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Cablegate: Rrt Erbil: Krg Success in Electricity Sector

VZCZCXYZ0005
RR RUEHWEB

DE RUEHGB #3347/01 3621033
ZNR UUUUU ZZH
R 281033Z DEC 09
FM AMEMBASSY BAGHDAD
TO IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 03 BAGHDAD 003347

SIPDIS

E.O. 12958: N/A
TAGS: ENRG EPET ECON PGOV IZ
SUBJECT: RRT ERBIL: KRG SUCCESS IN ELECTRICITY SECTOR

BAGHDAD 00003347 001.2 OF 003


1. This is an Erbil Regional Reconstruction Team (RRT)
cable.

2. (SBU) Summary. The Kurdistan Regional Government (KRG)
is succeeding with its electricity sector strategy, expanding
generation capacity in the near future to meet most demand,
at least in towns and cities. Out of an estimated
unsuppressed demand of 1800 MW, there is now 1,000 MW of
generation capacity, with more coming. The KRG has achieved
this through foreign and private investment in power plants
and guaranteeing investors attractive pricing. The KRG
contracted a UK consulting firm for a 20-year Master Plan to
guide its electrical power generation, transmission, and
distribution development. The firm concluded the KRG has made
appropriate decisions in its ongoing expansion plan and the
KR has comparative advantages enabling power exports to the
rest of Iraq and its neighbors in the near future. Though
the KRG is doing well in providing electricity to its people,
expansion in capacity will only be sustainable if it raises
prices for end-users who have until now enjoyed substantial
subsidies. With rate recoveries, streamlining management and
staffing and strengthening accountability and transparency
will also be required. End summary.

A Power Roadmap

3. (SBU) The KRG has expanded electrical generating
capacity ) and the number of hours of delivery of
electricity in major cities ) significantly in the past two
years. At a conference in Erbil November 16, a UK-based
consulting firm hired by the KRG confirmed what local
observers already suspected: that the KRG has been relatively
successful in its electricity sector strategy. Parsons
Brinckerhoff (PB), a British consulting firm specializing in
electricity planning, signed a contract with the KRG in
January 2009 to develop a comprehensive 20-year Master Plan
integrating all areas of electrical power generation,
transmission, and distribution in the KR. It presented the
final draft of its plan at the above-mentioned conference,
attended by representatives from the KRG Ministry of
Electricity (MOE) and Ministry of Planning. The Master Plan
included PB,s evaluation of the current power situation in
the KR, a comparison of planned development projects against
requirements, and an estimate of the KR,s ability to move
beyond simply satisfying its internal requirements to begin
export of power to the rest of Iraq and to adjacent
countries.
4. (U) In general, PB concluded that the KRG is pursuing a
prudent course in its short- and long-term plans for
developing the electrical energy sector in the KR. PB,s
Master Plan, however, recommended one significant policy
modification - to shift ongoing and planned projects from gas
turbine (GT) to Combined Cycle (CC) generation. Otherwise,
its long-term recommendations (for 2020 and beyond) were in
synch with and complementary to the KRG's plans.
Power to the People ) Expanding Generating Capacity

5. (SBU) PB reported that the KR currently has approximately
1,000 MW of internal generating capacity, compared to an
estimated region-wide demand of 1,800 MW. It has agreements
to purchase 134 MW from Turkey and 50-200 MW from Iraqi
sources outside the KR , but contracting issues and fuel oil
shortages have reduced the reliability and quantity of power
received from both external and national sources. The recent
drought and a policy of prioritizing water use for
agriculture purposes have lowered lake levels and generation
at two key hydroelectric plants at Dokan and Darbandikhan.
Heavy fuel oil (HFO) and diesel engine driven generation is
habitually reduced in the KRG due to a lack of spare parts
and reliable supplies of fuel, which is trucked, not piped,
Qand reliable supplies of fuel, which is trucked, not piped,
to the plants. Transferring electricity from the Iraq
interconnected system is problematic, given the shortages on
the grid and the lack of cooperation between the KRG and GOI.
(Note: Former KRG Prime Minister Nechirvan Barzani told
RRT Team Leader that the GOI had tried to convince the KRG
not to build new power plants, but the KRG went ahead when
the GOI could not guarantee an equivalent amount of power
delivery. End Note.) The shortfall between supply and
demand has meant that the KR suffers daily outages and
brownouts. Because the KR maintains two independent
distribution networks, one serving Dohuk and the other
serving Erbil and Suleimaniyah, shortages are not equally
shared among the three governorates. In the cities of Erbil
and Suleimaniyah, power is available about 15 to 18 hours per
day, on average. Dohuk gets power about 12 hours per day.
Residents supplement the irregular public power supply by
running their own generators or by buying power from private
entrepreneurs who operate small diesel units, typically
charging about 16.5 cents per kilowatt-hour.

6. (U) The KRG has several new power generation facilities,
either under construction or committed:

BAGHDAD 00003347 002.2 OF 003

- In Chamchamal, in Suleimaniyah province, a 750 MW gas
turbine plant is partially completed and currently delivering
331 MW. Four turbines should be operational by early next
year, with two more possibly available in 2011.
- In Ba,adrah, a 150 MW Heavy Fuel Oil-fired plant with
planned opening in 2011.
- Two hydroelectric plants at Bekhal and Deralok.
Bekhal, a 1 MW micro-facility, should open next year.
Deralok, producing 30 MW, is planned to start production in
2015.
- The KRG MOE has recently signed an agreement for
construction of a 300 MW heavy oil fired plant with the
Korean National Oil Company. The plant would have an initial
operating capacity of 150 MW. The balance capacity will be
installed by 2014.
- Three 29 MW medium speed diesel engine plants in Erbil,
Suleimaniyah and Dohuk will be overhauled by 2012.
- In Dohuk, a 500 MW combustion turbine plant.

7. (U) PB estimates that current construction plans, if
completed on schedule, will result in sufficient power on
line to satisfy, or even exceed, demand in the KR until about
2020. For the period 2020 to 2030, PB recommends additional
generation capability be considered: Three 375 MW plants
(one in each of the three governorates), a second 375 MW
plant in Erbil, and a 250 MW plant in Dohuk. These
recommendations assume a high rate of growth in the region;
lower growth rates would allow delay of this construction.
The consultants strongly recommend that the KRG consider
building combined cycle plants (these use heat exhausted by
gas turbines or diesel engines to power steam turbines)
rather than simple-cycle plants, because of the significant
fuel economies they offer.
8. (U) The Master Plan concludes that ongoing and projected
development of the KR's gas fields will result in production
of enough gas to meet electricity generation requirements
beyond 2030. The two producing oil fields, Tawke and Taq
Taq, and additional fields being developed, will bring enough
fuel to the market to both run projected power plants and
allow for significant exports.
9. (U) PB discounted development of wind-powered generation,
both because of its high startup cost and because the region
does not generally have adequate wind velocities. Solar
generation may be profitable in the future, but, except in
very isolated areas, its high costs make it non-competitive
with fossil fuel or hydro facilities.
Untangling the Wires ) Upgrading the Transmission and
Distribution Net


10. The PB Master Plan advocates three priorities for the KR
electrical transmission and distribution system:

- 1st priority - A US$60 million electrical meter
installation program.
- 2d priority - Rehabilitation of the distribution
network, US$250 million.
- 3d priority )Connection of 75,000 additional customers
per year to the electrical grid, US$80 million per year.
11. (U) Only about 600,000 of an estimated 730,000
electrical connections in the KR have conventional meters.
The Master Plan suggests that installation of meters be made
a priority, both as an incentive to consumers to exercise
some discipline over their power use, and as a means to
generate funds to cover some of the costs of production and
distribution (Note: RRT Erbil has been working with the KRG
MOE to improve electrical metering. End Note)
12. (U) To meet forecast demand between 2020 and 2030, PB,s
Master Plan recommends significant upgrades and additions to
existing transmission facilities in the region, to include
new bulk supply points, upgrade of transmission lines, and
addition of many substations. Upgrades to local feeder lines
will help clean up the rat,s nests of wires prevalent in
Qwill help clean up the rat,s nests of wires prevalent in
urban areas. The consultants believe that prudent reworking
of the distribution system and an overall increase in
availability of power will dramatically reduce the public,s
reliance on private sources of electricity.
13. (U) Many isolated villages and farms in the KR have no
access to the power grid and either generate their own power
or do without it completely. The Master Plan envisions an
aggressive program to build distribution networks to these
areas, reaching about 75,000 new customers per year, at an
approximate cost of US$80 million per year.
Expanding the Market

14. (U) PB notes the abundance of fossil fuel reserves in
the KR and concludes that building electrical generation
plants near oil and gas fields, or by locating them near
pipelines that serve these fields, could sharply reduce

BAGHDAD 00003347 003.3 OF 003


production costs, giving KR-produced electricity a
comparative advantage over power produced in the rest of Iraq
and in neighboring countries. Turkey is a prime market for
future KR power, a reversal of the current situation in which
Turkey is a supplier of power to the KR.
Comment

15. (SBU) The PB Master Plan follows an earlier Master
Plan developed in 2008 by the RRT. The conclusions of both
plans were similar, but The PB plan employed more
sophisticated techniques, including computer simulations,
than were available to the RRT. Both plans served as
confirmation that the KRG,s power generation and
distribution plans are headed in the right direction. The
Plan suggested only minor tweaks to ongoing plans and its
recommendations for longer term programs complemented KRG MOE
thinking. Interestingly, the conference was chaired by the
KRG Minister of Planning. The new KRG Minister of
Electricity, Yasin Abu Baker Mohammad, was named on December
4, after the conference (As part of the elaborate political
dance to establish a balance of power among the political
parties in the coalition government, this ministry was
earmarked for the Kurdistan Social Democratic Party).
16. (SBU) While its plan for improving generation,
transmission, and distribution capabilities is on a good
course, the KRG MOE will need to redouble its efforts in
three key areas: First, the MOE is grossly overstaffed.
According to the RRT,s Electricity Adviser, it should pare
its staff down to at most two-thirds of its current size.
Improving management of MOE is also necessary, especially to
strengthen accountability and transparency, to create the
ability to control and recover costs, and to improve overall
operations and responsiveness to consumers. Second, the MOE
needs to work on creation of an omnibus Electricity Law,
which would regulate power purchase agreements, establish a
code of technical and safety standards, and create a
regulatory agency. The PB Master Plan deals with a 20-year
window, but the MOE will need to get its staffing and
regulatory houses in order in a much shorter timeframe to be
able to effectively manage its responsibilities. Last but
not least, the KRG must confront the politically-charged
issue of raising electricity rates charged to consumers to a
sustainable level. PB estimated that the full recovery cost
of bringing power to consumers region-wide is about 13.6
cents per kilowatt-hour. PB estimated that the KRG recovers
only about ten percent of that cost from electricity
revenues. The balance is absorbed by the regional government
at a cost of about $2.5 million per day. As the volume of
generation increases, the dollar cost of this subsidy will
expand accordingly, severely stressing KRG public finances.
The KRG seems to be waiting until after the election to begin
instituting pricing reform. End comment.
FORD

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