Iraq agrees $328 million GE deal to boost electricity grid

The logo of General Electric is pictured at the 26th World Gas Conference in Paris, France, June 2, 2015. REUTERS/Benoit Tessier

BAGHDAD (Reuters) - Iraq has agreed a $328.8 million deal with General Electric GE.N to boost electricity production capacity by 1,000 megawatts (MW), an electricity ministry spokesman said on Monday.

Though Iraq is a major OPEC oil producer, the country faces chronic electricity shortages, with its fragile grid struggling meet demand after years of war, sanctions and neglect. Many areas lack access to electricity or drinking water, prompting demonstrations by thousands of Iraqis last year to press the government to improve delivery of essential services.

GE will provide equipment and maintenance for 10 power plants across the country, ministry spokesman Musab al-Mudaris told Reuters.

Baghdad will pay GE in installments over three years, starting in 2017, because the electricity ministry’s 2016 budget was cut by more than half to 1.185 trillion Iraqi dinars ($1 billion), Mudaris said.

Iraq expects a budget deficit of about 24 trillion dinars this year as it grapples with lower global oil prices and costs associated with the fight against Islamic State militants.

“We asked the government to increase the ministry’s investment budget for 2016 because, with the current austerity measures, the country’s power grid could collapse,” Mudaris said.

There is a wide gap between electricity consumption and supply in Iraq. Peak demand during the summer, when people turn on air conditioners to combat temperatures that can reach 50 degrees Celsius, is about 21,000 MW, far exceeding the 13,000 MW the grid is currently providing, according to Mudaris.

Under the terms of the contract, GE must finish procurement and servicing for the power plants by the beginning of July, Mudaris added.

Writing by Stephen Kalin; Editing by David Goodman