Electricity Sector Reform Post-ISIS: Lessons to learn

ELECTRICITY SECTOR REFORM
POST-ISIS: LESSONS TO LEARN
Harry Istepanian CEng., PMP
Independent Consultant, Washington D.C.
Senior Fellow – Iraq Energy Institute
IRAQ ENERGY FORUM
2-3 APRIL 2017
© 2017 Harry Istepanian

1.
Iraq Economy Post-ISIS

$85,512,970,800Total budget.
$67,114,316,290Total revenue.
($18,398,654,500)Total deficit
How federal budget looks like in 2017?
(Source: Iraq Energy Institute, 2017)

How the federal budget will do?
59
112
186
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
200.00
2009 2014 2019 2024 2029
USD(BILLIONS)
($000,000,000)
Looks positive! Good news for the electricity sector, BUT…

Reconstruction investment levels post-ISIS?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 1 2 3 4 5
LEVELOFINVESTMENT
YEAR
Humanitarian Aid and Physical Security Provide Jobs
Undertake Political and Economic Reforms Reconstruction Infrastructure and Public Services
Build Institutional Capacity

Iraq’s “overpopulation” growth is high!
36,423,000
41,972,000
47,797,000
54,070,000
2015 2020 2025 2030
Iraq’s Population will reach 54 millions In 2030,
(approximately 1 million every year) @ 2.8 – 3.2%
growth rate per annum.
(Source: The World Bank Group, 2009)

2.5mNew housing units are needed by 2016.
.
130,000Total number of houses built.
1.3mIraqis have been confirmed displaced since 2014
Housing and settlement needs
(Source: Ministry of Housing, UNDP, IOM, 2015-2017)
10 - 15%target housing investment of GDP.

Electricity Demand Forecast
(Source: Brookings 2015)

Innovative thinking to
boost economic growth
Iraq needs new vision to promote its business
environment

2.
The Electricity Sector

10,000MW
Actual Generation March 2017.
22,000MW
16 hours
There is a demand for every supply!
Demand (may be!).
Electricity supply to normal households
54,094 MW
Demand forecast for 2030.

8,300 km
Total required length of 400kV trasnmission lines needed by
2020.
51
43,000 MVA
There is a demand for every supply!
Total number of substations needed by 2020.
Total capacity required for substations transformers by 2020.
21
Number of locations for new substations between 2016 – 2020.

Technical
▷ Rebuild damaged assets;
▷ Capacity shortage;
▷ Increasing demand;
▷ Reducing technical and
non-technical losses;
▷ Rehabilitation of aging
assets
▷ Enhancing reliability;
▷ Diversifying energy
resources.
Economic
▷ Backlog investment;
▷ Mobilization of government
funds;
▷ Poor financial performance;
▷ Attraction of private capital
investment;
▷ Heavy subsidy;
▷ Non-cost reflective tariff;
▷ Security and terrorism;
▷ unsustainable fuel supply;
▷ Bloated workforce.
Current Challenges

Iraq’s natural gas
proven reserve = 3587.74 billion cubic meter.

12
Rank largest reserve in the world.
10
70%
NG facts and figures
Natural gas fields (non-associated)
of natural gas reserve is associated gas.
1,775km
Total length of national gas pipelines

What’s the problem then?
▷Most gas pipelines were build
in 80s
▷Much of trasportation facility
is unusable due to successive
conflicts.
▷Operating below design
capacity.
▷Major delays in development
of oil & gas fields and pipeline
network.

Where’s the problem then?
-
5,000.0
10,000.0
15,000.0
20,000.0
25,000.0
30,000.0
35,000.0
40,000.0
45,000.0
50,000.0
2010 2011 2012 2013 2014
Quantity(millionstandardcum)
Gross Production Marketed Production Flaring Reinjection Shrinkage
(Source: OPEC 2015)

▷ Iraq planned in 2012 to invest
$1.6 billion on renewable
energy (solar and wind).
▷ Iraq needs to catch up with
regional development (Saudi
Arabia plans to produce 9.5
GW solar power by 2023, Iran
renewable energy production
capacity is predicted to reach
5,000 MW in the next five
years).
What about renewable energy?

3.
Reform is a must!

Access to electricity is of key
importance in reconstruction
efforts and economic growth
post-ISIS.
Without foreign and private
investment inflows, electricity
sector will remain vulnerable
while demand will keep rising.
The estimated cost for damages
to the electricity sector due to
war against ISIS = $4-5 billion.
The government has to fund an
estimated $90billion on
electricity sector by 2030 ($7 –
8 billion per year).
Electricity is important but at what price?

It is the time for a major
overhaul!
The current policies have failed to tackle the electricity
shortage in the country since 2003.

Consultation
with key stakeholders
(Parliamentary committees,
Provincial councils and local
governments, etc.).
The short answer is: The government will
be unable to secure sustainable fund in the
next 15 years to catch up with the increasing
demand for electricity.
Reviewing
existing institutional set up,
relevant policies and laws,
past studies and
benchmarking experience
against other countries.
Why reform is a must?

“Electricity reform needs to be broadly understood
as a complex, holistic and multidimensional
process for transform from in-conflict to post-
conflict/peace economy encompassing efforts to
simultaneously improve security, political stability,
and socioeconomic development.

“The strategy should be based on gradual
unbundling of the ministry owned directorates
into independent generation, transmission and
distribution companies with much emphasis of
private sector participation in the entire supply
chain with exception of transmission segment.
Reform strategy

Privatization
▷ transfer of ownership
from government to
private.
▷ the repurchasing of all of
a company’s outstanding
stock by employees or a
private investor.
▷ Examples: BOOT, BOO,
ROT, BTO, Joint Venture
Deregulation
▷ reduction or elimination of
control by the government
▷ no government
interference
▷ enacted to create
competition
▷ different from liberalization.
Privatization or deregulation?

Key activities of market reform
1. Obliging government
directorates to operate
according to commercial
principles.
2. Restructuring of MOE’s
supply chain to enable the
introduction of
competition.
3. Development of
economic regulation of
the power market that is
applied transparently by
an agency that operates
autonomously.
4. Corporatization of the
unbundled electricity
generators and
distributors under
dispersed ownership,
5. Development of
competition in the
generation and supply
segments by
development of power
exchanges.
6. Focusing MOE’s role on
policy formation and
execution.

Roadmap to Reform
Immediate term
Short term
Medium term
Long Term
Immediate term
(today!)
▷creating strategic
business units
(corporatization)
▷valuation of assets and
liabilities of MOE
Directorates;
▷human capital
assessment.
Short term
( 1 – 2 years)
▷the generation segment
to be unbundled
▷allow IPPs
unconditionally to sell
electricity directly to
bulk off-takers and pay
wheeling charges only
to the corporate
responsible for
transmission.
Medium term
(3 – 5 years)
▷the distribution
segment to be
unbundled from the
transmission unit and
horizontally unbundled
to lines and retail
companies.
Long Term
(6 – 10 years)
▷further unbundling of the
retail segment into
several companies.
▷in order to enhance
efforts towards
mobilizing capital
investment for power
infrastructure,
generation and retail
companies to be
considered for listing at
the Baghdad Stock
Exchange. © 2017 Harry Istepanian

Electricity sector restructuring
chronology
INTEGRATED MONOPOLY
Generation Transmission Distribution
MOE’s owned
Gen
Companies
IPPs
PPPs
Transmission
company
Distribution
Company 1
Distribution
Company 2
Distribution
Company #
MOE’s owned
Gen
Companies
IPPs
PPPs
Distribution
Company 1
Distribution
Company 2
Distribution
Company #
MOE’s owned
Gen
Companies
IPPs
PPPs
DistCo
#
DistCo
2
DistCo
1
…
Retail
#
Retail
2
Retail
1
…
now1 – 2 years3 – 5 years6 - 10 years

Bottom line!
▷ Ensuring availability of adequate, reliable and
affordable electricity supply.
▷ Improving business environment for private and
foreign investments in generation and
distribution;
▷ Creating an efficient and sustainable electricity
market that supports the national development;
▷ Promoting financial and commercial viability of
the electricity market;

Thank you
Questions?
You can find me at:
harry@istepanian.com
www.istepanian.com

Electricity Sector Reform Post-ISIS: Lessons to learn

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