term and expensive process.
His ministry is hampered by extremely low tariff rates which greatly
limit their ability to raise capital to upgrade, maintain, and
expand the electrical generation, transmission, and distribution
system within the KRG. The Ministry has submitted a request to the
KRG Council of Ministers for an immediate tariff increase in 2007
and annual increases until 2010. If the immediate increase is
approved, the cost for KRG residents will rise from $0.004 to $0.01
per kwh. The increase will not generate much revenue, but will, the
minister hopes, introduce consumers to the idea of paying the
government for electricity. Right now consumers pay significantly
more to private generators operators but balk at paying for
government power, business customers pay slightly more. The
Minister noted that substantial further increases will be needed to
cover the true costs of electricity generated by Pir Daud and
Taq-Taq. Since management, transmission, and distribution costs
must also be factored into the tariff, he expects that the KRG will
have to eventually charge $0.05 or $0.06 per kwh. This price will
still be significantly cheaper than residents currently pay to
small, neighborhood, privately operated, diesel-powered generator

10. (SBU) According to the minister, what is really lacking now is
long-term planning. The KRG Ministry of Electricity is a brand-new
ministry, cobbled together from parts of the Ministry of Industry
and unified under a single minister only one year ago. The
challenges facing this ministry are further hampered by a lack
trained staff and an inability to undertake the analyses critically
needed to forecast growth of consumer demand, plan strategically,
and justify tariff increases. The future lay in tapping the region's
hydro-electrical potential, but to date, no feasibility studies have
been completed. It will be years before such long-term, capital
intensive projects come on line.

U.S. Assistance

11. (U) Technical Reinforcements: The ministry is currently
receiving technical assistance from USAID through the provision of a
single long-term expatriate advisor. However this advisor has been
given the herculean task of developing a comprehensive Electricity
Master Plan for the KRG covering planning, generation, transmission,
least-cost generation, and tariff reform/restructuring. Given the
immediate needs of the ministry to raise tariffs and negotiate
additional contracts to increase the supply of electricity in the
KRG, the Minister requested that USAID assign additional experts in
order to complete this mammoth and complex study in a timely
fashion. USAID had responded by hiring another electricity utility
expert for six months.

12. (U) Training Center: There are currently five training centers
in Iraq that are used to train Central Ministry and provincial
employees of the Ministry of Electricity. These centers are located
in Basra, Najaf, Basil, and two in Baghdad. The KRG Ministry no
longer has access to these centers for its staff and is requesting
US help with the establishment of a training center for the KRG.
This will train employees on the operation and maintenance of the
systems used in their areas, as well as on administrative and
management skills.

13. (SBU) Control Center: The Minister also requested US help with
the construction of a $3 million control center for the KRG.
Currently, all electrical generation is controlled by an existing
center in Kirkuk. The minister would like to have a center which
would be linked to the SCADA (system control and data acquisition)
systems for the new Pir Daud and Taq-Taq plants. This will allow
the KRG ministry to monitor electrical generation and distribution
in real time and make operational adjustments in their system to
distribute power more efficiently and effectively. Comment: This
concept is not recommended by the electrical experts in ITAO. The

BAGHDAD 00002902 003 OF 003

National Dispatch Center and the North, South, Center Regional
centers report to the National Dispatch Center. He asserted that
the GoI Ministry of Electricity supports this idea. Some might see
such a center as a means for the KRG to move off the national grid.
End Comment.

14. (SBU) Feasibility studies: The water flowing in Kurdistan's
mountains may be the region's future for electrical power, but the
ministry has not a single feasibility study to show potential
investors or donors. He asked whether the USG could help by
studying two or three potential sites to jump start the process.

15. (SBU) Comment: Minister Siwaily conveyed a sense of technical
competence and political realism in facing the enormous task of
scrambling to meet current demand and planning for the future with
limited resources at his disposal. RRT and USAID will be looking at
his requests within our programs and resource during the coming
weeks, but have already moved to bring in additional technical


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