Shatha Khalil *
Since 1958 (the establishment of Republic) until today Iraq is suffering a serious shortage of electric power, despite spending large sums of money between 50-60 billion dollars on the electric power generation sector but it did not succeed to solve the problem basically , according to economic experts and investors in this field noting Iraq’s electricity problem is not new ;the sector has suffered for decades of bad management, poor policies, and the lack of proper planning for the future.
Among the reasons for the shortfall is the neglect of the state to the role of the private sector in this sector while the world is heading today to the private sector to invest in power generation and to ease the burden on the state budget in material terms, and bearing the risk and sudden element, and operation of the national labor force, and the commitment of specific period of production and take full responsibility in the event of failure or stop or reluctance to work, and there are employment contracts that regulate the relationship between the investing company and the state to save the rights of both parties with the the force remains always in the hands of the government party.
So we see even in the advanced industrialized countries and rich countries , the private sector involved in power generation projects and important infrastructure , it is not only in terms of material , but to avoid the bureaucratic cases , which make the achievements of projects slow due to the difficulty of decision – making, while the private sector is the fastest and bear the risks and obstacles, and those countries reached to the conviction that the sale of the stations to the private sector, “investors and companies”, then buy the energy from them is more economical and more feasible economically if they invest in this sector, for example, the rich Arab countries such as Saudi Arabia and the United Arab Emirates have hundreds of billions however , they began the process of Privatization of the energy sector, based on economic feasibility studies.
In Iraq: the private sector can significantly contribute to the support of the Iraqi economy and resolve accumulated crises for decades, especially the energy crisis, but the Iraqi society that lived mentality of socialism for decades , the culture of human being of it which still sees that the state undertakes the responsibility to provide the energy, water and food and the construction of roads, bridges and stations, but those concepts have changed today in most countries of the world; as we are now in the era of globalization and rapid technological development, as to keep up with the world and the development , it must be orientated to the economy of market in the scientific studied form serving the Iraqi community to provide better services and operating the Iraqi manpower (workforce) on the one hand, and maintain the prestige of the state and its sovereignty on the other hand, we have to understand the thought of private investment, and encourage it , and not to treat the investor as an enemy and must take revenge on him.
Although Iraq, according to the Iraqi constitution after 2003 moved towards a market economy, but it did not apply anything on the ground, because there was no education for the community , not even those responsible for the country project management, there is no depth study and prepare for studies of economic feasibility for all core projects to reach full conviction of the proper heading towards the private sector to eliminate the problems experienced by Iraq that it is rarely mentioned even in the poorest countries.
And the Finance Committee member Masood Haider confirms that the private sector in Iraq has not been activated, since 2003; although it constitutes 40% of the general income of the country “, if the government has transferred companies to the private sector, they will significantly support the Iraqi economy, and will bring back to the state about ten trillion dinars ($ 8.3 billion) annually.”
The economic experts say that privatization does not mean the transfer of ownership randomly, but in a scientific thoughtful manner , and works to improve the performance of enterprises, namely the entry of the private sector as a strategic partner for a certain period for the purpose of raising enterprise productivity and improve their performance and provide better services and eliminate the problems experienced by the Iraqi society, including the stop of 40 thousand factory in Iraq , out of work.
The most important private sector characteristics that it is an influential party with the public sector, in the economic sector in each country, and is a balance factor in the local and global economy, and directly affects the labor force; as any private sector facility need workers, and employees who have sufficient capacity to do the jobs that contribute to the achievement of the main objective of the existence of the facility.
This needs to develop specific action strategies for decision – making, far from any routine procedures, leading to limit access to any appropriate decision in the work environment, and bear all the fixed and variable costs.
If we have a simple calculation of the money that is wasted, and the sap of the food of Iraqi citizens in order to obtain electricity , which has become a problem without fully resolution and without the required level.
The calculations based on the number of Iraq ‘s population of 25 million minus the population of the Kurdistan region, and that one family rate is 5 persons , then we shall have 5 million families, ie 5 million residential place and on the assumption that the rest of the civil facilities represent 40% of the houses , the number of facilities shall be two million facility, representing shops, restaurants, cafes and other civil facilities, and the total contributions that need to be equipped with electricity will be 7 million subscribers between a family and a civil facility.
If we assume that the consumption of each facility 6 amp rate, and the rate of price ampere per month is 7,000 Iraqi dinars, so what will be paid by the Iraqis monthly to the owners of generators is (6 amperes × 7000 dinars / AMP per month × 7 million subscribers need electricity = 294 billion Iraqi dinars), what equivalent to US $ 235 million.
(Considering the dollar exchange rate of 1250 dinars).
We assume that the electrical wiring expenses and circuit breakers , ie “maintenance” is 20%, ie , that (20% × 235 million = $ 47 million), where every family need to change circuit breakers and replace the wire several times a year, so what Iraqis spend a month ($ 47 million maintenance + $235 million monthly price of AMP) = 282 million US dollars per month.
In one year ($ 282 million × 12 months) is equal to 3.384 billion dollars annually, what the Iraqi citizen spends of his income to get electricity, poorly and sporadically.
It should be noted that no other costs are calculated as follows: –
• Prices of private generators (household, shops) used by many citizens.
• Fuel prices, the cost of maintenance of generators that are often borne by the citizens.
• Poor and voltage fluctuation that cause the damage of home and productive electronics and electrical appliances.
• Most importantly, all the above is the environmental pollution and the resulting dangerous diseases affecting human health, and animal and plant life and property.
If we compare the costs of electricity in Iraq, ie , what is borne by the Iraqi state, and what is bought from Iran and what is provided by private companies “Basmajh plant project” , for example , we note the following: –
1-government produces a kilowatt worth 5.5 cents, without fuel calculation, if the interest on the invested capital and depreciation and salaries was calculated, the price would be doubled.
2. The imported electricity from Iran costs the state 9 cents with poor specifications in terms of voltages and vibrations.
3. The private company “Basmajh” project 7 cents with fuel.
If we calculated the production of 3000 megawatts, we would see that the private project of Basmajh station, Iraqi National Company, provides about half a billion dollars, for the benefit of the Iraqi government.
From the above we conclude that the costs of producing of the state – of – accounting terms, is very high compared to the private sector, even if the state creates a project, and thus the process of buying by the state from the private sector, cheaper, and also be much cheaper and finest than if the state purchased from Iran, and most importantly it is the national company and by Iraqi hands.
However , the government overlook many of the important accounting matters, and does not take it in to its accounts , as the cost of plant Basmajh for the production of electric power amounted to three billion dollars, while revenues are up to about 750-800 million dollars, while some official bodies calculate it as a net profit and this is a large mistake , as it does not calculate the cost of capital, which was borrowed from banks , for example; government banks calculate interest on loans between 8-10%, repaid from revenue, variable and fixed costs , maintenance, salaries, depreciation and others so net profit will not be greater than $ 200 million which make up less than 7%.
The state makes another mistake when it does not calculate the depreciation which is a regular distribution of the cost of Depreciable assets during its productive life such as machinery, equipment, machinery, or is that part of the fixed asset , which reflects the amount of the benefit of the accounting period from the fixed asset services, which is calculated on the accounts of the result , or it is the progressive shortage of the cost in the fixed asset value as a result of its use or economic prescription .
And we must calculate the cost accurately in order to get to the real value of the profit, as it does not calculate the cost properly, it calculates the cost of the purchase of machinery, equipment and spare parts and what is only required for maintenance.
And calculates the cost of a kilowatt in the Iraqi Ministry of Electricity with an accurate accounting perspective, we will notice that the cost is too high, compared to the private sector , which bears full responsibility and all its challenges, and all costs must be accurately calculated to get into real profit.
The important question we ask here is: why Iraq is not heading in a studied scientific way to the private sector to solve the problem of electricity, based on studies of the economic feasibility of the problem, so that the state can solve the energy problem once and for all in Iraq and by Iraqi hands?
Example of the success of the private sector in contributing to solving the energy problem in Iraq is Basmajh station, one of the power stations; a subsidiary of MAS Group Holdings Ltd.; submitted proposals and processors to solve the power crisis completely to the Iraqi government, saying its ability to solve that problem in all Iraqi provinces completely.
Minister of Electricity Engineer Qassim Mohammed Fahdawi at the station opening ceremony: We are proud today to inaugurate the first investment power plant, carried out in record time, and in a difficult situation, and will contribute significantly to provide national electricity system as a first stage with (1040) MW, and the share of the province of Baghdad will be large being within the geographical area of the capital, and praised the MAS Group Holding for its accuracy and speed of delivery, noting that it is continuing the implementation of the project of this station that the energy production of it to reach to 3000 MW, to cover the needs of the capital Baghdad, with a large population density, and the total production of Mass group holding in Baghdad and Kurdistan amounted 70 00 MW, while the government production amounted until now 12,000 MW,
MAS group says that the station Basmajh which is subsidiary to it , located 25 km southeast of the capital Baghdad is working with an energy of 3000 MW, make up 25 percent of the production of the whole Iraq .
And it has been contracted with the Ministry of Electricity to create huge power station; to feed the capital Baghdad, and the station consists of eight gas unit’s type (Frame 9-FA) per unit capacity of 260 MW,
equal to 2080 MW, and the actual work was started on the site at the beginning of 2015.
These gas turbines are operating with two types of fuel (natural gas and liquid fuel / diesel) and diesel is preserved in six tanks, each tank with a capacity of 10,000 m3.
The station entered the production phase of simple cycle at the beginning of 2017, it has began at the same time to create a combined cycle to take advantage of the heat emitted from the exhaust coming out of the turbine , by re – use of the heat through special boilers (Heat Recovery Steam Generators HRSG ) with a capacity of 920 MW without additional fuel consumption , and this leads to increase the production efficiency and get rid the environment from waste of combustion and reduce the carbon amount emitted to the atmosphere.
after the completion of the combined cycle , the power of station becomes 3000 MW, and the station is among the giant and very important projects in the region, the main parts of the compound cycle include the following:
– Gas turbines of type 9 (FA) Manufacture of US (GE ) company .
-steam turbine type (C7) manufacture of US (GE) company, boilers (HRSG) of the Belgian Company (CMI).
-water cooling systems (WCC) of the German Company (GEA).
-main and sub transformers of the German company (Siemens),
main control system of the US company (Emerson) .
The station include equipment and modern systems are complementary to the project with complete accessories and the transfer of produced energy is carried out through secondary stations with a capacity of 400 kV and 132 kV and across multiple transmission lines.
And soon the capacity of the plant will operate 3,000 megawatts which is equivalent to a quarter of full production of Iraq and with the best equipment at all and at a cost of $ 3 billion, which means the possibility of energy saving for 24 hours in Baghdad.
Economic Unity
Rawabet Center for Research and Strategic Studies