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Backing Iraq

Iraq's power and water infrastructure requires some serious investment

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TAQA's investment in the Sulaymaniyah power plant saw the company take a 50% stake in the 750 MW facility.
TAQA's investment in the Sulaymaniyah power plant saw the company take a 50% stake in the 750 MW facility.

Iraq’s power and water infrastructure requires some serious investment, promising a raft of opportunities for utilities firms willing to take the leap

Iraq seems to split opinion for much of the utilities industry. Many see the country as swimming with opportunities, whilst others suggest that there are still concerns over the investment environment and security situation that make other markets more appealing.

Either way, the need for investment is evident – in both wet infrastructure and power there are critical demands on tiring systems that require immediate and substantial investment.

Talking water

On the water front, Iraq has some considerable problems in terms of both ensuring water supplies and maintaining water quality.

A recent report by the International Organisation for Migration – Iraq (IOM-Iraq), titled “Water Scarcity”, found that 20% of Iraqi households currently use an unsafe drinking water source, with a further 16% reporting supply problems. In rural areas the situation is even more extreme, with 57% of households lacking access to safe drinking water.

Iraq relies far more heavily on surface water and groundwater supplies than much of the Middle East. On the supply side, this means it relies heavily on a few major rivers – principally the Tigris and Euphrates – to provide for much of its irrigation and household needs.

This is a risk, the IOM-Iraq report suggests, as it essentially means Iraq is relying on precipitation falling outside its borders for over half its water. Water storage projects and hydropower schemes in Turkey and Syria have also not helped its case.

At the same time, the country has been officially dealing with drought conditions since 2007, a situation that has not only depleted the rate of recharge for ground and surface water reserves, but has also forced sizeable numbers of rural citizens to relocate to urban areas and further strain supplies.

Water supplies are also stretched further by the widespread use of ‘flood irrigation’, a traditional method of agriculture that is an especial drain on supplies and also increases groundwater salinity levels.

Water quality issues are also a concern, with IOM-Iraq stating that “the quality of water used for drinking and agriculture in Iraq still violates Iraqi National Standards and WHO guidelines”.

Only 18% of the country’s wastewater is treated, whilst creaking infrastructure means that leaking sewage pipes and septic tanks can contaminate drinking water. An incomplete network also means that those not connected to the network must store water supplies in unsanitary facilities without access to water purification.

It is clear that there are immense challenges, which of course means that the prospects for operators in the water sector are numerous.

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With the country’s Ministry of Water Resources stating that it is focusing on issues such as improving the operation and maintenance of water control structures and pump stations, together with 2013 investment targets that include constructing 1500 water wells and rehabilitating networks, the potential tenders on offer seems set to increase.

This sentiment is echoed by Metito’s Moustafa Hasan, general manager of the water firm’s Iraq, Jordan and Syria operations.

“The market is very competitive, to the extent that several contractors are unable to complete their projects. International firms are still hesitant; however more presence may be witnessed in 2012.

“By all means, security is still a concern. However things are gradually improving. On the other hand, the advantage is that the market size and potential of the water and wastewater industry is quite big.

With population growth, the demand for building new water treatment plants rises and - coupled with the fact that the industry wasn’t an area of focus for the old regime – this demand becomes a necessity in most areas,” he says.

Metito are currently working on four surface water treatment plants in the country, with a cumulative capacity of around 200,000 m3/day. When completed, the firm says that the plants will provide safe drinking water for around 2.5 million Iraqis. At the same time, the company is “heavily involved” in treating domestic wastewater for governorates including Najaf, Karbala and Basra.

“Desalination and wastewater treatment have very high prospects in Iraq, and their demand will present solid opportunities for professional industry players in this market. Right now, the investment in the water sector is not as much of a hot topic as we would like it to be.
We would love to see a legal framework that allows investors to put equity into this vital sector, with clear legislation and support from the government,” Hasan explains.

Hasan says that his company has been active in the country since the 1960s, and is planning to continue bidding directly in governmental tenders. He also speaks highly of prospects in Iraq’s Kurdish region and suggests the market is particularly appealing for many companies.

“Kurdistan is considered to be a safe place and many companies from Europe, USA, Turkey, Iran and other regions are currently present there. This, in turn, makes the governorate a lot more competitive than other parts of Iraq.

With this in mind, selective bidding and further scrutiny of the technical requirements of such tenders is essential to ensure that the quality of services and products are up to the highest standards and are uncompromised in any way, whilst still being commercially attractive,” he concludes.

Power focus
For many, Iraq’s power sector is characterised by frequent power cuts. Recent figures for the country (excluding Kurdistan) showed that total output on June 1 of this year was just 5,429 MW, actually an improvement on the month before following the inauguration of the 160MW Taji power station.

Despite the increase, total capacity on the network still appears grimly short of peak demand, with some forecasts at the time expecting a summer peak of more than 13,000 MW.

More recent Ministry of Electricity figures for July – boosted partly by electricity imports and temporary power solutions – put output at around 8,000 MW – still some way short of summer demand peaks.

The result of this shortfall is an average supply of electricity to much of the country of between 8 and 12 hours per day, forcing much of Iraq to resort to temporary power solutions.
Some estimates have suggested that private – and, crucially, unregulated – electricity generation in the country now actually outstrips the country’s official power capacity, with many households forced to pay high prices to local generator companies.

There may be brighter times ahead however, with the Electricity Ministry stating that the country is still on course to increase output to 20,000 MW by the end of 2013. With three new power projects – located in central and southern Iraq – currently underway, there is clearly movement in the sector, whilst projects to boost grid coverage and efficiency are aimed at ensuring the supply remains more consistent.

As with the water sector, the situation in Kurdistan appears very different. In early August, the Prime Minister of the Kurdistan Regional Government (KRG), Nechirvan Barzani, claimed that Kurdistan was moving closer to being self sufficient in terms of fuel and electricity.

The reported statistics seem to reflect this, with the region currently producing nearly 2,000 MW of power, and providing residents with around 22 hours of electricity each day – a massive difference to Iraq’s average daily supply.

Demand is reportedly increasing by around 15% per year, yet the region’s appeal to outside investors seems to be largely meeting this demand. So much so, in fact, that the KRG’s electricity minister, Yasin Abu-Bakir, has stated that the region is now targeting a production increase to 6,000 MW by 2015, turning Kurdistan into a net exporter of power.

Much of the major power-related news over the last year has centred on the region too, with Mass Global Investments involved in many of the principle development. The group currently operates sites including the Erbil Power Plant, a 1,000 MW facility near the capital that is being upgraded to add a further 500 MW of capacity through a conversion to combined cycle operation.

Earlier this year MGI sold a 50% stake in the Sulaymaniyah Gas Power Station to Abu Dhabi National Energy Company (TAQA). Under the deal, TAQA took a 50% stake in the 750 MW plant, which is currently adding 250 MW of capacity, and has plans to eventually increase output further to 1500 MW.

TAQA Global Power and Water division’s executive officer Frank Perez said at the time of the deal that the company had been looking to invest in the country’s power sector for a while.

“This was the right deal, at the right time, in the right place. It fits into our strategy of careful expansion in our target markets. TAQA brings world class technical and operational expertise, and a proven track record in developing challenging power projects in demanding locations. This experience, together with our strategic focus on the MENA area, gives us the ability to deliver powerful power and water solutions into this growth area,” said Perez.

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Scrutinising Security

Fairly or otherwise, the question of security comes up whenever you talk about Iraq. Albine Horiot, Hart Security communications director, considers the risks and how to overcome them

“There are a multitude of opportunities for success in Iraq’s growing economy. To do business effectively in this environment, however, you need to think about reliable security.

Iraq is a post-conflict zone that retains elements of risk that businesses have to address to be successful and operate safely there. Companies need to protect their assets, including their people and their reputations. Potential incidents range from newsworthy, high-profile events to situations that can occur in any large city in the world.

Going to a business meeting in Iraq may mean using a protective vehicle and security guards. You could travel in a motorcade of several armoured cars or in another arrangement in accordance with your company’s Health and Safety policy.

Your protection will probably be in the hands of a security team from a registered security company. These teams usually comprise highly experienced ex-military personnel from Iraq and other countries, and they are often armed.

Using their detailed knowledge of the local area and potential risks, they will brief you on what to expect en-route, what to do in an emergency situation and, of course, ensure you can conduct your business in the safest possible manner.

Your safety can depend on the experience and professionalism of your security provider. We have been in Iraq since 2003 and have worked with many clients – from government and from the engineering and oil & gas sectors.

We put our success down to the continuous training of our staff and our ability to listen to what our clients want. We are there to enable our clients, not to hinder them, and for this, flexibility is key.

Hart is a member of the International Stability Operations Association (ISOA) and is a signatory of the International Code of Conduct (ICoC) for private security companies, ensuring ethical operations guided by the Geneva Convention, Lautenberg Agreement and Montreaux Document.

Iraq is a tremendous place to do business. The economic environment is thriving and many international companies are helping develop vital infrastructure. Consider you security carefully to protect you and your brand. With the right protection, your focus will be safely on your business.”

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The Legal View

Khaled Saqqaf, head of Al Tamimi’s Iraq & Jordan office, gives us a lawyer’s view on the Iraqi market

“The Iraqi market is expanding at a significant pace; in particular, as the security situation continues to stabilise in Iraq, foreign investors are looking at establishing and expanding in the region.

Iraq rests on one of the largest oil and natural gas reserves worldwide, and there are a number of projects currently being undertaken to make use of said resources.

Renewed interest in such projects is expected to have a positive impact on Iraq’s economy, not only as a result of the revenues to be generated from the oil and gas sector, but also as a result of the economic spill-over effect of such projects on other sectors, including banking and finance, energy, housing and the like.

Furthermore, the Iraqi government is committed to re-building Iraq, and has issued a number of measures to encourage the same, including the adoption of Investment Law No.13 of 2006 which provides various incentives and guarantees to potential investors with a particular focus on infrastructure projects.

Nonetheless, there are a number of challenges to operating in a country like Iraq. For us, one of the major challenges faced is keeping up-to-date with changes to the legal regime. The Iraqi government is to be applauded for its commitment to re-forming the Iraqi legal framework to better accommodate for modern advances. The difficulty, however, lies in the fact that such changes often take the form of Ministerial orders or decrees, rather than a complete overhaul of the current framework.

The consequent result is that the relevant authorities often struggle in making proper adjustments to account for such orders, while at the same time complying with the main governing law.

In addition, security remains a challenge to operating in Iraq; though significantly less so in recent years.”

A year in Iraq…
The last year has seen Iraq’s utilities sector power ahead with a plethora of projects. UME tracks some of the key deals announced over the last year

- Sept 2011 : GE agrees massive deal with Mass Global to maintain 18 GE gas turbines installed in Kurdistan.
- Dec 2011 : Iraq agrees $72m contract for 320MW upgrade of Kirkuk power plant.
- Jan 2012 : Iran announces plans to build a pipeline to transfer gas to Iraq to supply country’s power plants.
- Mar 2012 : Metito nets $9m deal to improve Iraq’s water infrastructure.
- April 2012 : TAQA acquires stake in 1,000MW gas-fired power plant in Iraq’s Kurdish region.
- May 2012: 160MW Taji power plant begins production.
- June 2012 : Iraq launches new $220m Missan power plant with 200MW output.

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