Iraq's electricity tariff reform

e a s y b r o u g h t o n b u t h a r d t o b r i n g u p
Iraq’s electricity tariff reform
www.istepanian.com
Harry Istepanian
Senior Fellow Iraq Energy Institute
Iraq Energy Forum – Baghdad
September 2019

Unable to generate adequate revenue to sustain
itself or to improve services for consumers.
Technically sound
Economically feasible
Politically supportable
Rationale for Reform of electricity tariff
© 2019 Harry Istepanian

Electricity landscape
Towards better quality and security of supply

0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
-
5,000
10,000
15,000
20,000
25,000
30,000
2013 2014 2015 2016 2017 2018
MW
Average Generation Peak Demand Growth Rate (%)
26,500
MW
Peak demand 2019
Electricity Profile
Source: Ministry of Electricity
Iraq has made significant progress in restoring its power generation from a peak
demand supply of about 5GW (2005) to 19GW (2019), but continues to face
challenges, including a high demand growth of over 12% per annum.

$4.45 billionTotal approved operational budget
Key fiscal facts of MoE (2019)
$4 billionTotal approved investment in new projects
$8.45 billionTotal approved budget
Source: Ministry of Finance (2018)

Budget of Ministry of Electricity (2019)
4,456 3,993
2.04
8,451
5,360
2,723
8,083
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Operational Investment Loans Total
Budget(US$millions)
Approved Dificit
Source: Ministry of Finance (2018)
Key fiscal facts of MoE (2019)

Neighborhood Gensets
$20
Average price per ampere
$300
Average bill per household per
month for 15 ampere
20%
Total demand for electricity
$4 billion
Captured annual revenues in 2018
Source: IEA (2019), Iraq’s Energy Sector, A Roadmap to a Brighter Future.

Annual per capita power consumption (kWh), 2017
Source: PwC, World Bank.
2 hours of TV per day
= 183 kWh a year
1 washing machine load per day
= 657 kWh a year
24 hours of refrigerator usage
= 1,570 kWh a year
What does power consumption per
capita translate to?
1,684
18,818
15,784
18,213
10,248
2,634
1,550
2,176 2,693
8,066

Technical & Non-technical Losses (excl. KRG) [2017]
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Energy(GWh)
Delivered Energy Metered Energy Losses
48,435 GWh
Total energy Losses
54.3%
Total losses to delivered
energy
89,205 GWh
Total delivered energy

Electricity consumers (excl. KRG) [2017]
76.41%
Household consumers
9.02%
Illegal consumers
4,576,087
Total number of consumers
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
ElectricityConsumers
Households Commercial Industrial Public Agricultural Illegal

Electricity Losses
Power which can be abused, will be abused.

Copper and dielectric losses
Technical & Non-technical Losses
Harmonics distortion
Long single phase lines
Unbalanced loading
Losses due to overloading and low voltage
Losses due to poor standard of equipment
Improper earthing at consumer end
Faulty energy meters & tampering
Errors in technical losses computation
Tapping (hooking) on LV lines
Energy meters errors & false reading
Theft bypassing the meter
Faulty meters
Non-payment by customers
Technical
Losses
Non-technical
Losses

Iraq’s electricity losses (1990 - 2014)
Source: World Bank Group
62.0%
(2030)
5.00
5.77
4.68
4.44
4.11
3.82
4.77
3.89
5.77
7.61
8.59
6.87
6.87
5.88
6.12 30.00
28.27
40.93
48.86
48.68
35.90
38.51 43.02
39.86 50.63
51.60
52.80
54.30
0.00 10.00 20.00 30.00 40.00 50.00 60.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Electricity Losses (%)

71.0%Togo
69.6%Libya
60.1%Haiti
50.6%Iraq
44.5%Congo
World’s largest electricity losses (2014)

14.8%Turkey
12.6%Iran
11.6%Kuwait
10.7%Jordan
Middle East electricity losses (2014)
6.7%Saudi Arabia

Technical & Non-technical Losses (excl. KRG) [2017]
Source: Ministry of Electricity.
25.71%
0.85%
4.38%
5.28%
3.93%
4.30%4.76%
2.78%5.00%
4.66%
2.65%
20.57%
6.54%
5.50%
3.08%
NajefKarbala
Diyala
Wasit
Muthana
Baghdad
Ninawa
Salahudin
Kirkuk
Babel
Diwaniya
Anbar
Basra
Dhi’Qar
Maysan
Provinces with largest technical
& non-technical Losses
Salahudin
Maysan
Muthana
Basra
Baghdad - Sadr city
81%
68%
67%
67%
62%

Others experience combating losses
Implementation of advanced metering infrastructure (AMI)
North Delhi Power Limited (NDPL)
Installation of medium voltage distribution (MVD) networks in theft-prone areas
Replacement of old electromechanical meters with accurate electronic meters
Energy audits up to the distribution transformers (medium to low voltage) level
Aggressive enforcement
Public participation in controlling theft through the concept of “social audit”
Collaboration with non-governmental organizations for creating awareness in slums
regarding the dangers associated with direct tapping of electricity from live wires.
53%
(2002)
18.5%
(2008)
15%
(2009)
Source: Reducing Technical and Non‐Technical Losses in the Power Sector, World Bank Group (2009).

Electricity cost recovery
“The only strategy that is guaranteed to fail is not taking risks.”
— Mark Zuckerberg, founder, Facebook

How much consumer is paying?
0
2
4
6
8
10
12
0 2,000 4,000 6,000 8,000 10,000
Price(US¢)
Consumption (kWh)
Residential Commercial Industrial Agricultural
Residential
0.84 – 10.08 US¢/kWh
Commercial
5.0 – 10.08 US¢/kWh
Industrial
5.0 US¢/kWh
Agricultural
5.0 US¢/kWh
Source: Ministry of Electricity.
Increasing block tariffs (IBTs)

11.20Turkey
2-19Iran
0.3-3Kuwait*
5-33Jordan
Middle East residential electricity tariff (US¢/kWh)
Source: Wikipedia
4.8-8Saudi Arabia*
South Africa 10 US¢/kWh
UK 20 US¢/kWh
US 12 US¢/kWh
Germany 35 US¢/kWh
* With government subsidy
* With government subsidy

Criteria for evaluating cost recovery performance
Cost minimization
Ensures that costs incurred in power supply are just
and reasonable and are not excessive in relation to
regionally acceptable efficiency benchmarks for
system development and operation
Tariff setting
Involves setting tariff levels to fully recover the
just and reasonable costs incurred in the provision
of power supply
Output
Delivered Collection efficiency
Ensures that tariffs are actually charged and
payments collected through adequate metering,
billing and collection procedures, at not less
than the benchmarked efficiency levels

Cost Minimization
Source: Ministry of Electricity, BMI Research
Heat rate
O&M
Fuel
Utilization
Employee
productivity
Generation
cost
Transmission
losses
Distribution
losses
Metering and
reconciliation Tariff setting
Lines
restrictions
Network
operation &
maintenance
Availability
Theft
Transmission
cost
Distribution
cost
Output Delivered Billed
Network
operation &
maintenance
AdministrationLogistics

What’s problems with IBT?
• Political pressures make it difficult to limit the size of the first block. It is
not uncommon to see the first block start off small but gradually grow over
time.
• All residential consumers, rich and poor, benefit from the large subsidy
offered by the first block (or two or more bottom blocks), when the rich can
well afford to pay much more.
• Where a meter is connected to multiple households, which may be common
especially in low-income areas, IBTs cannot provide the intended protection
to the poor.
IBT is suitable for countries with large income inequality or many poor
consumers of electricity.

Tariff restructuring goals
“We will make electricity so cheap that only the rich will burn
candles.”
— Thomas A. Edison (1880)

Tariff
reform
goals
Commercial
Training
Community
engagement
Information
Technology
Regulation
Technical
Breaking down the overall goal
$45 billion
Ministry of Electricity
estimated financial
losses since 2003 due
to lack of tariff
reform.

Regulation • A tariff structure that allows financial sustainability of
efficiently managed distribution companies.
• Tariff rates reflecting costs of efficient supply meeting
service quality standards, assuring a fair and
reasonable equilibrium between electricity consumers
and service providers.
• Generation of sufficient funds to subsidize low-income
households, using means set by the government such as
government welfare.

• Integral management system of metering, reading,
billing, collection, disconnection-reconnection due to
unpaid bills, and inspection of meters.
• Implementation of policies for customer service and
programs for payment of old debts.
• Increasing the number of points of contact for customer
service to move the company closer to its clients.
• Marketing programs aimed at creating awareness that
electricity is a commercial good with a price.
• Implementation of communication programs to provide
customers with transparent information on their rights
and obligations.
Commercial

• Construction of distribution networks less vulnerable to
tampering and irregular connections.
• Systematic field auditing looking for irregular
connections, tampered or damaged consumption
meters, unmetered consumers (both customers and
irregular users).
• Use of boxes to ensure that the consumption meters
are properly sealed and cannot be tampered with use
of boxes to seal customers connections.
• Monitoring operational condition of installed seals.
Technical

• Assuring ethical behavior of contracted workers
Continuous training and provision of working tools
(including safety equipment).
• Implementation of databases including
documentation of workers with unethical behavior.
• Certification of contractors based on quality,
environment, and occupational health and safety
criteria.
• Implementation of procedures for monitoring
execution of contracts for outsourced services,
including auditing of representative samples.
Training

• Set direct and open contact with communities, their
leaders, and the authorities involved in order to create
awareness about the fact that electricity is a
commercial good with a price and that electricity
consumption should be rationalized and efficient.
• Design and execute campaigns about the culture of
regular payment of electricity bills, preservation of
electric infrastructure, and behavior to avoid
electrocution.
• Working together with justice and police departments
to ensure effective action in cases of electricity theft.
• Public information on main cases of electricity theft, in
general involving well-known social agents, to promote
social condemnation.
Community
engagement

• Incorporation of technology to support commercial and
technical functions and shared services
• Construction and regular updates of the databases for
based on field activities aimed at checking its
consistency with physical reality.
• Progressive application of automated meter reading
devices for reading and monitoring consumption of
large and medium consumers
• Systematic field action on irregular service conditions
detected through the commercial MIS.
• Permanent regularization and incorporation of users to
the customer database.
Information
technology

Thank you
www.istepanian.com

Iraq's electricity tariff reform

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