STUDY Powering Iraq: Challenges facing the Electricity Sector in Iraq POWERING IRAQ: CHALLENGES FACING THE ELECTRICITY SECTOR IN IRAQ Robin Mills And Maryam Salman October 2020 The unprecedented decline in oil prices since March has left Iraq unable to pay its US$ 4.2 billion monthly public sector obligations . Iraq’s electricity problem is centred around a chronic inability to match supply with demand. In 2019, peak demand was 26 GW, 58% higher than generation capacity. challenge for Iraq, is less in generation capacity, and more in distributing fuel supplies to power plants, and improving the power transmission system. Al-Bayan Center for Planning and Studies 1

POWERING IRAQ: CHALLENGES FACING THE ELECTRICITY SECTOR IN IRAQ Robin Mills And Maryam Salman October 2020 2

Table of Contents 1 INTRODUCTION................................................................................. 6 2. RECENT DEVELOPMENTS...................................................................... 9 3. BUDGETARY CHALLENGES& FISCAL PRESSURES............................................ 11 4. NATURAL GAS DEVELOP-MENT REMAINS SLOW............................................ 12 5. THE CHALLENGED POWER-GAS NEXUS....................................................... 16 6. SOLUTIONS LACK FOCUS ON GRID REINFORCEMENT....................................... 18 7. RENEWABLE ENERGY IS STILL A PIPE DREAM............................................... 22 8. A POSSIBLE WAY FORWARD.................................................................. 24 Gas Development ................................................................................ 25 Electricity Reform... .............................................................................. 26 3

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Powering Iraq: Challenges facing the Electricity Sector in Iraq Acknowledgements This policy paper was supported by Friedrich-Ebert-Stiftung, Amman, Jordan. We especially thank Tim O. Petschulat the resident director of the Friedrich-Ebert-Stiftung, Amman, who provided insight and expertise that greatly assisted the research, although Friedrich-EbertStiftung, Amman, Jordan may not agree with all of the interpretations/conclusions of this paper. Special thanks to Ali Taher of Al-Bayan Center for Planning and Studies, Baghdad, Iraq for his valuable contribution and coordination to make this work happen Hayder Khafaji and Aymen Abdul Kareem, and Peter Oliver for comments that greatly improved the manuscript. About the Authors Robin Mills established Qamar Energy in 2015 to meet the need for regionally-based Middle East energy insight and project delivery. He is an expert on energy strategy and economics. Robin worked for a decade for Shell, concentrating on new business development in the UAE, Qatar, Iraq, Iran and other Middle Eastern countries, when he was described as the“Shell expert on Iran”. He is the author of two books, The Myth of the Oil Crisis, which evaluates global long-term oil supply, and Capturing Carbon, the first comprehensive overview of carbon capture and storage for the non-specialist. Maryam Salman holds experience as an energy research analyst and consultant, covering the Middle East’s energy spectrum. She has led numerous market studies analysing existing and aspirational business models across the Middle East’s energy sector and has advised on key political and geopolitical issues in Iraq, Iran, Libya, and Bahrain. 5

1. INTRODUCTION 1. INTRODUCTION On February 21, 2020, Iraq recorded its first case of the novel coronavirus. Five months later, total recorded cases are 129 000 at the time of writing, and daily reported deaths almost 100. The crisis has battered the country’s economic development plans, and put an indefinite question mark over the realisation of a massive US$ 15 billion electricity infrastructure upgrade roadmap announced by former Prime Minister Adel Abdel Mehdi in April last year. Simultaneously, global energy markets continue to struggle ever since the oil market collapsed between March and April, briefly plunging oil price will drop to low single-digit. Iraq’s hydrocarbon revenues have, as a result, fallen to their lowest since the early years after the 2003 US invasion 1 . In May, Abdel Mehdi stepped down to make way for new premier Mustafa Kadhimi, who, within a month of taking office, announced his government would not be moving ahead with a 2020 budget, and would instead focus on formulating a budget for 2021 2 . Partly as a result, pressure has mounted on the country’s fragile electricity sector. Lack of funds and proper maintenance has resulted in 12 hour+ blackouts returning to the southern hubs of Iraq’s oil sector, prompting protests. On July 26, two protestors were killed by security forces in Najaf 3 , provoking violence between other demonstrators. Al-Kadhimi’s promises of meeting citizens’ demands for electricity seem a difficult challenge to meet under the current circumstances, leading him to blame the “corruption and mismanagement” of previous cabinets for chronic power shortages 4 . The struggles of the electricity sector have a long history. Following damage to the grid and power plants in the first Gulf War(1990-91) and deterioration during the 1990s period of strict international sanctions, infrastructure was further damaged by looting and civil conflict after the 2003 US-led invasion. Corruption and mismanagement led to slow progress in rebuilding the sector and expanding capacity, while demand has continued to grow rapidly because of fast population growth, and the spread of consumer appliances, particularly airconditioners. Fuel supply to power plants has been a further problem, with continuing high levels of flaring of associated 5 gas. In June 2013, Iraq launched an Integrated National Energy Strategy(INES), and was confident that Iraqis would soon enjoy 24hour power supply, as it unveiled plans to have generation capacity cross 20 GW by 2015 6 from 10-12 GW. 8 GW of new capacity was to be added to existing capacity, but by 2019, only 4 GW of this was realised, bringing total capacity to 16.5 GW, even though generation managed to reach 19 GW during peak periods. Part of the gap in demand is met by privately-operated generators, but these are expensive, noisy and polluting and generally do not provide enough electricity to run air-conditioning. Also in 2013, the Basrah Gas Company(BGC), a joint venture between the Iraq South Gas Company(51%), Royal Dutch Shell(44%), and Mitsubishi Corporation(5%) was established to capture associated gas from the Rumaila, Zubair, and West Qurna-1 oilfields for power generation. Since then, capture has risen to 7.2 billion cubic metres(BCM) per year, nearly a 1. MEES,“Iraq’s Oil Revenues Collapse”, V63 N18(May 2020) 2. Lawk Ghafuri,“Iraq to dismiss 2020 budget plan, work to secure 2021 budget”, Rudaw, June 07(2020) 3. The National,“Iraq: Mustafa al-Kadhimi orders investigation into deaths of protestors”, July 28(2020) 4. Lawk Ghafuri,“Kadhimi blames electricity shortages on previous cabinets’ corruption and mismanagement”, Rudaw, July 27(2020) 5. Associated gas is the natural gas present in a deposit of crude petroleum(in oil fields), either dissolved in the oil, or as a free“gas cap” above the oil in the reservoir 6. Harry Istepanian,“Iraq’s Electricity: From Crisis to ISIS,” Power Engineering International 22, no. 8(2014), 32-37 6

Powering Iraq: Challenges facing the Electricity Sector in Iraq third of associated gas production(~26 BCM). power plants 10 , which severely interrupted This is a significant success story, but 50% of service to the north-western governorates. associated gas is still flared. There was then a big jump in 2019, following I n June 2017, Iran began exporting gas to then-Minister of Electricity Luay al-Khatteeb’s Iraq, via a pipeline through the Diyala province“fast-track programme” to revive halted to Baghdad, supplemented by supplies to power projects, by streamlining contractual Basra in 2018. However, this has been opposed requirements and re-shifting the focus of by the US, which has encouraged Iraq to find regional companies to summer maintenance alternative supplies, while giving time-limited schedules 11 . This resulted in the summer of 2019 waivers to continue the imports. witnessing a near 20% jump in generation yearAnnual generation (TWh) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 on-year tu f r ro bi m nes th w e er s e a t m o e be p u e p r g io r d ade in d w 20 it 1 h 8 u , p w st h re e a n m cooling 140 violent sy p s r t o e t m e s st , s an b d r 1 o 3 k 1 e 32 o /3 u 3 t kV in su t b h s e tat s io o n u s th w e o r u n ld be con120 hubs of st t r h u e ct c e o d u i n n t B ry a . sr A a l h so a , n s d ta th te e c g e r n id tra e l le p c r t o r v ic in it c y es. A new 100 was de 5 l 0 iv 0 er M ed W t g o as a -f r i e re a d s p li o b w e e r r at p e l d ant fr w o o m uld IS b IS e built in 80 for the Z f u ir b s a t id ti i m ya e in af s t o e u r th fi e v r e n y B e a a g r h s d o ad f , c a o n m d p u l n e d te er a sepa60 shutdow ra n te . N U e S v $ er 1 t .3 he b le il s li s o , n th a i g s re h e a m s e n nt e , v t e h r e b B e a e i n ji 1 and 2 40 enough p t o o w c e l r o p s l e an th ts e , l g o a ca p te w d it 2 h 50 de ki m lo a m n e d tr . es north of Baghdad, would be rebuilt, adding 1.6 GW capacity when 20 German conglomerate Siemens made completed. 0 headlines in 2018 for vowing to have Iraq’s Figure 1 Power generation in Iraq, by year(includes Kurdista F n ig re u g r i e on 1 ) 7 Power generation in Iraq, by year (includes Kurdistan region) 7 As shown in Figure 1Figure 1, generation recovered slo A w s ly sh af o te w r n th i e n in F v ig a u si r o e n 1 a , nd ge w n a e s r r a a t t i h o e n r s r t e a c g o n v a e n r t e u d ns t l i o l w a ly sign a i f f t i e ca r nt th im e pr in ove a m sio en n t i a n n 2 d 01 w 4a 2 s 018 ra . t H he ow r s e t v a e g r n , t a h n e t re u w n a t s il a a set s b ig ac n k if d ic u a r n in t g i t m hi p s r 2 o 0 v 1 e 4 m -1 e 8 n p t er i i n od 2 d 0 u 1 e 4 t o 20 o 1 c 8 c . up H at o io w n e o ve f r l , arg th e e p r a e rts w o a f s no a rth se -w tb e a st c e k rn d Ir u a r q in b g y t he is ‘I 2 s 0 la 1 m 4 i c 18 Sta p t e e r o io f d Ira d q u a e n t d o A o l c S c h u a p m a ’ t ( io IS n IS o o f r D la a r ’ g es e h) p g a r r o t u s p o . f Th n e o y rt c h au -w se e d st a e n rn e st Ir im aq ate b d y U t S h $ e 7 ‘ b Is il a li m on ic of S d t a a m te age o t f o I t r h a e q po a w n e d r se A c l t o S r h 8 a , a m n ’ d s (I a S b I o S ta o g r ed D or a’ d e e s s h tr ) o g ye ro d u e p le . c T tr h ic e i y ty c l a in u e s s e , d an a d n th e e st A im l Q a a t y e a d ra U ( S 7 $ 50 7 M b W il ) li 9 o a n nd o B f a d i a ji m (1 a 6 g 0 e 0 M to W th ) p e o p w o e w r p e l r an s t e s c 10 t , o w r 8 h , i a ch nd ses v a e b re o l t y a i g n e te d rru o p r te d d es s t e r r o v y ic e e d to e t l h e e ct n ri o c r it th y -w lin es e t s e , rn an go d vt e h r e no A ra l t Q es a . yara(750 MW) 9 and Baiji(1600 MW) power grid up and running after the defeat Concurrently, US firm General Electric promised 3.3 of ISIS the year prior. It discussed a slew of GW of new generation if 40% of current flared gas “power w d e e re al c s” ap w tu i r t e h d 1 t 2 h . e It M al i s n o ist s r i y gn o ed f E a l g e r c e t e r m ici e t n y ts to upthat wo gr u a l d d e, b m o a o i s n t ta I i r n a , q an ’s d g re e b n u e il r d at fa io c n ilit c ie a s p t a o c b it o y ost capacby as m i u ty c b h y a 5 s G 2 W 5 . G G W ene if ra t l h E e l y ec c t a ri m c’ e s m to an f d ru at it e io h n as . involved A US$ c 1 lo 5 se b r i c ll o io o n per r a o t a io d n m w a i p th t t o he th M is in e is n tr d y o w f a O s il(MoO) unveiled an i d n t 2 h 0 e 1 M 9 i b n y ist t r h y e o n f P E r l i e m ct e ric M it i y n ( is M te o r E A ), b w d i e th l US govMehdi. e 4 r 0 nm g e a n s t t b u a r c b k i i n n e g s to w w e e r a e n t I o ra b q e of u f I p r g a r n a ia d n ed gas supply with u fo p r st e re le a c m tricit c y oo ge li n n e g rati s o y n st , e w m h s i , le t a h n e d Ge 1 rm 3 an focus 132/33k h V as s m ub o s s t t a ly tio be n e s n w o o n u g ld rid be re c h o a n b s i t li r t u a c ti t o e n d a in nd expanBasrah s a io n n d . G th e e ne c r e a n l E tr l a ec l t p ri r c o a v l i s n o c h e a s. s A a“ G ne E w Re 5 n 0 e 0 wable EnMW ga e s r g fi y r ’ e s d Gr p i o d w So e l r ut p io la n n s” t p w ro o g u r l a d m b m e e, b w u h il i t ch in might asZubaidi s y i a st i i n n I s r o a u q t ’s h p e l r a n ns B o a f g d h e d v a el d o , pi a n n g d 63 u 5 n M de W r o a f renewaseparat b e le U c S a $ pa 1 ci . t 3 y b b y ill S io ep n te a m g b re er e , m no e w nt l , ik t e h ly e la B t a er ij , i this year, 1 and 2 th p o o u w gh e n r o p d la is n c t u s s , s l i o o c n a t t o e t d hi 2 s 5 e 0 nd k h il a o s m y e e t t r t e a s ken place. north o F f o B r a n g o h w d , ad a , U w S o $ u 7 ld 27 b M e re d b ea u l il t t o , a fo d r d ti in fy g t 1 h . e 6 country’s GW cap e a le c c ity ric w it h y e g n ri c d o i m n a p r l ea te s d st . ill rebuilding from years of 7 T . h D e a r t e a w fro a m s t S h t e a n tis a ti b ca ig l R ju ev m ie p w i o n f 2 W 0 o 1 r 9 ld , f E o n ll e o r w gy in 2 g 02 th 0 enwar, has been signed with the MoE. The deal will also 8 M . W in a is ll te S r tr o e f et E J le o c u t r r n i a ci l, ty “D L e u fe a a y t a o l f -K IS h IS at i t n ee Ir b a ’s q “ C f a a u st s e t d ra $ c 4 k 5.7 Billion l i i n nk Da Ir m a a q g ’s e g to ri I d nf t r o as J t o r r u d ct a u n r ’ e s , , S r t e u d d u y c F in in g d o s v ”, erall congesF p e r b o r g u r a a r m y 1 m 8 e ( ” 20 t 1 o 8) r , e h v tt i p ve s:/ h /w al w te w d .w p sj o .c w o e m r /a p r r t o ic j l e e c s t / s d , ef b e y at-of-isis-in ti o ir n aq a n c d au e s n e s d u r 4 i 5 n g 7d b e il p li e o n n d -i a n b -d le a p m o a w ge e r to su pply. Another infrastructure-study-finds-1518389411#:~:text=The%20damage%20to%20the%20housing,age%20is%2020%20 streamlining contractual requirements and re-shiftUS$ 500 M deal was also signed to provide parts and years%20old. 13 9 in . G g E t , h “ e Le f t o T c h u e s re o B f e r L e ig g h io t: n H al ow co G m E p R a e n b i u e i s lt t A o n I s r u a m qi m Po e w r er Plant D m es a t i r n o t y e e n d a b n y ce IS s I e S r ” v , i O ce c s to t b o e 6 r 2 G 2 W (2 o 0 f 18 p ) o , wer capacity. h m tt a p i s n :/ te /w na w n w c . e ge s . c c h om ed / u n l e e w s 1 s 1 / . r T ep h o is rts r / e l s e u tl l t i e g d ht i n ge t h re e bu su il m t-i raqi-power-plant-destroyed-isis 1 m 0. e W r o a f ll 2 S 0 tr 1 e 9 et w J i o t u n r e n s a s l i , n “ g Si a em ne e a n r s: 2 S 0 ig % ns ju D m ea p l t in o R g eb n u e i r l a d Iraqi Pow D er e P s l p a i n te ts t D h a e m se a e g f e f d or b t y s, IS Ir IS a ” q , h Se a p s t s e e m e b n e p r o 16 or progress in ( t 2 io 0 n 19) y , e h a t r t p o s n :/ / y w e w ar w. f m ro a m rke t t h sc e re s e a n m er e .co p m er / i S o I d EM in EN 2 S 0 1 A 8 G , -5635859 s 5 e / r n v e i w ng s/ i S t i s em pe e o n p sle S ’ i s gn p s o w Dea r ln t e o e -R d e s. bu E i l l e d c tricity generaI w ra h q e i n -P v o i w o e le r n -P t l p an ro ts t e D st a s m b a r g o e k d e -b o y u t IS in IS t h 2 e 92 so 0 u 9 t 8 h 4 e 9 r / n hubs tion per capita, which should be high to meet air con11. Luay al-Khateeb,“Fixing Iraq’s Power Sector”, Iraqi Economists Network, August 22(2020) of the country. Also, state grid electricity was delivditioning needs, remains one of the lowest in the ered to areas liberated from ISIS for the first time afMiddle East. It generates less than Lebanon, even ter five years of complete shutdown. Nevertheless, though Lebanon suffers severe power shortages, and this has never been enough to close the gap with de 7 mand. only a little more per capita than Egypt and Jordan, despite a significantly higher GDP. Plans for importing 500 MW of electricity from the Gulf Cooperation

1. INTRODUCTION Concurrently, US firm General Electric promised 3.3 GW of new generation if 40% of current flared gas were captured 12 . It also signed agreements to upgrade, maintain, and rebuild facilities to boost capacity by 5 GW. General Electric’s mandate has involved closer cooperation with the Ministry of Oil (MoO) and the Ministry of Electricity(MoE), with US government backing to wean Iraq off Iranian gas supply for electricity generation, while the German focus has mostly been on grid rehabilitation and expansion. General Electric also has a“GE Renewable Energy’s Grid Solutions” programme, which might assist in Iraq’s plans of developing 635 MW of renewable capacity by September, now likely later, this year, though no discussion to this end has yet taken place. For now, a US$727 M deal to fortify the country’s electricity grid in areas still rebuilding from years of war, has been signed with the MoE. The deal will also link Iraq’s grid to Jordan’s, reducing overall congestion and ensuring dependable power supply. Another US$500 M deal was also signed to provide parts and maintenance services to 6 GW of power capacity 13 . Despite these efforts, Iraq has seen poor progress in serving its people’s power needs. Electricity generation per capita, which should be high to meet air conditioning needs, remains one of the lowest in the Middle East. It generates less than Lebanon, even though Lebanon suffers severe power shortages, and only a little more per capita than Egypt and Jordan, despite a significantly higher GDP. Plans for importing 500 MW of electricity from the Gulf Cooperation Council(GCC) countries, first announced in 2019, have also moved slowly, even though Iraq has reportedly built 80% of the connections required on its side. The spread of the coronavirus has stalled Gulf efforts to comply with their end of the deal, which now seems delayed to 2021. 12. S&P Global Platts; shorturl.at/uxGX0 13. GE,“Peak Power: Iraq Taps GE To Bolster Its Electricity Infrastructure”, August 24(2020) 8

Powering Iraq: Challenges facing the Electricity Sector in Iraq 2. RECENT DEVELOPMENTS 2020 has introduced numerous new problems to Iraq’s electricity crisis: political instability, the oil price collapse, and the CoVid-19 pandemic. A senior official from the Ministry of Electricity (MoE) said in July 2020 that electricity supply was down~1 GW from 2019 14 , as technical malfunctions in power plants remained unaddressed due to“foreign maintenance staff”(who are better-trained to handle the unique requirements of local infrastructure) flying home due to the pandemic. This means most Iraqis are now back to having power for 5-8 hours a day. July saw an unusually severe heatwave even by Iraq’s standards, with Baghdad reaching almost 52°C, an alltime record, and Basra at 53°C. The high temperatures further reduce output by cutting plant efficiencies. On 4th August 2020, it was reported that generation had improved from 16.25 GW to 18.6 GW as a result of lower temperatures 15 (this compares to demand of about 26 GW). Electricity shortfalls are compounded by the decline in crucial associated natural gas production from oilfields, as the Ministry of Oil (MoO) curbs output in line with the new OPEC+ agreement to shore up oil prices. Under the agreement, Iraq was to reduce oil production by~1 million barrels per day(Mb/d) in May and June, from an October 2018 baseline level, but failed to comply fully, ushering in Saudi intervention, and the promise of a US$ 500 million“financial sweetener” to abide by cuts. The Saudi loan is a fraction of what Iraq loses monthly due to the longstanding gap between demand and supply of electricity, estimated by generation planning studies at US$3.3 billion 16 . It also does little to align the Ministry of Electricity and Ministry of Oil, between whom cooperation has historically been patchy. A recent rally in oil prices will remain insufficient to meet Iraq’s US$50 billion annual public sector expenses. Moreover, federal crude exports have already been cut by a record 715 kb/d in July on October 2018’s baseline levels, which means roughly a billion dollars of lost revenue at current Brent prices. The Saudi loan shall, therefore, go into paying civil servant wages and other government liabilities unmet by hydrocarbon revenues. OPEC cuts are being phased down from August 2020 onwards, with a further reduction from January 2021 to April 2022 and an end to cuts thereafter 17 . This is, of course, dependent on global oil market developments. But Iraq is under additional diplomatic pressure to cut below its August-December 2020 quota to make up for insufficient compliance in MayJuly. This could involve further Saudi financial aid in return for compliance. Domestic needs have also been challenged, even though refinery runs have continued at 70-80% 18 to provide fuel for the domestic market. For instance, OPEC pressure has already resulted in gas shortages for power generation. On July 01, two units of the Amaragas fired power plant(Units 1 and 3) were shut down due to low gas supplies from the 370 000 barrels per day(b/d) PetroChina-operated Halfaya oilfield, which the MoO had ordered to reduce production from by 100 kb/d. The reduction implies~0.54 BCM/y of gas output being cut, or 67% of what Amara consumes to run at capacity. Pressure on new Prime Minister Mustafa alKadhimi to deliver solutions to the country’s electricity problem has seen him direct oil companies to transfer power generated at their fields to the national grid, as output drops under the OPEC+ pact. Eni-operated Zubair will send power generated to support oil operations to the local grid, while the 14. The National,“Iraq: Mustafa al-Kadhimi orders investigation into deaths of protestors”, July 28(2020) 15. Harry Istepanian, https://twitter.com/HarryIstepanian/status/1290544043852587010 16. Parsons Brinckerhoff,“Iraq Electricity Masterplan: 2010 to 2030”, Final Report(December 2010), 3-9 17. Fitch Ratings,“OPEC+ Cuts Tapering Reflects Recovering Oil Demand”, July 16(2020) 18. Qamar Energy Research 9

2. RECENT DEVELOPMENTS Basrah Oil Company(BOC) will supply 150 MW from its Petrochemicals Company. Rumaila will send an additional 30 MW from its generation facility. Additionally, the MoO will supply free diesel feedstock to generator owners 19 . But these moves will only have a limited impact on improving electricity provision, while free diesel is expensive for the government and entrenches the rent-seeking behaviour of the “generator mafia”. 19. Iraq Oil Report,“Iraq draws electricity from oil projects to help failing power grid”, July 17, 2020 10

Powering Iraq: Challenges facing the Electricity Sector in Iraq 3. BUDGETARY CHALLENGES& FISCAL high ask, unless prices rise sharply. There is some PRESSURES speculation that Iraq’s government account The unprecedented decline in oil prices since March has left Iraq unable to pay its US$ 4.2 billion monthly public sector obligations, including spending on salaries, pensions, and has dwindled to just US$300 million at the end of May 22 , which puts immediate pressure on al-Kadhimi to put together solutions to tackle Iraq’s economic crisis. the running of government offices. A mild To this end, he has assembled a high-level gain in prices in May saw revenues recovering “economic crisis committee”, that will examine slightly, but at US$2.1 billion, were only 50% the country’s options to increase revenues and of Iraq’s commitments, excluding energy reduce expenditures without cutting back on investment spending. The decline in revenues essential supplies to Iraqis. Discussions have has already caused visible financial strains, focussed on reducing state employees’ benefits, forcing Mustafa al-Kadhimi’s new government but such moves might imperil the legitimacy of to tap into its foreign reserves, estimated at his newly-formed government. Worse, it could about US$66.7 billion 20 , in order to meet salary add fuel to the ongoing protests, ushering obligations of its civil servants for May. 6,000 9 8 5,000 7 4,000 6 in ma h s a s lt u ed n , e p m ro p g l r o e y ss m o e n n t t he in sm a ar c t o g u ri n d t d ry ist t r h ib a u t tio h n as model an of d f e ic ci i d a e l d u w n i e th m S p ie lo m y e m ns e . n T t he r d a e te als h w i i g th he G r E t to ha re n habil12.8% it 2 a 3 . te O e v x e is r t c in o g m p in ow g e t r h p e la s n e ts ve a r n a d l r ir e r i e n g fo u r l c a e ri t t r i a e n s smisand s s io e n tb n a e c tw ks ork i s n in p e r l o e v c i t n r c ic e i s ty liber r a e t c e o d n f s ro tr m uc I t S i I o S n might effort a s ls o o f b f e o d rm ela e y r e a d d . ministrations are costly and complex, and even if reducing state employee kb/d US$ B 5 3,000 4 2,000 3 2 1,000 1 0 0 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 KRG exports Federal exports Production Federal Revenue(RHS) Figure 2 Iraq's monthly oil revenues 21 Figure 2 Iraq’s monthly oil revenues 21 The country last drew from its forex reserves in 2014 benefits might have the quickest result in saving g 4 o . ver N n A m T en U t RA fin L an G c A es S , D su E c V h EL ef O fo P r ts won’t be sufficient to execute meaningful MENT REMAINS SLOW reform. Moreover a reduction in salaries and other benefits will impact consumer purchasing Most of Iraq’s current power generation comes from powe n r a , t d u e ra p l r g e a s s s , in s g up t p h l e y o g f ro w s h s ic d h o h m as es r t is ic en pr s o ub d s u ta c n t tially (GDP) s , in w ce hi 2 c 0 h 0 i 9 s . s T et hi t s o is co d n ue tr t a o ct an by in c 4 r . e 7 a % se i i n n 2 a 0 ss 2 o 0 ciated (Figur g e as 4 o ) u . t C p o u n t( t t in he ui b n y g -p p ro o d l u it c ic t a o l f o oi p l p pr o o s d it u io ct n ion a ) n a d nd efa stale fo m rt a s t t e o t c h a a p t tu h r a e s fl b ar lo ed ck g e a d s, t a h n e d r i e n le l a ar s g e e o p f a t r h t e due to budge im t p h o a r s ts a o l f so Ira s n lo ia w n e g d as , s if in n c o e t 20 e 1 n 7 t . i I r n e c ly re h as a e l d te s d u , pplies progr o e f s n s a o tu n ra t l h g e as s h m a a ve rt h g el r p id ed d c i u s t tr c i r b u u d t e io i n l b m ur o n d f e o l r gendecid e e r d ati w on it a h nd Si a e l m so e fr n e s e . u T p h fu e el d o e il a f l o s r w ex i p th ort G s, E bu t t o shortrehab a i g li e ta s t r e m ex a is n t . ing power plants and reinforce aft T er he H c a o id u e n r t a ry l-A la b s a t d d i r w ew as f e r l o ec m te i d ts P f r o im re e x M re i s n e is r t v e e r s , transmission networks in provinces liberated i b n u 2 t 0 w 1 o 4 ul a d f p te re r f H er a t i o de sp r e a n ld A a b s a l d it i tl w e o a f s i e ts le ( c li t m e i d te P d r ) im re e from T IS h I e S re m a ig re ht on a l l y so tw b o e p d r e o l d a u y c e in d g . non-associated 24 gas M se i r n v i e s s te a r s , p b os u s t ib w le. o N u o ld w t p h r a e t f t e h r e t f o ede s r p a e l n g d ove a r s nm lit e t n le t fields in the country currently. These are the 4.1 o h f as it a s nn (l o im un it c e e d) th r a e t s i e t r w ve on s ’t a b s e p m o o s v sib n l g e a . h N ea o d w wi t t h h a a t BCM/yr Khor Mor gas field in the Kurdistan region, t 2 h 0 e 20 fe b d u e d r g a e l t g , h o o v p e e rn o m f a e n n i t n h cr a e s as a e n , n o o r u e n ve c n ed re t s h u a m t p i t w tio o n n , ’ i t n b in e ve m st o m v e in nt g sp a e h n e d a i d ng w in it t h he a ne 2 a 0 r 2 -t 0 erm bu s d e g em et s , h a o h p ig e h o as f k, a u n nl i e n s c s re pr a i s c e e , s r o is r e e s v h e ar n pl r y e . s T u h m er p e t i i s o s n o , m in e i s n p v e e c s u t l m ati e o n n t s th p a e t nd Ir in aq g ’s in go th ve e rn n m ea e r n t te a rm cco s u e n e t m h s a a s dwindled to just US$ 300 million at the end of May 22 , and the 0.5 BCM/yr Siba gas field near Basrah. Two other major non-associated fields, Akkas near the Syrian border in the Anbar province, and Mansuriyah in Diyala, remain undeveloped, with past contracts with international firms having run into com2 w 0 h . i F c i h tc p h u R ts a i t m in m gs e , d A i p a r t i e l p 2 r 0 e 2 s 0 sure on al-Kadhimi to put 2 to 1. g Q et a h m er ar so E l n u e t r io g n y s R t e o se ta r c c k h le ; I I r r a a q q’ O s i e l c R o e n p o o m rt i ; c M cr e i d s i i a s. sources mercial and security problems. There are also large undeveloped non-associated fields in the Kurdistan 22. Ahmed Mehdi,“Compounding Crises: Iraq’s oil and energy e r c e o g n i o o m n, y” i , n T c h lu e d O in xf g ord Ch In em sti c t h ut e e m fo a r l E ( n o e p r e g r y ated by the S T t o ud th ie i s s , e J n u d ly , h (2 e 0 h 2 a 0 s ) assembled a high- level“economic 2 c 3 ri . s W is o c r o l m d B m a i n tt k e , e 2 ” 0 , t 1 h 9 at will examine the country’s opPearl Petroleum consortium along with Khor Mor), Miran and Bina Bawi(both operated by Genel Entions to increase revenues and reduce expenditures ergy) and others. These fields have been intended without cutting back on essential supplies to Iraqis. Discussions have focussed on reducing state employ11 since 2013 to feed exports to Turkey, but this project has not proceeded. ees’ benefits, but such moves might imperil the legitimacy of his newly-formed government. Worse, it Current associated gas production is~19 BCM/yr on

4. NATURAL GAS DEVELOPMENT REMAINS SLOW 4. NATURAL GAS DEVELOPMENT REMAINS SLOW Most of Iraq’s current power generation comes from natural gas, supply of which has risen substantially since 2009. This is due to an increase in associated gas output(the byproduct of oil production) and efforts to capture flared gas, and in large part due to imports of Iranian gas since 2017. Increased supplies of natural gas have helped cut crude oil burn for generation and also free up fuel oil for exports, but shortages remain. There are only two producing nonassociated 24 gas fields in the country currently. These are the 4.1 BCM/yr Khor Mor gas field in the Kurdistan region, and the 0.5 BCM/yr Siba gas field near Basrah. Two other major non-associated fields, Akkas near the Syrian border in the Anbar province, and Mansuriyah in Diyala, remain undeveloped, with past contracts with international firms having run into commercial and security problems. There are also large undeveloped non-associated fields in the Kurdistan region, including Chemchemal(operated by the Pearl Petroleum consortium along with Khor Mor), Miran and Bina Bawi(both operated by Genel Energy) and others. These fields have been intended since 2013 to feed exports to Turkey, but this project has not proceeded. into temporary shortages of crucial feedstock for power plants in high-demand areas. However, capture volumes from international oil companies’-operated fields should not be as impacted, if carefully managed to ensure dry gas processing and extraction operations remain uninterrupted. Major reasons for the long-running shortages are a lack of adequate facilities to process the captured gas, and limited pipeline capacity to power plants. National nameplate carrying capacity(excluding the two Iranian pipeline connections to the national gas and strategic pipelines) is~11 BCM, though available capacity is lower. The pipeline network is about 1775 kilometres long, extending from Basrah to Mosul, but years of unrest, war, sanctions, terrorist attacks and deterioration has meant that a large part is non-operational or operates well below nameplate capacity. Carrying capacity from Iran to Baghdad and Basrah could be as high as 16 BCM, but, here too, logistical constraints and bottlenecks at receiving facilities in both cities means pipeline connectivity cannot be extended to high demand areas without further investment. Moreover, several state-run oilfields still lack gas pipelines connecting them to processing units, even though these fields may produce significant associated gas 25 . Current associated gas production is~19 BCM/yr on an annualised basis, 7 BCM lower than 2019’s level of 26 BCM due to oil output constraints under the OPEC+ agreement. Captured gas volumes have also suffered, even though flaring has seen a noticeable reduction; from 13 BCM flared in 2019, only 7.3 BCM was flared in June 2020, as oil output inched closer to the 3.6 Mb/d target set by OPEC and the MoO. Capture has been affected due to reduced associated gas producing as oil production is curtailed. This has translated 24. Non-associated gas is gas that comes from pure gas reservoirs that are not connected with petroleum in liquid form, unlike associated gas, which refers to the natural gas found in solution in oil within an oil reservoir (see footnote 5). 25. Harvard University’s Belfer Center and Rice University’s Baker Institute Center for Energy Studies,“The Geopolitics of Natural Gas: Natural Gas in the Republic of Iraq”, November 2013 12

ties in both cities means pipeline connectivity cannot and Bechtel for a new flared gas capture facility, the Major reasons for the long-running shortages are a fied petroleum gas and condensate under Phase-2. be extended to high demand areas without further Ratawi Gas Hub, was signed in July last year, to caplack of adequate facilities to process the captured gas, All captured and processed dry gas would power investment. Moreover, several state-run P o o ilf w ie e ld r s in s g til I l raq: Cha tu ll r e e n 3 g .1 e B s C fa M ci o n f g as t s h o e cia E t l e e d ct g r a i s ci f t r y om Se L c u t k o o r il i n op Ir e a ra q ted and lim la it c e k d g p a i s pe p l i i p n e e li c n a e p s a c c o it n y ne to cti p n o g w t e h r em pla t n o ts p . ro N c a e ssing Iraq W i p es o t w Q e u r r p na la n 2, ts an i d n s t t h a e te s o ru u n th fie to lds re R d a u ta c w e i e , x M p a e j n n s o i o v n e , tional n u a n m its e , p e l v a e te n t c h a o r u ry gh in t g he c s a e p f a ie c l i d ty s m (e a x y cl p u r d o i d n u g ce t s h i e gnifiimp L o u rt h s a f i r s o , m Tu I b r a a , n a . n T d he S p u r b o b j a ec b t e w tw it e h e O n r t i h o e n B G a a s s ra w h as a t n o d two Iran ca ia n n t a p s i s p o e c l i i a n t e ed co ga n s n 25 e . ctions to the national gas be d D e h v i el Q o a p r ed pr o o n vin th ce e s s . a D m is e ag te re r e m m s e , n in ts l o in v e er w th it e h l I e r a a d q e ’ r s and strategic pipelines) is~11 BCM, though available com s m hi i p tm of en th t e to j e o l i i n m ti v n e a n t t e u r r o e u a t g in re e e f m la e r n in t g le b d y B 20 ec 3 h 0 te u l n t o capacity is lower. The pipeline network is about 1775 D d e e c r e q t m u h i e b t e U th r n e 2 it p 0 e r 1 d o 8 j N e . c a t, ti a o n n d s o a t n h d er W co o m rl p d e B ti a to n r k s, ‘Z in e c r l o ud R in o g ua kilometres long, extending from Basrah to Mosul, but years of unrest, war, sanctions, terrorist attacks and deterioration has meant that a large part is nonoperational or operates well below nameplate capacity. Carrying capacity from Iran to Baghdad and Basrah could be as high as 16 BCM, but, here too, logistical constraints and bottlenecks at receiving facilitine c F on la s r o i r n ti g u ’ m ini o ti f at G i v e e n , e b ra u l t E b l o e t c h tri p c r , o I j r e a c q ts -o h w a n d ed an en ex gi te T n h s n i e v ee B r ly a in s l g o ra n fi h g rm n G e U a g s r o u C t k i o a , t m A io c p n w a a p n e P y r o i ( o w B d e G , r, w C a i ) n th h d a f p i s o n s p a s l l i a b d n l e y s c S i t s a o i u o d n i in s c ti r l e l A a n r s o a e t m t c c a o a k , p e h n t a u b v r e y e e D x t e p o c r e 1 m s 6 se b . d 5 er in B 2 t C 0 e M r 1 e 8 s . t b i y n r 2 e 0 vi 2 v 3 in , g w ne h g i o le tiaa jo t i i n on t s v fo e r n t t h u e re gas a h g u r b e . e B m u e t n ev t en w w it it h h a A r m ap e id ric a a g n reefi T rm he s m B H e a n o s t r n , a d e h e y l w i G ve e a r l s y l o C a f n o s m d ign p B i a f e n ic c y a h n t ( t e B a l G d f d C o i ) t r io h a n a a s n l e p p w r la o n c f e s l s a s t r e o e d d i g n a s g c a r s ea c w s a e il p l c t a a u p k r e t e u s r f e e a ve c t r i o l a it l 1 y y 6 , e . a 5 t r h s B e . C R M at b a y w 2 i 0 G 23 a , s w H h u i b le , a w j a o s int si v g e n n e tu d re in ag J r u ee ly m l e a n s t t w y i e th ar A , m to eri c c a a p n t f u ir r m e s 3 H .1 on B e C y M well ties in both cities means pipeline connectivity cannot o a f n a d s B 3 s 0 o ec c h ia t t e e l d for g a as ne f w ro f m lare L d uk ga o s il c -o a p pt e u r r a e te fa d cil W ity e , s t t he be extended to high demand areas without further Q R u a r t n a a w i 2 G , a s n H d u st b a , t w e a -r s u s n ig f n i e e d ld i s n R J a u t ly aw la i s , t M ye a a j r n , o to o c n a , pinvestment. Moreover, several state-run oilfields still L t u u h r a e i 2 3 s 5 , .1 T B u C b M a, o a f n as d so S c u ia b t b ed a g b a e s t f w ro e m en Lu t k h o e ilB o a p s e r r a a h ted lack gas pipelines connecting them to processing a W nd est D Q h u i rn Q a a -2 r , a p n r d ov st in at c e e s r . un D f is e a ld g s r R ee a m taw en i, t M s a o jn v o e o r n, units, even though these fields may produce signifith L e uh le a 2 i a 0 s d , e T r u s b h a ip , a o n f d th Su e b j b o a in b te v t e w n e t e u n re th a e g B re as e r m ah en a t nd cant associated gas 25 . le D d hi B Q e a c r ht p e r l ov t i o nce q s. u D it is t a h g e ree p m ro en je ts ct o , ve a r n t d he o l t e h a e d r erc s o h m ip p 1 e o 5 t f it t o h r e s, jo in in c t l u v d e i n n t g ur a e c a o g n re s e o m rt e iu n m t le o d f G Be e c n h e t r e a l l to E q le u c i tr t i h c, e p Ir r a o q je c o t w , a n n e d d ot e h n er gi c n o e m e p ri e n t g itor f s i , rm incl U ud ru in k g , a A c c o w ns a o 10 P rt o iu w m er o , f an G d en p e o ra ss l ib E l l y ec S t a ri u c d , i I A ra r q a m ow co ne , d ha e v n e giFigure 3 Federal Iraq gas pipelines network 26 Figure 3 Federal Iraq gas pipelines network 26 In 2018, the MoO signed a partnership agreement w I it n h d 2 r 0 il 1 li 8 ng , s t e h rv e ice M s f o ir O m B si a g k n er ed Hug a he p s a to rt c n a e p r t s u h re ip a u g p re t e o m 2 e B n C t M w of it n h atu d r r a illi g n a g s fr s o e m rv t ic h e e s Na fi s r s m iriya Ba n k d er H G u h g a h rr e a s f t o o ilf c i a el p d t s u , r a e nd up a t 1 o B 2 CM BCM cap o tu f r n e a d t e u a r l a w l g ith as fr O o r m ion th G e as N fo a r ss th ir e iy N a ah a r nd bin G O h m ar a r r a o f il o fi i e lf ld ie , l i d n s, Ap a r n il d 2018. Baker Hughes’ natural gas capture project was a 1 BCM capture deal with Orion Gas for the to be a two-phase programme, and the first of its kind Nahr bin Omar oilfield, in April 2018. Baker based on the MoO’s EPCF(Engineering, ProcureH m u e g n h t e , C s’ o n ns a t t r u uc r t a io l n ga an s d ca F p in t a u n r c e e) p c r o o n j t e ra c c t t. was to be a two-phase programme, and the first of its k U in n d de b r a P s h e a d seo 1 n , th t e h p e ro M je o ct O w ’ a s s E to PC su F pp (E or n t g t i h n e e d e e r v i e n l g , P o ro pm cu e r n e t m of e a n n t i , nteg C r o at n e s d tr n u a c tu ti r o a n l gas a co n m d plex Fina N n a c s e ) co si n ri t y r a a , c f t o . llowed by an expansion of the complex into e n x e p e r r e i s n s g e f d irm int U ere u s k t , A in cw re a v P iv o i w n e g r, n a e n g d o p ti o a s t s i i o b n ly s S f a o u r di th A e ra g m a 5 c s o h , h u a b v . e B e u x t pr e e v s e s n ed w in it t h er a es r t a i p n i r d ev a i g v r in e g em ne e g n o t, iad t e io li n ve s r f y or o t f h s e ig g n a i s fi h ca u n b. t B a u d t d e it v i e o n na w l i p th ro a c r e a s p se id d a g g a re s ew m il e l n ta t, 0 k d e el s i e ve v r e y ra o l f s y i e g a n r if s i . cant additional processed gas will take sever 2 a 0 l 18 years. 2019 2020 Flared gas Captured gas Non-associated gas 30 stan region), BCM 27 Figure 4 Flared gas production in Iraq(excluding Kurdi25 Concerted efforts to develop gas resources could result in narrowing the gap between electricity demand 20 and supply by 2025. To this end, six oil and gas field development contracts from Bid Round-5, held in April 2018, were signed in January 2020 under for15 mer Prime Minister Abdel Mehdi’s tenure. These Under Phase-1, the project was to support could add 7.6 BCM/yr of new gas from the bid’s gas the development of an integr 26 ated natural gas Figure 3 2 F 5 ederal Iraq gas pipelines network Harvard University’s Belfer Center and Rice University’s Baker complex in Nassiriya, followed by an expansion Institute Center for Energy Studies,“The Geopolitics of Natural In 201 o 8 G f , as t t : h h N e e at M u c ra o o l G O m as p s i i n l g e t n x he ed R in ep a t u o b p li a c a r o t f c n Ir o e a r q m ” s , h p N i l o p e ve t a m e g b r e f e r a e 2 c 0 m i 1 l 3 i e t n y t that 10 26 Qamar Energy Research 27 5 Qamar Energy Research with d w ril o li u n l g d s r e e r f v i i n c e s d fi r r y m g B a a s, ke li r q H ue u f g ie h d es p to et c r a o p le tu u r m e gas up to a 2 n B d CM co o n f d n e a n t s u a r t a e l g u a n s d fr e o r m P t h h a e s N ea 2 s . si A ri l y l a c a a n p d tured Gharra a f n o d i p lfi r e o ld ce s, ss a e n d d d a ry 1 ga B s C w M ou ca ld pt p u o re we d r ea Ir l a w qi t p h ower Orion p G la s nt f s or in th th e e N s a o h u r th bi t n o O re m d a u r c o e il e fi x e p ld e , n i s n iv A e p im ril ports 0 2018 Flared gas 2019 Captured gas 2020 Non-associated gas 2018. B fr a o k m er I H ra u n gh . e T s h ’ e na p tu ro ra je l g c a t s w ca it p h tu O re ri p o r n oj G ec a t s w w as as to to be a b tw e o d -p e h ve as lo e p p e ro d gr o a n m t m h e e , a s n a d m t e he te fi rm st s o , f i n ts k li i n n e d with based I o ra n q t ’ h s e co M m o m O’ i s tm E e P n C t F to (E e n l g im in i e n e a r t in e g r , o P u r t o in cu e re fl aring ment, b C y on 2 s 0 tr 3 u 0 ct u io n n d a e n r d t F h i e na U n n ce it ) e c d on N tr a a t c io t. ns and World Bank‘Zero Routine Flaring’ initiative, but both Under p P r h o a je se c t 1 s , t h h a e d pr a o n jec e t x w t a e s n t s o iv s e u ly pp l o o r n t g the ne d g ev o e t l i ation opmen p t e o r f io a d n , in w te i g th rat f e i d na n l at d u e ra c l is g io as n co s m til p l le n x o i t n t N a a k s e n by siriya, followed by an expansion of the complex into 26. Qamar Energy Research 27. Qamar Energy Research Figure 4 Flared gas production in Iraq(excluding Kurdistan F re ig gi u o r n e ), 4 BC F M la 2 r 7 ed gas production in Iraq (excluding Kurdistan region), BCM 27 Concerted efforts to develop gas resources could resu C lt o i n n c n e a r r t r e o d wi e n f g fo th rt e s ga to p b d e e tw ve e l e o n p el g ec a t s ri r c e it s y o d u e r m ce a s nd c a o n u d ld su r p e p s l u y lt by in 20 n 25 a . r T ro o w th in is g en t d h , e six ga oi p l a b n e d t g w as ee fi n eld e d le e c v t e r l i o c p it m y e d nt em co a n n tr d act a s n f d rom sup B p id ly R b o y un 2 d 0 -5 2 , 5 h . el T d o in th A i p s ri e l n 20 d 1 , 8 s , i w x er o e il si a g nd ed g in as Jan fi u e a ld ry d 2 e 0 v 2 e 0 lo u p n m de e r n fo t rmer Prime Minister Abdel Mehdi’s tenure. These could add 7.6 BCM/yr of new gas from the bid’s gas 25 Harvard University’s Belfer Center and Rice University’s Baker Institute Center for Energy Studies,“The Geopolitics of Natural Gas: Natural G as in the Republic of Iraq”, November 2013 26 Qamar Energy Research 13 27 Qamar Energy Research

4. NATURAL GAS DEVELOPMENT REMAINS SLOW contracts from Bid Round-5, held in April 2018, were signed in January 2020 under former Prime Minister Abdel Mehdi’s tenure. These could add 7.6 BCM/yr of new gas from the bid’s gas plays, which include two blocks in the Diyala province, Gilabat-Qamar and Khashm al-Ahmar-Injana, and the Khider al-Mai block on the Kuwaiti border 28 . The shallow depth of reservoirs at Khashm al Ahmar-Injana could encourage quick development, as well as its being located in proximity to the Khor Mor gas field in the autonomous Kurdistan region and its surrounding infrastructure. The current period of low oil prices, under US$ 45 per barrel, however, will blunt investments in the sector. A rise in security incidents by Islamic State(IS) militia in and around Diyala could undercut start-up of operations. Sharjah-based oil and gas company, Crescent Petroleum, who holds the rights to both fields as well as Khor Mor and the nearby undeveloped Chemchemal field, has indicated it could develop its Bid Round-5 wins by 2023. Given lengthy delays in other Iraqi field developments and the impact of low oil prices and the pandemic, this appears exaggerated. Nearby Mansuriyah can offer 3.3 BCM/yr for surrounding power plants if fully developed, supplying gas-short Baghdad and the northern provinces. Under domestic efforts, it could reach first output of 1 BCM by 2025, but remains undeveloped, even though a Ministryestablished“Energy Council” has been put together“to secure financing” in an attempt to bring in international companies. Finally, there have been discussions with the government of the autonomous Kurdistan region to “import” gas, probably from Khor Mor and/or Chemchemal, estimated to take 6-12 months from agreement to build the required pipeline. Another recent agreement has been for 450 MW of electricity supply directly to Federal Iraq from the Bazian power station between Chemchemal and Sulaymaniyah, likely via an existing 400 kV, single circuit transmission line to Baghdad. However, this is subject to fuel provisions for the plant(if surrounding fields are developed in a timely manner), which currently has a nameplate 500 MW capacity and supplies the surrounding region. The agreement might progress once Bazian increases capacity to 750 MW, allowing it to meet demand as planned 200 MW imports from Turkey commence 29 . In 2013, Iraq signed a deal with Iran to import 50 million cubic metres of gas per day (Mcm/d), divided equally between Baghdad and Basrah. Imports were held up by insecurity in Diyala and attacks on crews constructing the pipeline to Baghdad, but began in earnest in June 2017, and have since averaged between 4-5 BCM, even though the deal allows for imports of up to 18 BCM to meet peak demand. A major reason for this is the high price of the Iranian natural gas, which is oil-linked, and at current Brent crude prices is around US$ 5.1 per million British thermal units(MMBtu), plus domestic tariffs. For comparison, current spot LNG prices for delivery in October 2020 were about US$ 4/MMBtu, while contractual prices paid for dry(processed) gas from BGC are around US$1.7/MMBtu at current Brent crude levels 30 . Nevertheless, the price paid to Iran is still far cheaper than the alternatives of fuel oil and diesel, which Iraq still relies on for much of its power generation. Iran was able to negotiate these relatively high prices since Iraq does not have LNG import facilities(and LNG prices have historically been higher than current levels), and there have been no other ready suppliers of pipeline gas in Iraq’s 28. Middle East Economic Survey 29. Harry Istepanian, https://twitter.com/HarryIstepanian/status/1288398525080825857 30. Spot prices are market-based prices and more volatile than oil-linked gas prices, and more accurately reflect the seasonality of demand and occasional supply disruptions. Oil-linked prices face a delayed impact of market disruptions, because they incorporate(typically) a 3-month backdated average of the Brent or Japan import crude price. For deliveries to Asia, oil-linked pricing is delayed twice, also because crude cargoes can take up to 4 weeks to arrive, and pricing for them is determined based on the loading dates. 14

the tate rcut gas ghts unuld gthy imears 3.3 velern irst ped, ncil” atally, t of gas, stiuild has Fedeen istghfor n a late reindekey 50 ded were ews n in beimajor ildea ences? And put it into context?(global prices..) and diesel, which Iraq still relies on for much of its power generation. Commented[MS14R13]: Added Note 26 Powering Iraq: Challenges facing the Electricity Sector in Iraq Iran was able to negotiate these relatively high prices since Iraq does not have LNG import facilities(and LNG prices have historically been higher than current levels), and there have been no other ready supneighbourhood. Delays in payments have also pliers of pipeline gas in Iraq’s neighbourhood. Delays re in su p l a te ym d i e n n g ts a h s a s v u e p a p l l s i o es re b s e u i l n te g d sh in u g t a -o s f s f u b p y p I l r ie a s n b in ei t n h g e p s a h s u t, te o v ff e b n y t I h ra o n u i g n h th u e n p d a e s r t, c e u ve rr n e t n h t ou ci g r h cu u m nd s e t r an cu c r e s, th re e n I t s c la ir m cu ic m R st e a p nc u e b s l , ic th w e i I l s l l b am e i r c e R li e e p v u e b d lic to w c il o l n be tin re u e se li n ev d e in d g to i c t o s n g ti a n s ue to sen Ir d a in q g i i n ts o ga r s de to r I t r o aq e in ar o n rd s e o r m to e m e u ar c n hs n o e m e e d m ed uc e h x p n o ee r d t e r d ev ex e p n o u r e t s r . evenues. Japanese20 Korean Marker (JKM) 18 Brent-Linked@ 11% 16 Brent-Linked 14 @16% 12 Henry Hub 10 Henry Hub8 Linked LNG 6 Dutch TTF 4 UK NBP 2 0 Japan Contract Iran-Iraq Pipeline Aug-14 Jun-15 Apr-16 Feb-17 Dec-17 Oct-18 Aug-19 Jun-20 Apr-21 Feb-22 Dec-22 Figure 5 Iran-Iraq pipeline gas price versus global LNG, F U ig S u $ r / e MM 5 Btu Ir 31 an-Iraq pipeline gas price versus global LNG, US$/MMBtu 31 Pressure from the US to diversify its gas supply saw Iraq receive only a 30-day waiver in March to continue importing Iranian gas, even though this was exte P n r d e e s d su in r t e o a fr 1 o 2 m 0-da th y e wa U iv S er t in o M d a i y v , e d r u si e fy to i W ts as g h a s su in p g p to ly n’s sa w w ish I t r o a s q up r p e o c r e t iv th e e n o e n w ly A a l K 3 ad 0 h -d im ay i go w v a er iv n e r in me M nt ar a c n h d t t h o e d c o o u n b t l i e nu w e ha i m m m p y o o rt f in h g igh Ir c a o n ro ia n n avi g ru a s s, e c v a e s n es t a h n o d u la g c h k o th f f is un w d a s s fo e r x d t e e v n el d o e pi d ng in n t a o tu a ra 1 l g 2 a 0 s -d re a y sources. Even before the re-imposition of US sancwaiver in May, due to Washington’s wish to tions against Iran, Iraq had been facing diplomatic support the new Al Kadhimi government and pressure from American channels to undertake conth ce e rt d ed ou d b ev le elo w pm ha e m nt m of y it o s f na h t i u g r h al c g o as ro as n s a et v s i , r b u o s th ca a s s e s a s n o d cia la te c d k an o d f n f o u n n d as s so f c o i r ate d d e , v in el p o a p r i t n n g ers n h a ip tu w r i a th l U g S as re co so m u p r a c n e i s e . s. Even before the re-imposition of US sanctions against Iran, Iraq had been facing diplomatic pressure from American channels delayed impact of market disruptions, because they incorporate to (typ u ic n all d y) e a r 3 t a m k o e nth c b o ac n kd c a e te r d te av d erag d e e of v t e he lo B p re m nt o e r n J t apa o n f imits n p a o t r u t c r r a ud l e g pr a ic s e. F a o s r s d e el t iv s e , rie b s o to t A h sia a , o s i s lo li c nk ia ed te pr d icin a g n is d del n ay o ed ntwice, also because crude cargoes can take up to 4 weeks to arrive, a a s n s d o p c r i i a ci t n e g d fo , r t i h n em p i a s r d t et n er e m r i s n h ed ip ba w sed it o h n t U he S lo c ad o in m g d p a a te n s. ies. 31 Qamar Energy Research Commented[FW15]: The whole chapter is interesting but very much focusing on the gas market, not electricity sector(see title of the paper) Commented[MS16R15]: Section 6 has now more commentary on the electricity sector 31. Qamar Energy Research 15

5. THE CHALLENGED POWER-GAS NEXUS 5. THE CHALLENGED POWER-GAS NEXUS suggest that the rise of population could have peak demand reach 50 GW by 2030 35 . The electricity system in Iraq is effectively split in two, with the semi-autonomous Kurdistan 240 region operating its own sector. Both Federal GDP (Real, Constant 2010 US$ B) Iraq a 5 n . d K T R H I E ha C v H e A a L st L a E te N -o G w E n D ed P s O ec W to E r R ru n by 220 their resp G ec A t S ive N M EX in U ist S ries of Electricity with a monopoly over transmission and distribution. 200 The electricity system in Iraq is effectively split in However, generation in Kurdistan is mainly two, with the semi-autonomous Kurdistan region op180 via erati i n n g de it p s e o n w d n e s n e t ctor p . o B w oth er Fed p e r r o al d I u ra c q er a s nd ( K IP R P I s) co h n a t v r e ac a t s e t d atet o o wn t e h d e sec M to i r ni r s u t n ry by th th e e r ir e, res w pe h c e ti r v e e as th M e in f i e st d ri e e r s a o l f E M le o ct E ric o ity p w er it a h te a s mo m no o p s o t ly o o f ver it t s ran o s w n 160 ge m n i e ss r i a o t n io an n d , d w is i t t r h ibu a tio li n m . ited use of IPPs, which started to generate in 2017. In contrast to 140 Fe H d o e w ra ev l er, Ir g a en q e , rat K io u n r i d n i K st u a r n dista h n a i s s m m ain a l n y a vi g a e in d deto pendent power producers(IPPs) contracted to the establish a reasonably reliable electricity service, 120 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Ministry there, whereas the federal MoE operates po m w os e t re o d f i b ts y o g w a n s g a e n n d era s t o io m n, e w d i i t e h se a l, lim ev it e e n d t u h se ou o g f h th I e PP fi s s , c w a h l i b ch ur s d ta e rt n ed h t a o s g b en e e e r n ate he in a 2 v 0 y 1 . 7 F . o In r i c n o s n t t a ra n s c t e, di t e o se Fe l d f e o r r al t I h ra e q D , K o u h rd u i k sta p n o h w as er m p an la a n ge t d is to e e s s t t i a m bl a is t h ed Figure 6 Iraq's GDP forecast to 2030, US$ B 36 Figure 6 Iraq’s GDP forecast to 2030, US$ B 36 to a c r o ea s s t on U a S b $ ly 1 re 0 l 0 iab m le il e li l o ec n tri p ci e ty r s m er o vi n c t e h , p m ow o e re d t b h y an Almost all marketed gas in Iraq is used for power. ga g s as w an o d u s ld om 32 . e d H i o es w el e , e v v e e r n , t e h l o e u c g t h ric th it e y fis p c r a o l v b i u s r io de n n is A M lm os o t s o t f a cu ll rr m en a t rk in e s t t e al d led ga ca s p i a n cit I y ra i q s g is as u t s u e r d bin f e o s r ~1 h 5 as ho be u e r n s h d e a a i v ly y , . c F o o m r i p ns a t r a e n d ce t , o di t e h s e el s f o or ut th h e er D n o p hu a k rts pow (w e h r i . ch M c o an st r o un f c o u n r g r a e s n o t r i d n i s e t s a el) le a d nd ca st p ea a m cit t y ur i b s in g e a s s power plant is estimated to cost US$ 100 million per of Federal Iraq, where power supply is only 5-8 turb (w in h e ic s h ( c w an h r ic u h n o c n an ga r s u , d n ie o se n l, g fu a e s l o o i r l o d r ie cr s u e d l) e o a i n l) d . month more than gas would 32 . However, electricity These are inefficient. The country has fewer than 10 ho p u ro r v s is d io a n ily is c ~ u 1 r 5 re ho n u t r ly s . d I a n ily J , u c l o y m 2 p 0 a 2 re 0 d , t t o h t e he 30 so 0 ut M hW steam turbines(which can run on gas, diesel, more efficient combined-cycle gas turbines(CCGTs) fu e e r l n o p i a lr p ts o o w f F e e r d e e d ra K l I h r a aq b , a w t h p er la e n p t ow n e e r a s r up E p rb ly il is b o e n g ly an fuel oil or crude oil). These are inefficient. currently, most running below capacity due to transop 5 e -8 ra h t o i u o r n s s d , ai w ly h cu ic r h ren s t h ly o . u In ld Ju s ly o 2 m 0 e 2 w 0, h th a e t 30 im 0 p M r W ove The m c is o s u io n n tr c y on h st a r s ain fe ts w , b e r r ea t k h d a o n wn 1 s 0 , a m nd or la e ck ef o f f ic f i u e e n l. t av f a ue il l a o b il i l p it o y w i e n re t d h K e h K ab u a r t d p i l s a t n a t n ne r a e r g E io rb n il 33 b . egan opercom M b o i s n t e o d f t h cy e c n l e e w cap g ac a it s y bein t g u i r n b s i t n al e le s d is h ( ig C h C e G rT ef s ) ations, which should somewhat improve availability cur f r i e ci n e t n l c y y , C m C o G s T t s r (i u n n cl n u i d n in g g b co e n lo ve w rsio c n a s pa of ci e ty xist d in u g e in Ir t a h q e ’ K s u e r l d e is c t t a r n ic r it e y gio p n r 3 o 3 . blem is centred around to p tr la a n n t s ) m . A is l si o o , n ove c r o 4 n 0 s % tra of in th ts e , cu b r r r e e a nt k C d C o G w T n s s a , re a l n o d a chronic inability to match supply with lack ca o te f d f in ue th l. e M ce o nt s r t al o p f ro t v h in e ce n s, e t w he c c a en p t a re ci f t o y r b tr e an in sg de Ir m aq a ’ n s e d l . ec I t n ric 2 it 0 y 1 pr 9 o , b p le e m a i k s c d en e t m re a d n ar d ou w nd as a c 2 h 6 ron G ic W, mission losses and technical faults, or further up installed is higher-efficiency CCGTs(including 58 in % ab h il i i g ty h t e o r m t a h tc a h n su g p e p n ly e w ra it t h io de n m c a a n p d. a I c n it 2 y 0 . 19 S , h p i e ft a i k ng north, around Mosul and Kirkuk, which have limited de d m em o a g n r d a w p a h s ic 2 s 6 , G a W s , t 5 h 8% e h p ig o h p e u r l t a h t a i n o g n en g er r a o t w ion s c a and conversions of existing plants). Also, over connectivity to the grid because of sabotage and lack pacity. Shifting demographics, as the population 40% of the current of maintenance. CCGTs are located in the people migrate from villages to larger cities grows and people migrate from villages to larger citcentral provinces, the centre for transmission an ie d s m an a d jo m r a m jor et m ro et p ro o p li o s l e is s e , s, e e x x p p a a n nd d i i n n g g u u se se of o a f ir a irloss A e n s i a n n d d ep t e e n c d h en n t ic p a o l w f e a r u p l r t o s d , u o c r er fu (I r P th P) er pr u o p gra n m o m rt e h , , co c n o d nd it i i t o io n n i i n n g g, , ri r s i i s n in g g su s m u m m e m r t e em r p te er m at p ur e e r s a d t u u e re to s c d liue aro a u ln S d am M aw o a s , u a l im an ed d to K j i u r m ku p k -s , ta w rt h th ic e h m h ar a k v e e t w li a m s f i i t r e s d t to m cl a i t m e a c t h e an ch ge a , n a g n e d , a c n at d ch c i a n t g ch u i p ng to up su t p o p s r u es p s p ed re d s e s ed con l n au e n c c t h iv e i d ty in to 20 t 1 h 0 e , w g i r t i h d th b e ec 7 a 5 u 0 se MW of a s l a -S b a o m t a a w g a e de m m an a d n , d c , ou c l o d u r l e d su r l e t s in ul p t e i a n k p de e m ak an d d e c m ro a ss n in d g c 3 r 7 o G ss W ing and CC la G c T k p o o f w m er a pl i a n n t t e t n o a b n e c th e e . first to be established un37 in G th W e n in ex th 5 e ye n a e r x s 3 t 4 , 5 ev y e e n a t r h s o 34 u , g e h v G e D n P th sh o a u ll g f h ace G a DP der the scheme. A decade later, and the plant is yet to sh s a h l a l rp fa c c o e nt a rac s t h io a n rp in c 2 o 0 n 2 t 0 ra (c 4 t . i 7 o % n a i c n co 2 rd 0 i 2 ng 0 to (-4 th .7 e % A a n chiev in e d c e om pe p n le d tio e n n , t wit p h o in w d e us r try p o r n o lo d o u k c e e rs r exp (I e P c P t) World Bank). Other studies suggest that the rise of according to the World Bank). Other studies pro i g ng ra c m om m m e i , ss a io ln Sa on m ly aw in a 2 , 02 a 5 im . H e o d we t v o er j , u I m PP p s -s h t a a v r e t population could have peak demand reach 50 GW by gone into operation at Rumaila near Basra, under 2030 35 . 32. World Bank, 2015 Shamara Holding(1500 MW, and targeting 3000 33. Kurdistan Regional Government, 14 July(2020), https://g M ov W .kr e d v / e e n n tu g a li l sh c / a g p o a v c e it r y n ); m a e n n d t/t B h e e s m pr a i y m a e a t m B in a i g s h te d r a / d activities/posts/2020/july/prime-minister-masrour-barzani-o (M pe a n s sG 30 lo 0 b m al w a n s d te G am E, -p w o i w th e P rh s a ta se tio 3 n t o in t a k k h e a c b a a p t a / city 34. Qamar Energy Research; author’s calculations to 4500 MW). 35. Parsons Brinckerhoff 36. World Bank; Qamar Energy Research The Ministry also planned a large programme of solar power, Iraq’s first significant renewable generation other than hydropower. An initial tender in July 2019 was for 755 MW of solar capacity across seven 16 sites. An earlier(and too low) feed-in tariff of 3.5 32 34

Powering Iraq: Challenges facing the Electricity Sector in Iraq the market was first launched in 2010, with the 750 MW al-Samawa CCGT power plant to be the first to be established under the scheme. A decade later, and the plant is yet to achieve completion, with industry onlookers expecting commission only in 2025. However, IPPs have gone into operation at Rumaila near Basra, under Shamara Holding(1500 MW, and targeting 3000 MW eventual capacity); and Besmaya at Baghdad(Mass Global and GE, with Phase 3 to take capacity to 4500 MW). The Ministry also planned a large programme of solar power, Iraq’s first significant renewable generation other than hydropower. An initial tender in July 2019 was for 755 MW of solar capacity across seven sites. An earlier(and too low) feed-in tariff of 3.5 USD/kWh was scrapped, with the country moving to the auction-based model successfully deployed elsewhere in the region. However, these have not progressed further following the change of government, and with investor concerns over financial guarantees. In September 2019, the government signed an agreement with the Gulf Cooperation Council Interconnection Authority for 500 MW of supply, to be connected via Kuwait 37 . There are also plans for a 300 MW connection with Jordan. In July 2020, the electricity ministry announced plans to buy 450 MW from Kurdish firm KAR Group and 200 MW from Turkey(see 4), and said that 80% of the link to Kuwait was complete 38 . 37. Kate Dourian,“Iraq’s Electricity Challenges Mount as Oil Revenue Slows to a Trickle”, Arab Gulf States Institute in Washington, May 15(2020), https://agsiw.org/iraqs-electricity-challenges-mount-as-oil-revenueslows-to-a-trickle/ 38. Dania Saadi,“Iraq to import power from Turkey, Kurdish company to address severe shortages”, SP Global Platts, July 28(2020), https://www.spglobal.com/platts/en/market-insights/latest-news/electricpower/072820-iraq-to-import-power-from-turkey-kurdish-company-to-address-severe-shortages 17

6. SOLUTIONS LACK FOCUS ON GRID REINFORCEMENT 6. SOLUTIONS LACK FOCUS ON GRID REINFORCEMENT Failures of the Iraqi power sector policy can be broadly grouped into four categories. These include, first, a fixation on increasing generation capacity to meet demand to the neglect of fuel, maintenance and grid improvement; second, poor or non-existent demand side management (DSM) measures; three, a failed tariff collection system; and lastly, lack of interest in utilising alternative and/or renewable energy sources. The most immediate challenge for nonKurdistan Iraq, though, is less in generation capacity, and more in distributing fuel supplies to power plants, and improving the power transmission system. Nameplate capacity in 2018 was about 30.3 GW 39 , more than enough to meet demand, but much of this was unusable because of war damage, lack of maintenance and fuel shortages. Peak generation was about 19 GW in summer 2019, plus 1.4 GW of electricity imports from Iran, compared to estimated peak demand of~26 GW. The difference is met by power cuts and the use of distributed neighbourhood diesel generators, which receive fuel at subsidised prices. Funding of the electricity sector has lacked coherent strategy since 2003, and efforts have been directed more to developing new generating capacity, rather than upgrading and expanding the country’s dilapidated transmission and distribution(T&D) network. The main outline of Iraq’s transmission grid is shown in Figure 7. It has about 5200 km of 400 kV grid and 12500 km of 132 kV grid. This links to the distribution grid at 33 and 11 kV via 132/33/11 kV substations 40 . Challenges associated with the transmission grid are mostly technical in nature. These include, majorly: 1. Long single-phase lines: Transmission line protection for long single phase lines is a complex challenge, particularly in Iraq, due to various technical difficulties. These include low short-circuit current level and high line loading operating conditions, need for single-pole recloses and neutral reactors, and poorly developed communications schemes. Limited capabilities of the MoE and lack of locally trained experts further compound the problem. 2. Unbalanced loading: High-demand centres like Baghdad and most of southern Iraq, as well as the industrial sector, have a higher number of unbalanced loads, which consume large amounts of reactive power. This results in a degradation of power transfer capability of the transmission lines, simultaneously causing under-voltage problems. Typically current is increased to maintain power supplied to the load, which results in entire transmission lines going off. 3. Poor standard of equipment: Transmission equipment in Iraq is decades old, which increases the stress on the grid and the risk of widespread blackouts. Also, local capabilities in developing transmission equipment(such as transformers, switchgear, and high voltage technology) are extremely limited, with the power sector relying almost entirely on foreign firms. 4. Improper earthing: Electricity supply systems in Iraq are improperly earthed, affecting not only the magnitude and distribution of short circuit currents through the system, but also human safety. Improper earthing, alongside faulty electrical wiring, has resulted in scores of transmission-related fires, in some cases also causing human fatalities. 5. Limited connectivity: Even though Iraq’s grid stretches from Mosul down to Basrah, over 1/5th of the network is unusable due to years of conflict and lack of maintenance. Major congestion is apparent in central 39. Iraq’s Power Conundrum: How to Secure Reliable Electricity While Achieving Energy Independence, https:// blogs.lse.ac.uk/mec/2020/03/24/iraqs-power-conundrum-how-to-secure-reliable-electricity-while-achievingenergy-independence/ 40. https://wbgeconsult2.worldbank.org/wbgect/download?uuid=c2fa7598-bb0d-49d7-90df-8b2669aca7e8 18

Powering Iraq: Challenges facing the Electricity Sector in Iraq 5. Limited connectivity: Even though Iraq’s signed with GE for reinforcing the country’s grid and Iraq, in a g n rid d st a re r t o ch u es n f d rom B M ag os h ul d d a o d wn , t w o B h a e sr r a e h, other reh i a n bili t ta h ti e ng p e o n w e er r p g la y nts s i e n c a t n o d r a , rou r n a d th ar e ea r s d t is h an an actual non-tech o n ve ic r a 1/ l 5 l th o o s f s t e he s n o et f w e or l k e i c s t u r n i u c s it ab y le t d a u k e e to place, cus c se o d m un m de i r t t m he e Ir n an t ia t n o me r e e tin c g e s i ( v s i u n ch g as s K u a p rb p al o a rt from Iran. years of conflict and lack of maintenance. and Najaf), speaks to this fact. such as Ma r j a or m c p on a g n es t tion th is ef a t ppa a re n nt d in “ c h en o tr o al king”. The recent US$ 1.2 B deal signed with GE for Most of Ira w q, e in st a e nd rn aro a un n d d Bag n h o da r d t , h w e h r er n e o I th ra er q has In 2 r 0 e 1 i 9 n , t f h o e r M c i i n n is g try th un e ve c il o ed u p n la t n r s y to ’s fi g na r n i c d e a a U n S d $ rehabilitating non-technical losses of electricity take 3 billion upgrade of the T&D network(US$ 2 billion Commented[FW23]: Cou poor co p n la n ce e , c su t c iv h i a t s y r , am a pa n n d t the n ft e an e d d “ s hoo s k i i g ng n ”. ificant for p tr o an w sm e is r sio p n la an n d t U s S$ in 1 b a ill n io d n fo a r r d o is u tr n ib d utio a n r ) eas discussed that demonstrates the diffe expansio M n ost of t w o estern a n c d c n o o m rth m ern o I d ra a q t h e as poo p r ower to m u a n k d e e th r e g t r h id e ca I p r a a b n le ia of n de m liv e er e in t g in at g l s eas ( t s 2 u 0 ch as K trib a u r t b ion a g la rid? imports, co a n s ne w ctiv e it l y l , a an s d t n e ee c d h s n si i g c n a ifi l ca e nt xp ex e pa r n t ise on hou a rs nd of N ele a c j tr a ic f i ) ty , s a p cr e os a s k t s he to cou t n h tr i y s . f T a h c e t. plan sion to accommodate power imports, as failed to receive approval from the Council of Repredesign d w e e t ll a a i s l t s e , ch l n in ica e l ex le pe n rt g is t e h on , d a es n ig d n d o eta p il e s, rating sentatives following then-Prime Minister Abdel Mecondition lin s e . le T n y g p th i , c a a nd l o li p n er e ati l n o g s c s o e nd s it o io f ns. e T l y e p c itricity, hdi’s ex I i n t f 2 ro 0 m 1 h 9 is , p t o h s e t. M Lac i k n o is f t c r en y tr u a n l g v o e ve i r le nm d e p nt lans to finance cal line losses of electricity, currently, ar 4 e 1 in fun a ds m U e S a $ ns 3 the b M il o l E io c n ann u o p t f g in r a a nc d e e thi o s f up t g h ra e de, T&D network currently t , he a r r a e ng i e n of t 4 h -8 e % 4 r 1 a . nge of 4-8%. as current electricity tariffs cover almost nothing of (US$ 2 billion for transmission and US$ 1 billion costs. Moreover, the MoE has complained about the abs f e o nc r e d of is a tr s ib up u p t o i r o tiv n e ) re t g o ula m tor a y, ke inst t i h tu e tion g a r l id capable of fram d e e w l o iv rk er n i e n ce g ssa a r t y l fo e r a r s e t fo 2 rm 0 , w h h o ic u h r , s alo o n f gs e id l e ectricity across general corruption and political lobbying, reflects on the the poor p c e o rf u or n m t a r n y c . e T an h d e ma p n l a a g n em f e a nt il o e f d the t s o ec r to e r c . eive approval from the Council of Representatives following Dev t e h lo e p n in g P n r e i w m in e ter M con in ne i c s t t io e n r s a A nd b u d pg e r l ad M ing e th h e di’s exit from grid network into a modern power system(PS) capable h o i f s sup p p o ly s in t g . n L ea a r c -2 k 4 h o ou f r p c o e w n e t r r i a s l a c g om o p v l e ex rnment funds pro m ces e s. a T n h s e e t x h ist e ing M gr o id E is c o a n n tin n u o ou t sl f y in su a bj n ec c t e to this upgrade, sudden changes in load demand, short circuit faults, as current electricity tariffs cover almost equipment outages and generator failures, as well as wea n th o e t r h da i m ng age a o n f d sa c b o ot s a t g s e 4 . 4 , a M nd o re r g e io o n v al e s r u , bdi t he MoE has visi c o o ns m of p th la e i M n o e E d (T a ab b le o 1 u T t ab t le h 1 e ) a a re b il s le e n qu c ip e pe o d f a sup C p om or m t e iv nt e ed[MS24]: Ref to successfully manage contingencies. Yet billions of doll r a e rs g h u a l v a e t b o e r en y, in i je n c s te t d it i u nt t o io ex n p a an l di f n r g a e m xis e ti w ng ork ne F c o e rm ss at a te r d y : Font: 9 pt, Fo cap f a o cit r y r a e s f a o s r to m pg , a w p s h o i lu c t h io , n a t l o o I n ra g q’ si c d h e ron g i e c n de e ral cor S r c u ri p pt t F i o o n n t: 9 pt mand problem. The country has planned 14 new and political lobbying, reflects on the poor combined cycle power plants(or CCGTs) by 2025, Figure 7 Iraq's electricity transmission network 42 with pe a r to f t o al r d m es a ig n n c ca e pa a c n ity d of m ~1 a 3 n G a W g , e bu m t h e a n s t no o t f the sector. Figure 7 Iraq’s electricity transmission network 42 considered grid stability and design to support these. These challenges have increased since 2003, but These n D ew e p v l e an lo ts p w in ll r g equir n e a e n w additio in na t l e ~ r 1 c 8 o B n CM nections and The h s a e ve hi c st h o a ric ll a e lly n r g e e ce s ived h li a ttl v e e focus in fr c o r m ea pr s e e vi d ous since of g u as p , o g n r t a op d o i f n c g urre t n h t e sale g s g r a id s vo n lu e m t e w s o o f 1 r 4 k BC i M n , to a modern cabinets. Under the largely technocratic Abdel Mehdi to be able to fire at capacity. The main associated gas 2003, gov b e u rn t men h t a ( v O e ctobe h r is 2 t 0 o 18 r i M ca ay lly 202 r 0 e ), ce m i i v n e is d ter little pro p je o cts w w e ou r ld sy ad s d te 12 m .1 B ( C P M S , ) an c d a M p a a n b su l r e iya o h f pl s u u s pplying nearfocus Lu f a r y o a m l-Kha p tte r e e b v o i v o e u rs s aw s c ig a n b ifi i c n a e nt ts im . pro U ve n m d e e nt r the the 2 5 t 4 h -ro h un o d u fi r elds p a o no w th e er r 10. i 9 s BC a M. I c n o th m eo p ry l , e t x his process. The in both generation and T&D(as visible in Figure could be sufficient, but it demands much more rapid Commented[FW19]: Wh largely 1Fi t g e ur c e h 1 n ), o b c u r t a w t a i s c no A t b in d p e o l sit M ion e l h on d g i e g no o u v gh er to nment pro e gr x e i s s s t t i h n a g n h g as ri b d een is m c a o de n h t i i s n to u ri o ca u lly s , ly at a su ti b m j e ect to sudden transmission grid? Which on (Octob m e ak r e l 2 on 0 g 1 er 8 -t e M rm a g y ain 2 s. 0 N 2 e 0 w ), ele m ctr in cit i y st m e i r nis L te u r, ay alwhe c n h t a he n I g ra e q s i g i o n ver l n o m a e d nt h d a e s m virt a u n al d ly , no sh in o ve r s t circuit po f w a er u s l e t c s to , r should be disc Khatte M e aj b id o M v ah e d r i s H a a w nto s u i s g h, n a i l f so ic a a t n ec t hn im ocr p at r , o re v c e en m tly ent in men e t q fu u n i d p s. ment outages and generator f C a o i m lu m r e e n s te , d[MS20R19] hailed the“importance of electricity imports” from 44 both g ne e ig n h e bo r u a r t in io g n Iran a , n a d nd T re & ne D we ( d a t s he v p i o s w ib er le im i p n ort Figure as well as weather damage and sabo Co t m ag m e ente , d[a21]: It is b 1), but co w nt a ra s ct n fr o om t in the p I o sl s am it i i c o R n ep lo ub n li g c f e or n a o no u t g he h r t t w o o make and regional subdivisions of the MoE som (T ew a h b e l r e e in the text years, stating that Iraq would draw on Iran’s experlonger ti s t e e t r o m fix its g o a ld in a s n . d di N lap e i w dated e p l o e w c e t r r g ic ri i d t 4 y 3 . H m ow i nister, 1) are ill-equipped to successfully m Co a m n m a e g nt e ed[MS22R21] Majid ev M er, a th h is d se i em H s m an or t e o a u so s p h to , a v a a l g s u o e m a emo t ra e n c d h um nocrat, contingencies. Yet billions of dollars hav Fo e rm b a e tt e e n d: Font: 9 pt, Fo recent o l f y un h de a r i s l t e an d din t g h ( e Mo “ U i ) m sig p n o ed rt b a et n we c e e n b o ot f h c e o l u e n c tricity injected into expanding existing capa Sc c r it p y t Fo a nt s : 9 pt tries in December 2018 for“cooperation” in the enimpor e t r s g ” y s f e r c o to m r, ra n th e e i r g t h ha b n o an u a r c i t n u g al c I o r m a m n, itm a e n n d t to re re n ewed a stopgap solution to Iraq’s chronic demand the p c o e w ivin e g r su i p m po p rt o fr r o t m c Ir o an n . t T r h a e c re t cen fr t o US m $ 1.2 th B e dea I l slamic problem. The country has planned 14 new Republic for another two years, stating that combined cycle power plants(or CCGTs) by 41 Qamar Energy Research 44 Khalid al- Taie,“Iraq repairs power lines blown up by ISIS”, DiIraq w 42 o Qa u m l a d r En d erg r y a R w esear o ch n Iran’s expertise to fix its yaru 2 na 0 , M 2 a 5 y 0 , 6(2 w 020 it ) h a total design capacity of~13 43 Financial Tribune,“Iran, Iraq Power Export C 4 o 3 ntract Renewed old an fo d r T d wo il Y a ea p rs i ” d , Ju a n t e e 05 d (20 p 20 o ) wer grid. However, this GW, but has not considered grid stability and seems more a sop to a vague memorandum design to support these. These new plants will of understanding(MoU) signed between both require an additional~18 BCM of gas, on top countries in December 2018 for“cooperation” of current sales gas volumes of 14 BCM, to be 41. Qamar Energy Research 42 Qamar Energy Research 43. Financial Tribune,“Iran, Iraq Power Export Contract Renewed for Two Years”, June 05(2020) 44. Khalid al-Taie,“Iraq repairs power lines blown up by ISIS”, Diyaruna, May 06(2020) 19

short-term plan for developing 400 kV systems that could carry 400 MW on a single line, or 800 MW on double lines. This is yet to be realised, with current 6. SOLUTIONS LACK FOCUS ON GRID REINFORCEMENT efforts, under Siemens, concentrated on reconfiguring existing 132 kV systems around Baghdad to overcome high fault problems. Most of north and northwest Iraq remains omitted from efforts to rehabiliable to fire at capacity. The main associated gas su ta f t f e e i r n in fr g as s t e ru v c e t r u e re d a a f m ter a s g u e ffe u r n in d g e s r e t v h er e e o d c a c m u a p g a e t u io n n projects would add 12.1 BCM, and Mansuriyah o d f e I r SI t S h . e occupation of ISIS. plus the 5th-round fields another 10.9 BCM. In theory, this could be sufficient, but it demands Small Oil Generators much more rapid progress than has been made historically, at a time when the Iraqi government has virtually no investment funds. Raising HFO Use Mobile Power Units Rooftop Solar PV Refurbish Generators Table 1: Ministry of Electricity’s Regional Subdivisions 45 Utility Oil/Gas Turbine Utility Solar PV Wind Power Supply Transmission Distribution Utility Gas CCGT General Company General General Upgrade T&D Networks North of Electricity Company Company Expand Transmission Network Production, North Region General Company of Electricity of Electricity Transmission, North Region General Company of Electricity Distribution for the North General Company 0 2 4 6 8 10 Figure 8 Best Technology for Improved Electricity Supply by F Y ig ea u r r s e to C 8 om B pl e e s te t 47 Technology for Improved Electricity Supply by Years to Complete 47 Central Production, Middle Region of Electricity Transmission, Middle Region of Middle Electricity Distribution General Company General General Table 1 M o in f i E st le ry ct o ri f c E it l y ectricity's C R o e m gio p n a a n l y Subdivisi C o o n m s 4 p 5 any Central South North Euphrates Pr S o u d p u p ct ly ion, Al Tran o sm f E is le si c o t n ricity Distr o ib f u B t a io g n hdad Ge F n u e r r a a t l R C e o g m io n pany of Electricity Production, North Gene T ra ra l ns C m om iss ion, Genera E l le C c o tr m ic ity pan U y p o p f er E & le M cidd p le any D o i f st E rib le u c t ion tricity Eu T p r h a r n a s t es tricity DistriRegion mission, North bution for the G R e eg n i e o r n al Company Region General North General of Electricity Directorate Company P G r e o n d e u r c a t l io C n o , m So uth Gener o a f l El C e o c m tri city General of C S o o m u th pany R o e f gi E o l n ec- pany Tr o a f ns E m le is c s ion, pany o E f le M ctr id ic ity tricity Produc- tricity Sou T th ra R n e s g ion dle E D le i c s t t r r i ib ci u ty tion tion, Middle mission, Mid- Distribution 45 T M & in D istr l y o o s f s E e le s ctr a ic r i e ty, b Ir e aq tween 40-50%, with up to 46 Iraq Energy Institute 9 4 0 7 % Yesa o r f M t al h ik e i, s I e raq a E t n t e r r i g b y u In t s e ti d tute to distribution losses, 48 T&D losses are between 40-50%, with up to 90% of inc P lu ou d d i i n ne g h, S t e e n, c & h F n a i t c to a u l h, l “ o Ad s v s a e n s ci , ng a R n en d ewa n b o le n E n t e e rg c y h in n R ic eal s t o h u e rc s e e - Ri a c t h tr E i c b o u no te m d ies t o o f th d e is M tr E i N b A u ” t , io 20 n 16 losses, including o 4 n 9 te e P c . s h K n . M i l c i a k a l l e lic l k o , s t “ s I h r e a e s q , f ’s t a E , n le d c n tr n o i o ci n n ty b S te e i c c ll t h i o n n r g i i s c , a C l au o f g a n h u t e i s l n t l t y i h k e e U e S t n h -I e e ra f r t n g , y m P n e o o w t n e er r S b s t i r l u l a i g n n g g l d e , ” f , a 1 t 4 u a l D m ty ec p e em n e e b r r e in g r y ( g 2 m 0 , 1 e 8 a t ) n e , r r d e s fe a r h n en d o c o t e a d k m S i t n p ra g e t r f / o i t n r a ( g 2 p , 0 a p 1 n 8 i d ) n , g on ho t o ra ki n n s g m /ta is p s p io in n g l o in n e t s r . a L n a sm ck is o si f on m l a in in es t . e L n a a c n k c o e f a o n f d sp m ar a e in s t , e a na n n d ce un an p d la s n p n a e re d s, c a a n p d ac u i n ty pl g an r n o e w d t c h ap a a d c d ity to te g c r h o n w i t c h a a l d l d os to se te s c . h F n o ic r al c l o o m sse p s a . F ri o s r o c n o , m T p & ar D iso lo n, s T se & s D in losses in Iran are about 12.6%, and the world average Iran are 48 about 12.6%, and the world average is~8% 48 . is~8%. 80% A ch Re ie gi v o i n ng satis d f l a e c R t e o gi r o y n performance from 70% the e G le e c n t e ri a c l it C y om g rid G , e c n o e u ra l l d, C a om cc or G d e in e g ra t l o Co c m u rrent 60% Euphrates estim p a a t n e y s, of ta E k le e can pa y n w y h o e f re Ele f c r om pan 1 y 0 o -1 f 2 Bag y h e ars 46 50% tricity Produc- tricity Trans- dad Electricity (Figur ti e on 8 , ) A , l a F le ur n a g t th m y is t s i i m on e , U lin pp e e . r Th D e is M tri o bu E t , io i n n 2010, 40% put to Re g g e io t n her a sho & rt M -t i e dd rm le E p u l an for developing 30% 400 kV systems th p a hr t at c es o R u e l g d ion carry 400 MW on 20% a sing G l e e ne l r in al e C , o o m r 80 G 0 en M era W l D o ire n cdo G u e b ne le ral lin Co e m s. This 10% pany of Elec- torate of Elec- pany of South is ye t t ric t it o y Pr b o e duc r ea t l r i i s c e it d y , T w ra i n t s h c E u le r c r t e ri n ci t ty efforts, 0% South unde t r io S n i , eme So n u s t , h co m n i c s e si n on t , ra So t u e t d h on Dis r t e ri c b o ut n io f n iguring Saudi Arabia Lebanon Jordan Egypt Iran Morocco Tunisia Turkey Syria Algeria Yemen Iraq Libya existin Re g gio 1 n 32 kV s R y e s g t i e o m n s around Baghdad to overcome high fault problems. Most of north a A n ch d iev n in o g rt s h a t w isf e a s c t or I y ra p q erfo re rm m a a n i c n e s fr o m mi t t h t e ed ele f c r om tricity grid, could, according to current estimates, Figure F 9 ig T u &D re lo 9 sse T s & in D th l e o r s e s g e io s n 4 in 9 the region 49 efforts to rehabilitate infrastructure after take anywhere from 10-12 years 46 (Figure 8Figure 8), Including losses and non-payment, about two-thirds 4 a 5 l . e M ng i t n h i y st t r i y m o e f li E n l e e . c T tr h i e ci M ty o , E Ir , a i q n 2010, put together a of generated power is not paid for. About 23% of gen4 s 6 h . o I r r ta t q er E m ne p r l g a y n I f n o s r t d it e u v t e e loping 400 kV systems that erated electricity is lost to illegal connections. Meters 4 c 7 o . u Y ld es c ar r M y a 4 l 0 ik 0 i, M Ir W aq o E n n a e s r i g n y g I le ns li t n it e u , t o e r 800 MW on are often outdated or malfunctioning; about 80% of 4 d 8 o . u P b o le ud li i n n e e s h . , T S h e is n, is & y F e a t t t t o ou b h e , r “ e A a d li v se a d n , ci w n i g th R c e u n r e r w en a t ble Energy in Resource-Rich Economies of the MENA”, 2016 meters are more than 30 years old and some have 4 e 9 ff . o P rt . s K , . u M nd a e l r lic S k ie , m “I e r n aq s, ’s c E on le c c e t n r t ic ra it t y ed Se o c n to r r ec is on C f a ig u u g r h t in the US-Iran Power Struggle”, 14 December(2018), never been recalibrated. Even customers who pay ing existing 132 kV systems around Baghdad to overtheir bills are only covering about 10% of the real cost come high fault problems. Most of north and northof electricity provision, making it impossible for the west Iraq remains omitted from efforts to rehabili20 MoE to stand on a commercial basis 50 . This requires tate infrastructure after suffering severe damage uncontinuing large budget transfers, with electricity der the occupation of ISIS. subsidies costing about US$ 12 billion annually 51 . Inera are me nev the of Mo con sub eff tio lac me En and un Ele tom mu Be 2) Wo “Ira (20 50 A 51 M eco 52 W Form Form 9 pt,

Powering Iraq: Challenges facing the Electricity Sector in Iraq Including losses and non-payment, about two-thirds of generated power is not paid for. About 23% of generated electricity is lost to illegal connections. Meters are often outdated or malfunctioning; about 80% of meters are more than 30 years old and some have never been recalibrated. Even customers who pay their bills are only covering about 10% of the real cost of electricity provision, making it impossible for the MoE to stand on a commercial basis 50 . This requires continuing large budget transfers, with electricity subsidies costing about US$ 12 billion annually 51 . Inefficient management and operation of the distribution sector is a key contributor to the issue, and a lackadaisical attitude towards subsidy reform, net metering, and privatisation compounds the issue. End-user metering is very poor, made up of outdated and malfunctioning meters and widespread theft or unmetered connections. According to the Ministry of Electricity, there were over 160 000 unmetered customers in 2015 52 , likely an underreported figure, and much higher in 2020. Because current tariffs for electricity(Table 2) are near-zero for regular consumers, demand is essentially infinite 53 . The ongoing demand on power generation cannot be tamed through DSM measures without immediate restructuring of tariffs(see Section 8). Table 2 MoE Current Tariff Scheme 54 Tariff US$ Cent per kWh Range of consumption level Domestic 0.8 1-1500 kWh 2.9 1501-3000 6.7 3001-4000 10 4001 and more Commercial 5 1-1000 6.7 1001-2000 10 2001 and more Industrial 5 Flat rate Agriculture 5 Flat rate Privatisation of distribution has regularly been cited as the first step of a potential reform policy. However, caution precedes privatisation reforms. According to former Minister of Electricity, Luay al-Khatteeb, the government believes privatising the sector is akin to a“radical” reform, which might cause widespread opposition from political hardliners, or put thousands of civil servant employees out of employment 55 in a country where unemployment levels have soared in recent weeks due to coronavirus-led lockdowns. referenced Stratfor(2018), World Bank, World Development Indicators; Harry Istepanian,“Iraq’s Electricity Tariff Reform”, Iraq Energy Forum, September(2019), referenced World Bank Group data(2014) 50. Al-Khateeb, 2020 51. Mehdi and Al-Saffar,“Compounding crises: Iraq’s oil and energy economy”, Oxford Institute for Energy Studies, July 2020 52. World Bank 53. Luay al-Khatteeb,“Fixing Iraq’s Power Sector”, Iraqi Economists Network, August 22(2020) 54. Barik Schuber,“Main Policy Failures and the necessity of effective reforms of the Iraqi Power Sector”, Iraqi Economists Network, August 23(2020) 55. Luay al-Khatteeb, Harry Istepanian,“Turn a Light On: Electricity Sector Reform in Iraq”, Brookings Doha Center(March 2015), 4-5 21

7. RENEWABLE ENERGY IS STILL A PIPE DREAM 7. RENEWABLE ENERGY IS STILL A PIPE clear plan, priorities and an investment model, DREAM these did not go ahead. As can be seen in Figure 8, an obvious part of the solution to Iraq’s electricity crisis is renewable energy. The country has a good variety of renewable resources, including exploitable hydropower, abundant sunshine on unused land, and good wind speeds in certain areas. Given chronic power shortages and difficulties with natural gas development, distributed renewables could become an economic and practical part of the generation mix. However, integrating renewable energy with the existing national grid shall pose a significant challenge, even if significant power capacity is developed. Remote areas such as Anbar, good sites for solar photovoltaic plants, will either require extended connections to the grid, or battery storage. A small amount(36.5 MW) of solar PV was installed during 2013-14, and parts of Baghdad feature solar street-lighting. There are also some rare cases of solar cells being used in residential units. The INES foresaw 2 GW of renewables by 2030, including new hydropower. However, it rejected large-scale solar on the grounds that it was(then) too expensive compared to natural gas resources, even though the MoE subsequently planned 50 MW solar/wind hybrid plants in remote locations, where they would be competitive with diesel generators. Following the defeat of ISIS, the Iraqi government issued a long list of projects for international investment and reconstruction, including 410 MW of solar power, as well as a solar research and manufacturing centre. The MoE’s own projections showed 2.7 GW of solar PV being installed between 2017-20(excluding KRI, and northern provinces). Projects were awarded to some regional companies: 465 MW in five locations to Sama Baghdad, and 230 MW in four locations to Kuwait-based al-Dana International. However, in the absence of a Currently, Electricity Law(53) of 2017 regulates the adoption of renewable energy, its activities and“nationalisation” under the MoE. A subsequent draft Renewable Energy Law was passed through the MoE to the Iraqi Ministerial Energy Council, the highest executive energy body in the country. The Law was prepared with the help of the UNDP Regional Renewable Energy Centre, but is yet to be finalised, leaving the MoE as the executive authority controlling the development and financing of renewable energy projects in the country. Under the Law, institutions and individuals can generate renewable power for their own use, with access to the national T&D grid or to sell to the MoE under a PPA. This led to numerous companies approaching the MoE with offers for solar projects, and a feed-in tariff was established at$ 3.5/kWh, inspired by the low prices achieved in some neighbouring countries. Low-interest loans were also offered for rooftop solar installations 56 . However in May 2019, the feed-in tariff was abandoned after criticism for being“repressive”, and instead the MoE launched a competitive tender for 755 MW of solar PV across several sites(two solar parks of 300 MW and 225 MW capacities, and 5 smaller projects, ranging in size from 30-50 MW), pre-qualifying 45 bidders, including companies like Total, Siemens, and Acwa Power. Bids were received for this on 1st September, but it is unclear whether an award will be made before the scheduled elections in June 2021. Later in the year a Ministry advisor revealed plans for another 750 MW to be launched in the first quarter of 2020 57 , in line with plans for renewables to account for 20% of the generation mix by 2030. Encouraged by their home governments, Saudi Arabia’s Acwa Power and the UAE’s Amea Power proposed renewable energy projects in Iraq as part of 56. Yesar al-Maliki, 2020 57. Emiliano Bellini,“Iraq plans second 750 MW solar tender”, PV Magazine, November 27(2019) 22

Powering Iraq: Challenges facing the Electricity Sector in Iraq supporting the government and offsetting Iranian influence. Acwa Power proposed two 1 GW solar projects; one would be based in Saudi Arabia and export to Iraq at a tariff of USD 1.65/kWh, while the other would be in Iraq with a tariff of USD 6.5/kWh, reflecting the difference in business risk between both countries. Since then, Iraq has faced major turmoil, with several candidate prime ministers abandoning their posts after Abdel Mehdi resigned. Progress on renewable technologies has therefore been slow, with most projects still a pipe dream at this stage. Distributed solar power would seem to be an ideal initiative for Iraq, but opposition from the“generator mafia”, politicians with stakes in local diesel generators, and poor progress on electricity tariff reform, will keep this from transpiring anytime soon. Financial and economic constraints are often cited by political hardliners opposed to uptake of renewable projects, while structural constraints, such as a lack of legislative, executive, and relevant authorities, apart from the MoE, to encourage the production and use of renewable advanced technologies for energy production, will continue to contribute to the poor attractiveness of the sector. Technical challenges, such as grid extension and reinforcement, and limited local capabilities in unique renewable energy markets, such as firming, frequency regulation, and peak shaving, shall add to limited uptake. 23

8. A POSSIBLE WAY FORWARD 8. A POSSIBLE WAY FORWARD The Iraqi electricity situation is obviously highly challenging. The technical solutions are not particularly difficult; the problem is the lack of finance, government capability and political will. I t will be extremely difficult to make progress while electricity tariffs remain very low and mostly not collected. However, raising tariffs is problematic because customers are, not unreasonably, unwilling to pay while service remains so poor. In 2016, pilot projects were implemented in parts of Baghdad, including Zayouna and Yarmouk, that increased tariffs in return for guaranteeing supply. Consumption of electricity was reduced by 30% and collection rates improved 58 . But local politicians connected to generator operators campaigned for the pilot to be halted 59 . N eighbourhood generators provide 20% of power but charge 60-120 USD/kWh, while users in the top bracket of the state grid pay an average of around 0.8 USD/kWh 60 (see also Section 6), despite a top rate of about 12 USD/kWh. Iraqis paid about US$ 4 billion to private generators in 2018, as much as was allocated to the MoE’s capital budget. This creates a vicious circle which is extremely difficult to break: consumption at peak times is high because of T&D losses, low tariffs and inefficient equipment; the state system cannot meet demand, and has to be supplemented by generators; state bills are not paid because service is poor, enforcement is weak and generator operators resist reform; the Ministry of Electricity therefore cannot invest in new generation and T&D. The Al Kadhimi government will also have a short tenure, with the next elections meant to be held in June 2021. It can thus do little in the way of fundamental reforms, and has to be concerned with managing the current crisis and avoiding complete collapse. The situation should improve somewhat as Iraq comes out of the summer period and as the OPEC+ cuts are relaxed, increasing the amount of available associated gas. There are some emergency and short-term measures that could be taken to increase the amount of available power 61 , but they risk further entrenching barriers to reform. In terms of short- and medium-term actions to remedy the country’s electricity problem, the following actions should be priorities. The gas and electricity sectors are closely linked, and therefore gas sector improvement to provide fuel for power is a critical part of improved service. Nevertheless, there are some areas of electricity reform that could be made independently of changes in the gas sector. 58. Hashim Al-Rikabi,“An Assessment of Electricity Sector Reforms in Iraq”, Al-Bayan Center for Planning and Studies, 2017, http://www.bayancenter.org/en/wp-content/uploads/2017/09/909865676600.pdf 59. Salam Zidane,“Efforts to privatize electricity face resistance in Iraq”, Al-Monitor, March 12(2017), https:// www.al-monitor.com/pulse/originals/2017/03/electricity-iraq-private-najaf-general-electric.html 60. International Energy Agency,“Iraq’s Energy Sector: A Roadmap to a Brighter Future”, April 2019 61. Ali Al-Saffar,“Powering Iraq: Why Electricity is Key to Peace, Stability and Prosperity”, July 29(2020), https://1001iraqithoughts.com/2020/07/29/powering-iraq-why-electricity-is-key-to-peace-stability-andprosperity/ 24

Powering Iraq: Challenges facing the Electricity Sector in Iraq Gas Development: • Progress the negotiations with the Kurdistan region to purchase gas(and electricity). Because of the Kurdistan region’s budgetary crisis, there should be a possible win-win deal involving reinstatement of part of the region’s share of the federal budget. • Advance the development of new gas fields such as Mansuriyah and the fifthround fields(Akkas may be more costly and technically-challenging), as well as the associated gas capture schemes, and consider more attractive models that would give developers direct stakes in gas sales instead of service fees or revenue shares. • Refurbish/rehabilitate existing, dilapidated gas and gas-to-power infrastructure, as well as debottlenecking pipeline networks to improve connectivity to areas with large unused gas power capacities(middle and north Iraq). • Encourage transparency in exchanging energy information between the MoO and the MoE to support investment into developing natural gas resources for offtake by power plants. Historically the MoE has avoided assuming the risks of feedstock supply and requested power plant developers enter into separate supply agreements with the MoO, which is negative for international interest. 25

Electricity Reform Electricity Reform: 1. Privatisation& Tariff Reform • Find a solution to the political opposition to reform from the generator operators, who are backed by political parties. This could involve giving them stakes in local distribution companies which would receive electricity from the generators, state grid and distributed renewables, in return for regulated tariffs 62 . • Focus initially on providing reliable supply to large commercial and industrial establishments, which are easier to identify than residences, in return for full payment. • Revisit the tariff reform schemes trialled in 2016, guaranteeing good service in return for full payment at higher rates(but lower than those of the generator operators), with a“lifeline” rate for low-income, low-volume consumers. If these can be firmly established in pilot areas and then expanded, they can finance grid refurbishment and saving on some of the system’s massive losses. • Use the Kurdish experience as a benchmark for privatising the Federal power structure and improving tariff collection. The KRG entered its first power purchase agreement in 2007 with Mass Global, a private sector company owned by a Kurdish businessman for the development of the 500 MW Erbil power plant. Although the PPA was designed similarly to international standards, its terms were more favourable to the developer, resulting in two other PPA agreements with the same firm, encouraging exploration of institutional arrangements that could allow local, government-owned, or private companies to distribute electricity to customers, and collect tariffs. The Kurdish Ministry of Planning has also announced plans for establishing better systems for tariff collection, such as“smart grid” systems 63 , to which end it installed 41,000 new smart meters across Erbil in 2019. 2. Grid Reinforcement/Modernisation • Hand-in-hand with tariff reform, refurbish the distribution grids and metering, to improve collection and reduce faults and losses. This will improve service relatively quickly and at low cost. It can also create local employment if neighbourhood technicians can be trained. • Technical solutions could involve implementation of advanced metering infrastructure(AMI), medium voltage distribution(MVD) networks in theft-prone areas, and the introduction of energy audits up to the distribution transformers. These solutions were implemented by India’s North Delhi Power Limited(NDPL) company, helping it reduce T&D losses from over 50% in 2002, to 15% by 2009. • Move forward on the grid connections to the GCC, Jordan and Kurdistan region. This will also require grid reinforcement so that power entering southern Iraq can be moved north. The GCC and Kurdistan links should probably be priority given the shorter distances and their likely ability to provide power at more competitive prices. The Jordan interconnection, a deal for which was signed with General Electric(see Section 1), could also support predictable supply of power and achieve savings. 3. Encourage Renewable Energy Use • Expedite the current utility-scale solar power tenders, accepting that this will not achieve the very low prices bid in neighbouring countries such as the UAE, Saudi Arabia and Jordan. Iraq can bring down its solar 62. See a similar suggestion in Barik Schuber,“Main Policy Failures and the necessity of effective reforms of the Iraqi Power Sector”, Iraqi Economists Network, August 23(2020) 63. Ministry of Planning, Kurdistan Regional Government,“A Vision for the Future” 26

Powering Iraq: Challenges facing the Electricity Sector in Iraq power prices by establishing confidence in its contract model, scaling up the projects, and making use of international financial support where available. • Encourage more use of distributed and rooftop solar. Communities could be given a stake in projects, rebated on bills, to overcome opposition. Solar power installation would create local employment. Rooftop schemes could be compensated at a price based on the Ministry’s true cost of service, including losses, instead of the low retail rates. International organisations may be willing to offer concessionary financing to support such programmes. Smart‘pay as you go’ meters could be used to ensure collection. Distribution grid upgrades would be required to allow and meter bidirectional flow and manage variability. • Rehabilitate the existing hydroelectric facilities, which generate a maximum of about 867 MW from a nominal 1904 MW capacity. However this also depends on reliability of river flows. These policies will enjoy substantial international support and goodwill, and potentially financing. The aim has to be to move the electricity ministry to a point of being able to cover its costs, but this is a long=term endeavour. Privatisation of some parts of the electricity sector, including distribution, as well as more use of IPPs, is promising but encounters strong political opposition and accusations of corruption, often backed by vested interests. Ultimately, given its vast hydrocarbon and solar resources, Iraq’s gas and electricity problems are not technical or even economic in origin. The previous studies referred to in this paper have amply outlined the required improvements. The current economic and electricity crisis should give the necessary sense of urgency. The core challenge is to find the path to implement such improvements in Iraq’s dysfunctional political economy. 27

1. INTRODUCTION In June 2013, Iraq launched an Integrated National Energy Strategy(INES), and was confident that Iraqis would soon enjoy 24-hour power supply, as it unveiled plans to have generation capacity cross 20 GW by 2015 from 10-12 GW. 8 GW of new capacity was to be added to existing capacity, but by 2019, only 4 GW of this was realised, bringing total capacity to 16.5 GW, even though generation managed to reach 19 GW during peak periods. Part of the gap in demand is met by privatelyoperated generators, but these are expensive, noisy and polluting and generally do not provide enough electricity to run air-conditioning. Almost all marketed gas in Iraq is used for power. Most of current installed capacity is gas turbines(which can run on gas or diesel) and steam turbines(which can run on gas, diesel, fuel oil or crude oil). These are inefficient. The country has fewer than 10 more efficient combinedcycle gas turbines(CCGTs) currently, most running below capacity due to transmission constraints, breakdowns, and lack of fuel. Most of the new capacity being installed is higher-efficiency CCGTs (including conversions of existing plants). Also, over 40% of the current CCGTs are located in the central provinces. two-thirds of generated power is not paid for. About 23% of generated electricity is lost to illegal connections. Meters are often outdated or malfunctioning; about 80% of meters are more than 30 years old and some have never been recalibrated. Even customers who pay their bills are only covering about 10% of the real cost of electricity provision, making it impossible for the MoE to stand on a commercial basis. This requires continuing large budget transfers, with electricity subsidies costing about US$ 12 billion annually.Inefficient management and operation of the distribution sector is a key contributor to the issue, and a lackadaisical attitude towards subsidy reform, net metering, and privatisation compounds the issue. Al-Bayan Center for Planning and Studies 28