* Iraq scraps $3 billion bond sale
* To raise cash by allowing banks to lend from reserves
BAGHDAD, Aug 9 (Reuters) - Iraq has scrapped a plan to sell $3 billion of treasury bonds, mostly to pay for electricity projects, and instead plans to raise the money through domestic banks, a central bank advisor said on Sunday.
Earlier this month, Iraqi Prime Minister Nuri al-Maliki berated lawmakers for failing to ratify a bill for the bond sale before parliament broke for summer recess, saying Iraq needed the money to pay General Electric (GE.N).
In 2008, Iraq signed multi-billion dollar deals with GE and Siemens (SIEGn.DE) to add nearly 9,000 megawatts of capacity over the next few years.
“The issue of the bonds has ended,” said senior central bank advisor Mudher Kasim. About $2.4 billion of the $3 billion bond sale was destined for electricity projects.
Iraq would instead raise $2.4 billion by allowing banks to lend the Finance Ministry cash from their reserve requirements, at a rate of two percent for a term of one year.
The legal framework and exact mechanism of the fund raising were not immediately clear.
Even though it has been more than six years since the U.S.-led invasion, Iraq’s dilapidated electricity sector provides only intermittent power, a chief complaint among Iraqis in the searing summer heat.
Iraq’s current electricity capacity is 7,500 megawatts, far short of the country’s requirement of 12,000 megawatts.
Political wrangling between Iraq’s feuding ethnic and sectarian groups has bogged down the legislative process, creating a backlog of draft bills needing ratification.
Maliki said he had met GE officials during his trip last month to the United States, who told him they had already made equipment for Iraq and had complained of not being paid.
Iraq had to slash its 2009 budget three times due to a sharp fall in oil prices from last year. Almost all of Iraq’s income is derived from oil sales from its vast reserves, the world’s third largest. (Reporting by Khalid al-Ansary and Suadad al-Salhy, Writing by Mohammed Abbas; Editing by Mike Nesbit)