VZCZCXYZ0005
RR RUEHWEB

DE RUEHGB #3347/01 3621033
ZNR UUUUU ZZH
R 281033Z DEC 09
FM AMEMBASSY BAGHDAD
TO IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 03 BAGHDAD 003347 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ECON PGOV IZ
SUBJECT: RRT ERBIL: KRG SUCCESS IN ELECTRICITY SECTOR 
 
BAGHDAD 00003347  001.2 OF 003 
 
 
 ¶1. This is an Erbil Regional Reconstruction Team (RRT) 
cable. 
 
¶2.  (SBU) Summary.  The Kurdistan Regional Government (KRG) 
is succeeding with its electricity sector strategy, expanding 
generation capacity in the near future to meet most demand, 
at least in towns and cities.  Out of an estimated 
unsuppressed demand of 1800 MW, there is now 1,000 MW of 
generation capacity, with more coming.  The KRG has achieved 
this through foreign and private investment in power plants 
and guaranteeing investors attractive pricing. The KRG 
contracted a UK consulting firm for a 20-year Master Plan to 
guide its electrical power generation, transmission, and 
distribution development. The firm concluded the KRG has made 
appropriate decisions in its ongoing expansion plan and the 
KR has comparative advantages enabling power exports to the 
rest of Iraq and its neighbors in the near future.  Though 
the KRG is doing well in providing electricity to its people, 
expansion in capacity will only be sustainable if it raises 
prices for end-users who have until now enjoyed substantial 
subsidies.  With rate recoveries, streamlining management and 
staffing and strengthening accountability and transparency 
will also be required.   End summary. 
 
A Power Roadmap 
 
¶3.   (SBU) The KRG has expanded electrical generating 
capacity ) and the number of hours of delivery of 
electricity in major cities ) significantly in the past two 
years.   At a conference in Erbil November 16, a UK-based 
consulting firm hired by the KRG confirmed what local 
observers already suspected: that the KRG has been relatively 
successful in its electricity sector strategy.  Parsons 
Brinckerhoff (PB), a British consulting firm specializing in 
electricity planning, signed a contract with the KRG in 
January 2009 to develop a comprehensive 20-year Master Plan 
integrating all areas of electrical power generation, 
transmission, and distribution in the KR.  It presented the 
final draft of its plan at the above-mentioned conference, 
attended by representatives from the KRG Ministry of 
Electricity (MOE) and Ministry of Planning.  The Master Plan 
included PB,s evaluation of the current power situation in 
the KR, a comparison of planned development projects against 
requirements, and an estimate of the KR,s ability to move 
beyond simply satisfying its internal requirements  to begin 
export of power to the rest of Iraq and to adjacent 
countries. 
¶4.  (U) In general, PB concluded that the KRG is pursuing a 
prudent course in its short- and long-term plans for 
developing the electrical energy sector in the KR.  PB,s 
Master Plan, however, recommended one significant policy 
modification - to shift ongoing and planned projects from gas 
turbine (GT) to Combined Cycle (CC) generation. Otherwise, 
its long-term recommendations (for 2020 and beyond) were in 
synch with and complementary to the KRG's plans. 
Power to the People ) Expanding Generating Capacity 
 
 
 
¶5.  (SBU) PB reported that the KR currently has approximately 
1,000 MW of internal generating capacity, compared to an 
estimated region-wide demand of 1,800 MW.  It has agreements 
to purchase 134 MW from Turkey and 50-200 MW from Iraqi 
sources outside the KR , but contracting issues and fuel oil 
shortages have reduced the reliability and quantity of power 
received from both external and national sources.  The recent 
drought and a policy of prioritizing water use for 
agriculture purposes have lowered lake levels and generation 
at two key hydroelectric plants at Dokan and Darbandikhan. 
Heavy fuel oil (HFO) and diesel engine driven generation is 
habitually reduced in the KRG due to a lack of spare parts 
and reliable supplies of fuel, which is trucked, not piped, 
Qand reliable supplies of fuel, which is trucked, not piped, 
to the plants.  Transferring electricity from the Iraq 
interconnected system is problematic, given the shortages on 
the grid and the lack of cooperation between the KRG and GOI. 
  (Note:  Former KRG Prime Minister Nechirvan Barzani told 
RRT Team Leader that the GOI had tried to convince the KRG 
not to build new power plants, but the KRG went ahead when 
the GOI could not guarantee an equivalent amount of power 
delivery.  End Note.)  The shortfall between supply and 
demand has meant that the KR suffers daily outages and 
brownouts.  Because the KR maintains two independent 
distribution networks, one serving Dohuk and the other 
serving Erbil and Suleimaniyah, shortages are not equally 
shared among the three governorates.  In the cities of Erbil 
and Suleimaniyah, power is available about 15 to 18 hours per 
day, on average.  Dohuk gets power about 12 hours per day. 
Residents supplement the irregular public power supply by 
running their own generators or by buying power from private 
entrepreneurs who operate small diesel units, typically 
charging about 16.5 cents per kilowatt-hour. 
 
¶6.  (U) The KRG has several new power generation facilities, 
either under construction or committed: 
 
BAGHDAD 00003347  002.2 OF 003 
 
 
 
-     In Chamchamal, in Suleimaniyah province, a 750 MW gas 
turbine plant is partially completed and currently delivering 
331 MW. Four turbines should be operational by early next 
year, with two more possibly available in 2011. 
-     In Ba,adrah, a 150 MW Heavy Fuel Oil-fired  plant with 
planned opening in 2011. 
-     Two hydroelectric plants at Bekhal and Deralok. 
Bekhal, a 1 MW micro-facility, should open next year. 
Deralok, producing 30 MW, is planned to start production in 
¶2015. 
-     The KRG MOE has recently signed an agreement for 
construction of a 300 MW heavy oil fired plant with the 
Korean National Oil Company.  The plant would have an initial 
operating capacity of 150 MW.  The balance capacity will be 
installed by 2014. 
-     Three 29 MW medium speed diesel engine plants in Erbil, 
Suleimaniyah and Dohuk will be overhauled by 2012. 
-     In Dohuk, a 500 MW combustion turbine plant. 
 
¶7.  (U) PB estimates that current construction plans, if 
completed on schedule, will result in sufficient power on 
line to satisfy, or even exceed, demand in the KR until about 
¶2020.  For the period 2020 to 2030, PB recommends additional 
generation capability be considered:   Three 375 MW plants 
(one in each of the three governorates), a second 375 MW 
plant in Erbil, and a 250 MW plant in Dohuk.  These 
recommendations assume a high rate of growth in the region; 
lower growth rates would allow delay of this construction. 
The consultants strongly recommend that the KRG consider 
building combined cycle plants (these use heat exhausted by 
gas turbines or diesel engines to power steam turbines) 
rather than simple-cycle plants, because of the significant 
fuel economies they offer. 
¶8.  (U) The Master Plan concludes that ongoing and projected 
development of the KR's gas fields will result in production 
of enough gas to meet electricity generation requirements 
beyond 2030.  The two producing oil fields, Tawke and Taq 
Taq, and additional fields being developed, will bring enough 
fuel to the market to both run projected power plants and 
allow for significant exports. 
¶9.  (U) PB discounted development of wind-powered generation, 
both because of its high startup cost and because the region 
does not generally have adequate wind velocities.  Solar 
generation may be profitable in the future, but, except in 
very isolated areas, its high costs make it non-competitive 
with fossil fuel or hydro facilities. 
Untangling the Wires ) Upgrading the Transmission and 
Distribution Net 
 
 
¶10.  The PB Master Plan advocates three priorities for the KR 
electrical transmission and distribution system: 
 
-     1st priority - A US$60 million electrical meter 
installation program. 
-     2d priority - Rehabilitation of the distribution 
network, US$250 million. 
-     3d priority )Connection of 75,000 additional customers 
per year to the electrical grid, US$80 million per year. 
¶11.  (U) Only about 600,000 of an estimated 730,000 
electrical connections in the KR have conventional meters. 
The Master Plan suggests that installation of meters be made 
a priority, both as an incentive to consumers to exercise 
some discipline over their power use, and as a means to 
generate funds to cover some of the costs of production and 
distribution (Note:  RRT Erbil has been working with the KRG 
MOE to improve electrical metering.  End Note) 
¶12.  (U) To meet forecast demand between 2020 and 2030, PB,s 
Master Plan recommends significant upgrades and additions to 
existing transmission facilities in the region, to include 
new bulk supply points, upgrade of transmission lines, and 
addition of many substations. Upgrades to local feeder lines 
will help clean up the rat,s nests of wires prevalent in 
Qwill help clean up the rat,s nests of wires prevalent in 
urban areas.  The consultants believe that prudent reworking 
of the distribution system and an overall increase in 
availability of power will dramatically reduce the public,s 
reliance on private sources of electricity. 
¶13.  (U) Many isolated villages and farms in the KR have no 
access to the power grid and either generate their own power 
or do without it completely.  The Master Plan envisions an 
aggressive program to build distribution networks to these 
areas, reaching about 75,000 new customers per year, at an 
approximate cost of US$80 million per year. 
Expanding the Market 
 
 
 
 
 
¶14.  (U) PB notes the abundance of fossil fuel reserves in 
the KR and concludes that building electrical generation 
plants near oil and gas fields, or by locating them near 
pipelines that serve these fields, could sharply reduce 
 
BAGHDAD 00003347  003.3 OF 003 
 
 
production costs, giving KR-produced electricity a 
comparative advantage over power produced in the rest of Iraq 
and in neighboring countries.  Turkey is a prime market for 
future KR power, a reversal of the current situation in which 
Turkey is a supplier of power to the KR. 
Comment 
 
 
 
¶15.  (SBU)   The PB Master Plan follows an earlier Master 
Plan developed in 2008 by the RRT.  The conclusions of both 
plans were similar, but The PB plan employed more 
sophisticated techniques, including computer simulations, 
than were available to the RRT.  Both plans served as 
confirmation that the KRG,s power generation and 
distribution plans are headed in the right direction.  The 
Plan suggested only minor tweaks to ongoing plans and its 
recommendations for longer term programs complemented KRG MOE 
thinking.  Interestingly, the conference was chaired by the 
KRG Minister of Planning.  The new KRG Minister of 
Electricity, Yasin Abu Baker Mohammad, was named on December 
4, after the conference (As part of the elaborate political 
dance to establish a balance of power among the political 
parties in the coalition government, this ministry was 
earmarked for the Kurdistan Social Democratic Party). 
¶16. (SBU) While its plan for improving generation, 
transmission, and distribution capabilities is on a good 
course, the KRG MOE will need to redouble its efforts in 
three key areas:  First, the MOE is grossly overstaffed. 
According to the RRT,s Electricity Adviser, it should pare 
its staff down to at most two-thirds of its current size. 
Improving management of MOE is also necessary, especially to 
strengthen accountability and transparency, to create the 
ability to control and recover costs, and to improve overall 
operations and responsiveness to consumers.  Second, the MOE 
needs to work on creation of an omnibus Electricity Law, 
which would regulate power purchase agreements, establish a 
code of technical and safety standards, and create a 
regulatory agency.  The PB Master Plan deals with a 20-year 
window, but the MOE will need to get its staffing and 
regulatory houses in order in a much shorter timeframe to be 
able to effectively manage its responsibilities.  Last but 
not least, the KRG must confront the politically-charged 
issue of raising electricity rates charged to consumers to a 
sustainable level.  PB estimated that the full recovery cost 
of bringing power to consumers region-wide is about 13.6 
cents per kilowatt-hour.  PB estimated that the KRG recovers 
only about ten percent of that cost from electricity 
revenues.  The balance is absorbed by the regional government 
at a cost of about $2.5 million per day.  As the volume of 
generation increases, the dollar cost of this subsidy will 
expand accordingly, severely stressing KRG public finances. 
The KRG seems to be waiting until after the election to begin 
instituting pricing reform.  End comment. 
FORD