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Abu Dhabi, UAETuesday 13 November 2018

Iraq heatwave lays bare shortcomings in country's energy sector

Megaprojects in the oil and electricity sectors are beset by mismanagement and corruption

Iraqi protesters. As temperatures rise tempers flare at poor state of electricity sector. AP
Iraqi protesters. As temperatures rise tempers flare at poor state of electricity sector. AP

The miserable conditions in the south of Iraq are the origin of the current protests, as Patrick Osgood, writing here, has very well explained.

With Basra set to hit 49° C this week, the lack of reliable electricity and clean water is intolerable. Utopian solutions will not work, handouts do not tackle the source of the problems – so what can be done?

The US occupation authorities and subsequent Iraqi governments have all battled with this problem. Electricity generation has risen sharply since 2012, but has been unable to catch up with a rising population, growing demand and the backlog of war damage and decrepitude. Of 26 gigawatts installed generation, theoretically enough to meet the current 23 GW of demand, less than 17 GW is operable because of lack of fuel, maintenance and transmission capacity. In turn, inadequate electricity causes economic stagnation and unemployment outside the oil sector, another key source of anger.

Under the stress of lower oil prices, the national budget fell from $150 billion in 2014 to $88bn in 2017, despite running a large deficit and cutting most investment spending. This has held up the completion of power plants ordered from GE and Siemens, and slowed progress in capturing flared gas, a by-product of oil production, for fuel. Meanwhile Iraq is buying gas from Iran, a helpful expedient but at a high cost. Unable to pay cash, it has been sending some oil consignments from Kirkuk to Iran in exchange.

Iraq was also buying 1 GW of power from Iran, but this has been cut off owing to unpaid bills and shortages in Iran itself – themselves triggered by the heatwave and a lack of water in hydroelectric dams. As a temporary expedient, the Baghdad government has reduced supply to Ninewa, in the north, to supply more electricity in the south, but this just raises the risk of more discontent in the areas recently liberated from ISIS.

Studies have indicated that worldwide, higher temperatures lead to increased political violence – perhaps because of physical stress leading to anger. In Iraq’s case, this is exacerbated by the lack of reliable air-conditioning, and by poor-quality, insufficient water. Climate change will make Iraq up to 2°C hotter in summer by 2040, with rainfall 10-20 per cent lower.

Much is written about “international water wars”, but the first impact of water shortages is being felt in the internal fabric of fragile states. Dams in Iran and Turkey have cut the flow of the Tigris and Euphrates. Both are struggling with drought themselves and not likely to spare more water for their downstream neighbour.

To deal with these problems, Iraq needs to strengthen itself within while building relations abroad. At home, the government needs more reliance on the private sector and international investment. To build some patience and trust, and bypass the sclerotic federal and provincial patronage networks, devolution to the local level is essential for smaller-scale projects.

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The conundrum is that power plants cannot be built in a day, but the protestors are tired of previous empty promises. The government may do better to start small. Local solar power installations could be provided quite quickly, and would at least run air-conditioning during the daytime heat. Under community management, with automatic meters to cut off non-payers, this could give ordinary people some agency, provide local jobs, ease the problems of sabotage and electricity theft, and undercut the “mafia” that runs noisy, polluting, costly diesel generators. Similarly, drip irrigation schemes would save on the wasteful use of water.

Megaprojects in the oil and electricity sectors are beset by mismanagement and corruption. For problems that can only be solved by large-scale schemes – finishing the large power plants, gathering gas, fixing dams, building water treatment and desalination – Iraq could experiment with a blend of approaches. Two possible approaches would be an empowered agency outside the bloated structure of ministries; or the restart of the stalled creation of special economic zones, which can act as laboratories and demonstrations for new approaches.

On the political side, Baghdad will find assistance and goodwill. International mediators can help it strike a deal with the autonomous Kurdish region. Because of its openness to private investment, the Kurdistan region has more available gas and power capacity. Some of this could be transferred to the national grid, while Baghdad also needs to use the Kurdish pipeline to export oil from the Kirkuk area to Turkey. In return, Erbil needs oil revenue-sharing to pay its bills.

The GCC has long complained about excessive Iranian influence in Iraq, but it will welcome some recent signs of change. Protesters have chanted slogans against Iran and attacked offices of two of the militias closest to Tehran. In a sensible outreach, Saudi Arabia reopened its embassy in Baghdad in 2015 and the Arar border crossing last August. Crown prince Mohammed bin Salman received Muqtada Al Sadr in July 2017; Mr Al Sadr’s list went on to head the elections.

A delegation from the Iraqi ministry of electricity was due to visit Riyadh last week to discuss importing electricity, although it would take some time to construct an interconnection. A link to the Kuwaiti grid for 200 megawatts was in progress in February, while Iraq is meant to be exporting some gas to Kuwait, creating a mutually-beneficial trade.

Solutions are obstructed by patronage politics, bureaucrats’ statist mindset, and the temptation to placate the protesters with unaffordable giveaways. But after miserable turnout in the last elections, the political reward is there for the party that can break the past’s failed mold.

Robin M Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis