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Iraq takes cautious steps toward privatizing electricity sector

With the increasing power cuts in Iraq, calls are mounting to expand privatization as a permanent solution.
Iraq electrical wires

While most of the capital Baghdad and other southern governorates are experiencing power outages 90% of the time, the neighborhoods of Zayouna, Yarmouk and al-Harthiya in Baghdad governorate, where electrical services is fully privatized, have uninterrupted electricity. The discrepancy has gotten people talking about privatizing the entire power sector in Iraq.

While analysts believe the solution to the power outages lies in privatization, outgoing Electricity Minister Majed Hantoush warns that privatizing electricity will cost citizens one million dinars per month.

Opposition to electricity privatization emerged during the time when former Prime Minister Haider al-Abadi was still in office. In a speech Dec. 6, 2017, Abadi said, “The parties that are inciting the public against electricity privatization are the rich, who do not pay and consume two-thirds of public power consumption.”

When Mustafa al-Khadimi became prime minister, the first steps toward privatization began, with the selling of power plants in al-Basra Governorate on Jan. 28 to private companies.

Parliament member Zahra al-Bajari told Al-Monitor, “Article 47 of the 2021 budget allows the government to sell state assets in order to consolidate resources. This means that power plants, which were established with public money, can also be sold.”

On Oct. 30, 2020, Harry Istepanian, a a senior fellow at the Iraq Energy Institute, for wrote for the Washington-based Atlantic Council Research Institute calling on the Iraqi government to accelerate the privatization of the power distribution sector and put an end to the government institutions’ monopoly of the sector in order to improve services for citizens, noting that the Khadimi government has a detailed plan for developing the sector. 

Mazhar Mohammed Salih, economic adviser to Khadimi, told Al-Monitor, “The Electricity Ministry, with its current centralized structure of managing power production, transmission and distribution, is the weakest in the history of energy management in Iraq.”

He called for the establishment of an “entity that would work based on the market and be more aware of managing electricity affairs, changing the management style to a new ownership and system that is close to the philosophy of the private sector.”

Salih suggested “separating the power distribution and tax collection from the government administration and allocating these tasks to public or joint-stock companies, and give priority to shareholders in the energy sector.” 

He went, “This should be a gradual transition of the energy production and distribution sector to private companies, according to the amended Public Companies Law no. 22 of 1997. The central government’s work will be limited to the regulation of energy policies. The decentralized authorities would manage the production, transmission and distribution of electricity according to market rules.” 

Amjad al-Uqabi, a member of the Iraqi Parliament’s Energy Committee, told Al-Monitor, “The Electricity Ministry is responsible for the failure of privatization experiments during Abadi’s era because it did not provide the requirements for the success of the project and did not take measures to modernize the dilapidated distribution networks.” 

Abadi said in a 2017 speech, “Privatization was successful in areas in Baghdad, which received power 24/7 at a cost that was satisfactory to the citizens.” He added, “The first obstacle in the way of privatization … is the distribution networks for which the Electricity Ministry bears the responsibility.”

However, the head of the Iraqi National Business Council, Daoud Abed Zayer, told Al-Monitor, “Privatization projects under Abadi were a failure, and there were many  political, social and parliamentary objections that the concluded contracts lacked transparency, competition and professionalism.” 

Abd Zayer added that there were “projects to produce more than 10,000 kilowatts … and the government was obligated to pay between $5 to $7 billion annually, for a period of 20 years, at a time when the Electricity Ministry budget stood at about $3 billion.”

“The tax collection department at the Electricity Ministry is a failure. It concluded contracts with bad companies that stole the tax money and did not hand it over to the state,” he added.

Abd Zayer continued, “The Iraqi National Business Council is proposing to the government a company specialized in renewable energy. … The company with the lowest production cost would be the one to supply the distribution network with energy.” 

“Urban planning in new cities must have networks that are independent from the national power network ​and provide power through renewable energy. The Electricity Ministry is unable to find a solution to the energy shortage problem due to administrative and legal problems and contracts providing for payment for 20 years — an amount that the state does not possess,” he added. 

Iraqis in Zayouna, Yarmouk and al-Harithiya have been sharing positive messages about the privatization of electricity, as they have had power 24 hours a day and no longer need private generators.

Writer Hussein Ali al-Hamdani told Al-Monitor, “Citizens are now relying on the private sector to provide them with more than 80% of their power needs with private generators,” explaining that the provision of electricity is already privatized on a small scale.

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