VZCZCXRO6423
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3256/01 2711321
ZNR UUUUU ZZH CITE RUEHSD 0061W SVC ZDK
R 281321Z SEP 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 3608
INFO RUCNRAQ/IRAQ COLLECTIVE
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 02 BAGHDAD 003256 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958:N/A 
TAGS: ENRG EINV EFIN ECON PGOV IZ
SUBJECT:  Electricity in Erbil: Operating on Private Generators. 
 
REF: Baghdad 2902 
 
BAGHDAD 00003256  001.2 OF 002 
 
 
C O R R E C T E D COPY (adding signature) 
 
This is a Kurdistan Regional Reconstruction Team (RRT) cable. 
 
SUMMARY 
------- 
 
¶1.  (U) The city of Erbil established a system of 
government-subsidized private generators to provide electricity to 
meet the region's power shortages after Saddam cut power in 1998. 
While dangerous, noisy and crudely wired, these generators provide 
most consumers reliable power for an average of eight hours per day. 
  The Kurdistan Regional Government (KRG) Ministry of Electricity 
has licensed two private (BOO) power plants.  Its plan depends on 
raising prices for electricity from the grid based on consumers' 
proven willingness to pay near-market prices to the private 
generators.  The key to success will be providing reliable power 
from the grid and implementing an efficient system for collecting 
fees. 
 
Background 
---------- 
 
¶2. (U) When Iraqi Kurdistan gained de facto autonomy in 1992, it had 
little power generation of its own. Despite the break with Baghdad, 
the region continued to receive some power from the national grid. 
But in 1998, Saddam's regime cut power from the grid and forced the 
region to seek alternatives. 
 
¶3. (U) At the time, the region's two hydropower stations at Dokan 
and Derbandikhan had an installed capacity of 480 MW.  The lack of 
maintenance at the stations, in transmission and distributions 
systems reduced generation to an average of 185 MW in the summer and 
48 MW in the winter.  Erbil also had two small diesel power stations 
with combined 40 MW for essential loads. 
 
¶4. (U) In response to power shortages, hundreds of entrepreneurs had 
rushed to fill the need by setting up private power businesses with 
diesel generators in neighborhoods around Erbil.  The businessmen 
provided power to neighborhoods when power from the grid was off. 
The KRG supported these electricity providers by providing diesel 
fuel at subsidized prices. 
 
The Current System 
------------------ 
 
¶5. (U) The system continues to this day.  According to Ministry of 
Electricity figures, there are 681 private diesel generation 
operations within the municipality of Erbil.  Most are dangerous, 
noisy and crudely jury-rigged systems with the generator and fuel 
tanks encased in a temporary cement block enclosures.   As a rule, 
customers pay in advance for an average 7 and 9 hours service 
alternating daily. 
 
¶6. (U) The Erbil Governorate, the KRG Ministry of Electricity's 
Department of Diesel Generators (MoE) and the Ministry of Oil have 
formed an informal committee to supervise these operations and 
provide diesel fuel at a subsidized of 450 dinars per liter versus a 
market price of 660 dinars (or, at 1233 dinar/dollar, US 36 cents 
versus 53 cents per liter).  Government-regulated generators receive 
the fuel on a monthly basis, and in return, guarantee consumers a 
price of 9,000 dinars (USD 7.30) per ampere for 7 to 9 hours.  The 
government has nearly doubled these prices since 2003 due to 
increased costs.  Non-regulated private generators, numbering around 
200, charge approximately 12,000 dinars (USD 9.73) per ampere.  Most 
businesses and some private homes also run their own small 
generators. 
 
So what does this mean to the consumer? 
--------------------------------------- 
 
¶7. (U) RRT staff visited several neighborhoods and private 
generators to see how the system works in practice.  A typical 
operator on park land behind the Ministry of Electricity runs two 
generators of 400 KVa and provides 1,300 amperes of electricity to 
450 houses. In return for the guaranteed price per ampere, this 
operation receives 15,000 liters of diesel per month at a subsidized 
price.  Sabah Hamadamin, a former government employee, buys six 
amperes of electricity for a household that includes two school-age 
boys; it costs him 54,000 dinars (about 43 USD) per month.  A 
newlywed couple nearby buys half that amount.  Generally, households 
buy four amperes to run lights, a refrigerator, and television - but 
no air conditioners. 
 
¶8. (U) In theory, consumers also pay for electricity off the grid, 
but in practice many do not.  In August 2007, less than 56 percent 
of Erbil city's 145,000 customers paid their nominal monthly bill of 
three dollars.  The overall average across the region was slightly 
lower at 46 percent.  Low collection rates and nominal prices mean 
there is little capital for improving the system.  In addition to 
low collection rates, the Erbil Governorate provides 10 million 
liters of subsidized fuel per month to the private generators; even 
 
BAGHDAD 00003256  002 OF 002 
 
 
so, still many grouse that they do not receive their full 
allocations. 
 
¶9. (U) Most businesses, small and large, operate their own 
generators and receive power from the grid, though for a 20 to 30 
percent higher price than charged for consumers. The KRG Ministry of 
Electricity does, however, provide continuous reliable power to 
essential services like the hospital, water pumping projects, 
schools and so forth. 
 
Will consumers pay? Yes, but can the government deliver? 
--------------------------------------------- -- 
 
¶10. (U) There is good news here.  Consumers in this region have 
shown that they are willing to pay for electricity to a reliable 
provider.  The trick for the government is getting the consumers to 
stop using private generators or purchasing fuel for small private 
generators for their homes and businesses.  The KRG Ministry of 
Electricity's plan (reftel) includes the licensing of a Build, Own, 
& Operate (BOO) 500 MW power station at Pir Daud, 10 km away from 
Khurmala gas field. The power project is expected to be fully 
operational by spring 2008.  The Ministry of Electricity will 
provide the fuel and purchase power for 2.8 cents/KWH, significantly 
less than it currently charges. 
 
¶11. (U) Recovering generation costs will require a reliable system 
for collecting fees.  The ministry is in the process of carrying out 
a tariff study and a master-plan for electricity sector up to the 
year 2020 with USAID technical assistance. It is also preparing 
solicitations for private investment for a 'Prepaid Digital Metering 
Project'. It has contacted manufacturers of these meters including 
Schneider, Actaris and Landis and Gear. 
 
Comment 
------- 
 
¶12. (U) Will power from the grid be reliable enough to make 
consumers be willing to pay for the real cost of generation?  The 
KRG Ministry of Electricity believes it can meet this challenge, but 
it will take time. In the meantime, Erbil's system of 
government-subsidized private generators will play a crucial role in 
powering homes and businesses.