On Iraq Power, And Power Politics: MEES Interview with Luay al-Khatteeb

Luay al-Khatteeb, Iraq’s Electricity minister until earlier this month, this week spoke exclusively to MEES* about his time in office and the myriad challenges still faced by Iraq and its power sector. Below is a lightly-edited transcript.


Q: Thanks for making time to chat with MEES, are you enjoying post-ministerial life?


A: I’m claiming back myself, my freedom, and everything else! I’m literally claiming back my sanity because it was a rollercoaster. It was a painful experience. Being an independent senior official in a difficult environment like Iraq is almost mission impossible, but nonetheless I had the honor to serve my country and people regardless of the hardship.


Q: In many ways though also a successful one


A: I am very proud of that. It was the first time in Iraq since the Iran-Iraq War [1980-1988] that Basra had 24/7 electricity, which we achieved last year – and a better power supply more generally. Up until 27 April we had 24/7 electricity in most of the cities. Every year on 28 April there are attacks – including on transmission lines – to commemorate Saddam Hussein’s birthday. But I’m out of office now and I would hope the security situation improves under the new government.


Q: Let’s start with a technical overview of the achievements the Ministry of Electricity made under your leadership [October 2018 – April 2020]


A: Sure. Historically speaking, in 2003 the power supply was 3GW on the dawn of regime change – 5GW nameplate, and 3GW operational. The nameplate capacity has since grown to 30GW including 5GW destroyed by ISIS and 5GW of wear and tear capacity, and out of this we’ve managed to reach 19.27GW of actual peak generation. Peak demand in summer is around 25GW. In other times of year demand is much lower.


When I assumed my role as minister, the recorded peak supply was 15.8GW. During our 18 months we managed to successfully deliver a supply of 19.27GW, which means we added around 3.5GW of electricity. This 3.5GW is basically from the rehabilitation of old units, improving supply efficiency from certain stations, and adding new units and power stations.


Additionally, we added significant capacity to the transmission lines and extended the distribution system in the liberated areas – so for the first time since the 2014 Daesh [Islamic State] insurgency we have managed to restore electricity to the affected provinces. That was a big milestone.


Q: What was your strategy in achieving this?


A: Our strategy was to identify all the halted projects in power generation, transmission and distribution and make a checklist to deliver all of these on a fast-track program. We did all this in spite of the fact that the 2019 budget was only released in late-April last year. We focused on fostering a synergy between the public sector, state-owned companies and the private sector to move things forward. We streamlined the contractual requirements in order to simplify the logistics of project completion.


In parallel, I went to Germany prior to the Prime Minister’s visit to figure out a way forward on the ‘roadmap’, what we would need from Siemens, and to streamline our aspirations. I then sat with GE and some Chinese companies, specifically CMEC, to see how they could help them progress. This was all in 1Q 2019.


We finalized the major deal in Berlin with Siemens on 30 April [MEES, 3 May 2019], and also brought in GE to work on the components of transmission, and some of the generation – specifically grid work in Western Iraq and the liberated areas. That was a sizeable contract, some $727mn, a two-three-year program.


[Chinese state firm] CMEC was brought in to finish the 1.26GW thermal station in Salahuddin province, and this will hopefully come online toward the end of this year. GE will also bring [two] 500MW gas-to-power stations into service this summer [increased to 750MW in phase-2], in the provinces of Dhi Qar and Samawa. So we have just over 2GW entering this year, between summer and the end of the year – and there is also 320MW to be added in Kirkuk on top of that.


Additional capacity is very close to exceeding 20GW.


Q: What about the non-conventional electricity sources the ministry was pursuing?


A: Had our government had time to carry out the 3-4 year timeframe, we would have achieved 26-27GW of electricity at a minimum, and this does not even include the potential 1.5-2GW of electricity of renewables we were planning.


The 755MW solar farm initiative was to be done on an independent power purchasing (IPP) basis with the first bid round to launch in the first week of October last year. But it went downhill when the protests began [MEES, 11 October 2019]. Everything was pushed until further notice. Another 1,000MW was to be launched in 1Q 2020 but everything is now postponed for the new government to follow up. The plans are ready, the bid rounds are ready.


The previous renewables plan proposed by my predecessor was completely unrealistic. What I did was to liberalize the tariff; the previous administrations restricted foreign investors…nobody will come in and bid on a 3.5¢/kWh scenario. I abolished the feed-in tariff and invited multinationals to compete on a level playing field, and we attracted great names – from Acwa Power, to Total, Siemens, some Chinese companies and so on. All are now ready to enter and compete. Based on this strategy, by 2030 Iraq will generate 20% of its power through renewables.


We prepared all the ingredients in the kitchen, and now the new administration needs to just come in and cook with them.


Q: And on regional power purchasing?


A: In addition to all of this, we were also working on diversifying our dependence on power imports and interconnectivity. We signed with the GCCIA [Gulf Cooperation Council Interconnection Authority] to import 1GW via Kuwait to Basra [MEES, 13 September 2019]. There is also another 200MW from Jordan, but that interconnectivity agreement is not signed. It’s ready to be signed, but when we became a caretaker government [with the resignation of former prime minister Adil Abd al-Mahdi last November] we did not have the authority to sign it. This new government should sign it.


We are also in negotiations with Saudi Arabia separately to import from the Jordan-Saudi Arabia-Iraq corridor for western Iraq. But that is still under negotiation. With Turkey we just need to sign, but that is for the new government as well. On top of this we also completed a successful synchronization with Iran’s grid.


The idea is that, for the short term, these deals will enable Iraq to diversify its import options and create a competitive market. In the long-term, the goal is to make Iraq an energy hub for wheeling electricity and creating a rewarding utility market.


These are the key highlights of what we did in the 11-12 months we had before the protests hit and forced us into a caretaker administration. Like I said, it is the first time in Iraq’s history that so many parts of the country experienced 24/7 power supply – particularly a city as important as Basra.


Q: Was there any effort to progress on the subsidies issue?


A: Today, the real problem in Iraq is that subsidies of electricity are so high that consumers enjoy a 90% subsidy and this is just not sustainable. That’s the real reason why government spending is so high on the sector. To give you an idea, in recent years the Iraqi government has paid some $12bn per annum on behalf of the people. This includes subsidized fuel for power generation and unpaid tariffs. A consumer in the UK or US who was paying $0.12/kWh would pay nothing in Iraq, for context.


Q: Ultimately who is responsible for that? Is that the Ministry of Electricity’s responsibility?


A: Good question. I tried to initiate a complete removal of the subsidies and I made it very clear to Prime Minister Abd al-Mahdi and the cabinet in January 2019 that for Iraq to move forward sustainably we have to remove the subsidy. To tell you the truth, even though electricity supply that year was exceptionally good, we still had a 6GW deficit. That deficit is entirely down to the misuse and abuse of the national grid.


If the consumer was paying the full-rate for electricity, 19-20GW would be more than enough. Fatih Birol of the IEA said during his recent presentation on Iraq that even 18GW of electricity is enough to provide 24/7 electricity during peak demand. So basically, it is all about the subsidy issue.


Did I have the authority to remove the subsidies? The answer is no. As a minister, all we can do is submit a report and recommendation. Such action requires cabinet approval and support from parliament – by support I mean not encouraging people to riot and protest. Thirdly, it requires acceptance from the people: they need to agree that this is ultimately the way forward. And even if Iraq may have been able to meet this $12bn need in previous years, in the current situation it certainly is not moving forward. If the new ministry can meet last summer’s power generation figures, under the present circumstances I would consider that a best-case scenario.


Q: Based on what exactly?


A: We have to look at the big picture. We have 7-10% year-on-year demand growth. Peak demand this summer will reach around 27.5GW. This is due to many factors: population growth, the uncontrollable and unregulated expansion of buildings, and illegal usage. We have 4 million registered power consumers in Iraq. But the same number again illegally tap into the network. Additionally, one million squatters on top of registered end-users thrive on power piracy and pay nothing.


This is why we need cabinet approval, parliamentary support, and popular acceptance of this new reality in order to tackle the problem. I can understand subsidies for those in need, those under the poverty line, but it doesn’t make sense for everyone. The Social Security Department should handle this and get the money to the right people rather than a blanket subsidy for all power consumption. And this subsidy could be funded through the profit margin made on electricity sales, if the system were rationalized. We aren’t a charity, we are a service provider and the people need to pay for that service.


Once people begin paying the right price, energy efficient buildings and appliances suddenly become much more feasible.


Q: It’s obviously early days, but have you had any indication of how your successor plans to proceed at the Electricity Ministry?


A: Well I passed on my recommendations to them, including the provision to sign the interconnectivity agreements with Jordan and Turkey which could be finalized in just two weeks. Power could be delivered by the GCCIA in six-eight months; 20-24 months with Jordan; the separate Saudi deal needs a year.


Q: When we spoke in Baghdad last February [MEES, 15 February 2019], you bemoaned the fact that you were spending most of your time in front of parliament getting grilled. How did you manage to cope with the political pressure of your job?


A: The biggest difficulty of being a minister is the constant political pressure from parties, MPs and so on. Frankly speaking, it was a nightmare and I’m filing lawsuits against the people who came after me. There was an entire defamation campaign attacking my family, my reputation, everything. It’s very difficult water to navigate.


Q: So this will continue to occupy you going forward?


A: Of course! I need to clear my name from all these defamations. I’m spending my salary as minister in court filing lawsuits against these guys. It’s a rough game.


Q: How did being more of a technocratic minister without a political support base affect your administration?


A: I never enjoyed any support from any of the political parties during my time in office. On the one hand that’s good, it allowed me to be completely independent. But on the other hand, the parties and big power brokers couldn’t care less about the ministry’s success. They want their cuts from these projects, from EPCs or whatever. And I made their lives very difficult in this system. I had to put serious security measures in place and the proper regulations to push forward these projects without being financially compromised.


Ask yourself, how did we succeed in adding the capacity we did and finalizing the projects we did. It’s because these projects were already in place and had never been executed. Many of these go back all the way to 2010. Why did they take that long? Certain parties chasing contractors for kickbacks. This compromised all of these projects. In just ten months we executed these projects, meaning what was delayed for ten years could be implemented in ten months.


Q: Obviously the problems with corruption and resistance aren’t unique to Iraq, or even the region. Can you go into more detail about your tactics and strategy for advancing reforms in such an environment to shed more light on this public administration issue?


A: To cut the long story short, I went to the Energy Council within the cabinet and I told them “if you don’t give me full executive authority to bypass some of the bureaucracy, I can’t do my job.” You see, the bureaucratic process is very sophisticated here in Iraq. If we go by the book, projects will never be implemented. And by the way, all these little bureaucratic institutions are filled with political parties looking for kickbacks, which delays any progress. This is what we call the ‘deep state’.


The consequences of this are particularly strong for the electricity ministry because historically it’s been a highly politicized ministry with a lot of corruption.


So I had to take shortcuts. I got special executive decision-making powers and I could circumvent a lot of these institutions. The last thing I wanted to do was spend 2019 chasing paperwork and following up to see if things were moving forward. So I instead focused on delivering projects on the ground, and in parallel to that, we had a checklist of priorities which helped us fast-track bids and invitations for projects, moving forward very quickly.


Q: Will that approach be inherited by the new cabinet and ministry?


A: I have no idea. It’s the cabinet’s call now – whether they want to renew this process or not. The new minister was one of the technically competent director generals, not one of my deputies or senior advisors though, so I cannot say with certainty if the approach will be the same – but I’m confident he will do his best.


Q: We’re also curious about the constraints of working under Washington’s Iran sanctions waiver program. How did this affect your job?


A: When I became minister one of the first meetings I had was with the US ambassador to Iraq along with a delegation from Washington, DC. They kept talking about energy independence, self-sufficiency, imports from here and there, gas-to-power, and so on. I told them “listen, I couldn’t care less about whether this megawatt or that gas molecule comes from Iran, or Saudi Arabia, or Turkey.” What really matters to me is: 1) it’s a competitive offer; 2) the volumes are available; 3) I can get it now. So I asked them, “If I go to Saudi Arabia, do they have surplus gas? No. Do they have surplus electricity? Yes. Can they deliver it now? No.”


It was extremely difficult to negotiate with the GCC players as well. It took me so much time to negotiate a formula to purchase power from GCCIA for 15% lower than the Iran deal. And now the Iran contract is expiring and the ministry is renegotiating that, and Iran could be offering a much more competitive contract than what’s available. It’s a free market!


Q: So the GCCIA deal was cheaper than the initial Iran agreement?


A: Sure, but with this renewal with Iran, it may not be. The original Iran contract was around 8.5/kWh, so the plan is to bring the new price either to the 15% lower GCCIA price, or even below that. It should be finalized this month or next month.


And this is just talking electricity. On gas, there is no alternative except Iran. What else is there, LNG? LNG is much more expensive than the Iranian formula via pipelines.


Q: On the renewable basis of the waiver, how much did you have to sell the Americans on progress? Because it seemed from the outside that every 45-60 days there is uncertainty on whether an extension will be granted.


A: We made this very clear to the Americans. When we talk about electricity, gas and energy security, we are talking about a 3-4 year rehabilitation program. So whether they want to come every 30, 45, 60, or 120 days to remind us about this same narrative… please remember we need 3-4 years, a supported government with full executive authority, the right market conditions and the right financial situation to do what’s necessary.


20% of our national grid was completely destroyed by Daesh, 25% of power generation capacity was completely destroyed by Daesh – and this takes years to fix. It doesn’t happen in months, so these monthly waivers are just meaningless to us.


And we are just the ministry of electricity. The oil ministry also needs to do what it needs to do on the gas front. They need to develop the fields and improve gas capture to supply us with feedstock. And also improve the network of compressors, processing plants, pipeline capacity, and so forth. All this requires billions of dollars, and at least three years.


Q: You’ve previously spoken about this – combining oil and electricity under one ministry to better tackle these integrated challenges.


A: Yes, there is also the institutional dimension of it. To have two separate ministries both operating the energy portfolio is very challenging. Iraq needs to unify them into one energy portfolio.


Q: How would you rate your cooperation with the oil ministry?


A: It’s hard to make a proper assessment. I enjoy a very friendly relationship with [former Oil Minister] Thamir al-Ghadhban, and that goes way back many years. But I cannot make any kind of assessment because our work was cut short. We were just given 11 months before the protests started and the rest is history. We could have done much better work had we been able to stay and complete the mission.


The new minister of oil will have his work cut out. We have an oil ministry experiencing a vacuum of leadership at the top level, and the current acting minister is the Finance Minister himself, although a superb and capable man, his hands are full. He will look into the contracts and financial aspects, but leave the technicalities to the deputies and DGs. So it’ll depend on how cooperative all these elements are in addressing some of the needs presented by the current financial crisis.


Q: And in terms of the financial crisis, how do you see that affecting the electricity sector?


A: I made it very clear to the government: if we don’t implement tariff reform now – like now, literally now – and enforce the rule of law on power piracy and increasing collections so our collectors aren’t attacked, then you can forget about any sustainability.


Q: Lastly, I’m just curious about your thoughts on linking up KRG gas fields with federal Iraq.

A: This is under discussion [MEES, 24 April], and this is a solution that could be completed within 12 months. It’s very possible and the best option for Iraq right now to fill the supply deficits by increasing cooperation at a federal level.


*Interview conducted by Iraq Editor Waylon Fairbanks on 11 May. See (MEES, 15 May) for related analysis. Originally published here.