Cablegate: Electricity in Erbil: Operating On Private Generators.

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DE RUEHGB #3256/01 2711321
ZNR UUUUU ZZH CITE RUEHSD 0061W SVC ZDK
R 281321Z SEP 07
FM AMEMBASSY BAGHDAD
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UNCLAS SECTION 01 OF 02 BAGHDAD 003256

SIPDIS

SIPDIS

E.O. 12958:N/A
TAGS: ENRG EINV EFIN ECON PGOV IZ
SUBJECT: Electricity in Erbil: Operating on Private Generators.

REF: Baghdad 2902

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C O R R E C T E D COPY (adding signature)

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

SUMMARY
-------

1. (U) The city of Erbil established a system of
government-subsidized private generators to provide electricity to
meet the region's power shortages after Saddam cut power in 1998.
While dangerous, noisy and crudely wired, these generators provide
most consumers reliable power for an average of eight hours per day.
The Kurdistan Regional Government (KRG) Ministry of Electricity
has licensed two private (BOO) power plants. Its plan depends on
raising prices for electricity from the grid based on consumers'
proven willingness to pay near-market prices to the private
generators. The key to success will be providing reliable power
from the grid and implementing an efficient system for collecting
fees.

Background
----------

2. (U) When Iraqi Kurdistan gained de facto autonomy in 1992, it had
little power generation of its own. Despite the break with Baghdad,
the region continued to receive some power from the national grid.
But in 1998, Saddam's regime cut power from the grid and forced the
region to seek alternatives.

3. (U) At the time, the region's two hydropower stations at Dokan
and Derbandikhan had an installed capacity of 480 MW. The lack of
maintenance at the stations, in transmission and distributions
systems reduced generation to an average of 185 MW in the summer and
48 MW in the winter. Erbil also had two small diesel power stations
with combined 40 MW for essential loads.

4. (U) In response to power shortages, hundreds of entrepreneurs had
rushed to fill the need by setting up private power businesses with
diesel generators in neighborhoods around Erbil. The businessmen
provided power to neighborhoods when power from the grid was off.
The KRG supported these electricity providers by providing diesel
fuel at subsidized prices.

The Current System
------------------

5. (U) The system continues to this day. According to Ministry of
Electricity figures, there are 681 private diesel generation
operations within the municipality of Erbil. Most are dangerous,
noisy and crudely jury-rigged systems with the generator and fuel
tanks encased in a temporary cement block enclosures. As a rule,
customers pay in advance for an average 7 and 9 hours service
alternating daily.

6. (U) The Erbil Governorate, the KRG Ministry of Electricity's
Department of Diesel Generators (MoE) and the Ministry of Oil have
formed an informal committee to supervise these operations and
provide diesel fuel at a subsidized of 450 dinars per liter versus a
market price of 660 dinars (or, at 1233 dinar/dollar, US 36 cents
versus 53 cents per liter). Government-regulated generators receive
the fuel on a monthly basis, and in return, guarantee consumers a
price of 9,000 dinars (USD 7.30) per ampere for 7 to 9 hours. The
government has nearly doubled these prices since 2003 due to
increased costs. Non-regulated private generators, numbering around
200, charge approximately 12,000 dinars (USD 9.73) per ampere. Most
businesses and some private homes also run their own small
generators.

So what does this mean to the consumer?
---------------------------------------

7. (U) RRT staff visited several neighborhoods and private
generators to see how the system works in practice. A typical
operator on park land behind the Ministry of Electricity runs two
generators of 400 KVa and provides 1,300 amperes of electricity to
450 houses. In return for the guaranteed price per ampere, this
operation receives 15,000 liters of diesel per month at a subsidized
price. Sabah Hamadamin, a former government employee, buys six
amperes of electricity for a household that includes two school-age
boys; it costs him 54,000 dinars (about 43 USD) per month. A
newlywed couple nearby buys half that amount. Generally, households
buy four amperes to run lights, a refrigerator, and television - but
no air conditioners.

8. (U) In theory, consumers also pay for electricity off the grid,
but in practice many do not. In August 2007, less than 56 percent
of Erbil city's 145,000 customers paid their nominal monthly bill of
three dollars. The overall average across the region was slightly
lower at 46 percent. Low collection rates and nominal prices mean
there is little capital for improving the system. In addition to
low collection rates, the Erbil Governorate provides 10 million
liters of subsidized fuel per month to the private generators; even

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so, still many grouse that they do not receive their full
allocations.

9. (U) Most businesses, small and large, operate their own
generators and receive power from the grid, though for a 20 to 30
percent higher price than charged for consumers. The KRG Ministry of
Electricity does, however, provide continuous reliable power to
essential services like the hospital, water pumping projects,
schools and so forth.

Will consumers pay? Yes, but can the government deliver?
--------------------------------------------- --

10. (U) There is good news here. Consumers in this region have
shown that they are willing to pay for electricity to a reliable
provider. The trick for the government is getting the consumers to
stop using private generators or purchasing fuel for small private
generators for their homes and businesses. The KRG Ministry of
Electricity's plan (reftel) includes the licensing of a Build, Own,
& Operate (BOO) 500 MW power station at Pir Daud, 10 km away from
Khurmala gas field. The power project is expected to be fully
operational by spring 2008. The Ministry of Electricity will
provide the fuel and purchase power for 2.8 cents/KWH, significantly
less than it currently charges.

11. (U) Recovering generation costs will require a reliable system
for collecting fees. The ministry is in the process of carrying out
a tariff study and a master-plan for electricity sector up to the
year 2020 with USAID technical assistance. It is also preparing
solicitations for private investment for a 'Prepaid Digital Metering
Project'. It has contacted manufacturers of these meters including
Schneider, Actaris and Landis and Gear.

Comment
-------

12. (U) Will power from the grid be reliable enough to make
consumers be willing to pay for the real cost of generation? The
KRG Ministry of Electricity believes it can meet this challenge, but
it will take time. In the meantime, Erbil's system of
government-subsidized private generators will play a crucial role in
powering homes and businesses.

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