Insecurity biggest threat to Iraq's power plans

DUBAI Sun Sep 28, 2008 4:11am EDT

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DUBAI (Reuters) - Insecurity, a lack of fuel and runaway demand are the biggest challenges to Iraq's plan to end chronic power shortages by 2012, the electricity minister said.

More than five years after U.S. forces invaded to topple Saddam Hussein and with violence at a four-year low, Iraqis want the government to speed up reconstruction and improve services.

Many areas lack access to electricity and even the capital Baghdad has to make do with just a few hours a day.

"Security is very important, it is still the biggest challenge to power supply," Iraqi Electricity Minister Karim Waheed told Reuters in an interview on Saturday.

"Now it is getting better and we can encourage companies to come and work here. But security was so bad during the past few years, what could we do? Nobody would come here."

Iraq's power grid has been battered by years of sanctions, war and neglect. But Waheed has ambitions to nearly triple effective power generation capacity to around 15,000 megawatts by 2012, up from around 5,500 MW currently.

The Electricity Ministry has a 10,000-strong police force to protect workers and facilities, he said on a private visit to the United Arab Emirates. The ministry lost more than 1,000 workers to killings and kidnappings last year.

Iraq has signed contracts for plants to add 5,000 MW, some of which are already under construction. Around 1,000 MW should come online next year, he added.

Baghdad has signed two preliminary deals and is negotiating another with a combined worth of $7-$8 billion to import the turbines needed for 10,000 MW of capacity, Waheed said.

The scale of the task to match power demand with supply is enormous. Some plants were still damaged from the Iran-Iraq war in the 1980s, and no large new power plant has been built on Iraqi soil since 1988, he said.

The first Gulf War left 97 percent of the grid destroyed or damaged, and subsequent sanctions prevented Baghdad from buying the spare parts it needed for proper maintenance and repair.

The grid was patched up, leaving many power plants operating below design capacity, he said.

Installed capacity is around 11,000 MW, only half of which can be used.

IMPORTS

Lack of fuel has left many plants idle. Like the power grid, the oil and gas industry needs billions of dollars of investments for repairs and expansion.

Iraq has the world's third largest oil reserves but is having to import fuel to meet demand.

The Electricity Ministry has signed a plan with the Oil Ministry to ensure there is enough gas and liquid fuel for future expansion, he said.

Waheed's ministry also completed construction of a 40,000 barrel per day simple crude refinery in the north two weeks ago to fuel power plants, he said. That job would normally fall to the Oil Ministry.

"What could I do?" he said. "We needed the oil for the power plants so we built it."

Oil Minister Hussain al-Shahristani has agreed Iraq's first large energy contracts since the U.S.-led invasion of 2003 in the past month. Both aim to address fuel supply shortages.

Royal Dutch Shell signed an initial deal last week to capture gas that would otherwise be burned at oil fields and pump it to power stations.

In late August, Shahristani agreed a $3 billion service deal with China to develop an oilfield to supply a power plant.

Small improvements in Iraq's economy have triggered rapidly rising demand for power, Waheed said.

"People that used to have one cooling unit now have one for each room," he said. "As soon as the power comes on, they switch them all on."

Iraq has begun a campaign to encourage energy conservation. But few residents are billed for consumption, so there is little incentive to use power sparingly.

Technical problems, an attack on a gas pipeline and a drought all contributed to take about 1,000 MW offline in August, during the fierce summer heat, Waheed said.

That proved the tipping point for many in Baghdad, who have raised the volume of their calls for better supply, he added.

(Editing by Alison Williams)

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