Transcript: Electricity
Iraq Sectoral Conferences - Third Series
September 4, 2003
MR. GUY: Good afternoon. My name is Jim Guy, and I'm on the Iraq Management Team here in Washington, supporting the people in the field in the power sector, trying to rehabilitate the power sector for the benefit of the Iraqi people. Mr. Wherry, the Senior Advisor, was supposed to be here first - will be here later, I suspect, to assist me in this presentation. I would like to do 15 minutes of presentation and open the door for questions from people from the floor here. This is about the fifth one I've been to. I see a lot of friends in the audience, people that I've worked with here before.
Let me first tell you about the program that USAID has in Iraq focusing on the power sector in particular. We have been, since, I guess, late April, implementing a $1.8 billion program of reconstruction and humanitarian assistance in Iraq. We've focused on many areas, including power, but including health and reconstruction, education, and democratization.
While USAID is the primary U.S. Government participant, we're not the only ones working in Iraq. But our work is primarily being focused in the power sector at the moment because that is the most urgent need that has been identified throughout the past month. We're working with Bechtel, as most of you know, as our principal contractor for infrastructure. We're also working with the Air Force Contract Augmentation Program, so-called AFCAP. AFCAP is a--it's an agency that helps procure equipment and supplies for USAID.
Other U.S. Government contractors are Army Corps of Engineers; the CPA, which most of you know is the Coalition Provisional Authority, which has direct oversight over all the operation in Iraq at the moment; the UNDP is also involved in Iraq in the power sector; and as well as the Iraqis themselves. In fact, the Iraqis are the principal players in terms of manpower and resources in Iraq.
The Army Corps of Engineers is assisting USAID in helping to manage the Bechtel contract as well as providing assistance directly to the CPA.
The UNDP has been in Iraq since the early 1990s, working on the Oil for Food Program, and are now participating with USAID and CPA in providing much needed materials and supplies for the power sector. In fact, much of their material was purchased and has been sitting in warehouses in neighboring countries for the last two years because they couldn't get it into the country. We're now working to get that material released into Iraq for use there.
Under the Bechtel contract, we've allocated $259 million for their work in the power sector alone, and under AFCAP, $75 million has been allocated for the power sector. Those numbers are subject to change as we go through the process of rehabilitating the power sector.
But the most important player is probably the Iraqi Commission on Electricity. They are the organization which runs the power sector from the Iraqi point of view, and we are heavily engaged with the commission on everything that we do in Iraq. In fact, most of the manpower is provided by them. Bechtel is providing the equipment and supplies and materials and expertise, but the work is being done by Iraqis, principally. That has been the case for the last three months there.
The total staff of the commission is over 40,000 people, and they're all on the job working in Iraq. They're being paid for by the CPA, so we're funding them with salaries as well. But it's not U.S. Government-funded salaries. It is being funded by the Authority in Iraq.
Let me talk about the goals we've set when we started the power sector rehabilitation. The problem is we didn't know what we'd find when we got there. We assumed that the power sector was old because of the lack of work in the last ten years there. We couldn't have imagined how bad it was until we saw it firsthand. It has been not rehabilitated for years. It's been left to totally be diminished in its capability in almost all aspects--generator station, transmission lines, distribution circuitry.
We didn't know how much damage also that Saddam would do to the infrastructure out of just a scorched-earth policy. We think very little was done by his regime to damage it purposely. There was enough damage done by neglect rather than direct action. But in spite of not knowing anything, we still set goals and policies when we went into the country. We had immediate goals, six-month goals, and 12-month goals in our contract.
The immediate goal was to establish power to the critical infrastructure needs--water sanitation, food supply, hospitals, clinics, grain mills, seaports, and airports. And that was done very quickly. The six-month goal was to restore power to 40 percent of the population who had it before, and the 12-month goal was to restore it to 75 percent of those who had it previously.
But our achievements, really we've achieved more than we thought we would achieve in our four months in the country. Almost every Iraqi that had power prior to the war has power now, so we've gotten 100 percent coverage of what we had before.
Now, the question is: How much power do they get? It's not do they get it at all.
The Energy Commission established a policy of what one might call sharing the pain, but since we're sharing the power, we've allocated three hours on, three hours off throughout the country. So people are not getting power continuously, but they're getting power part of the time, and on, hopefully, a fairly predictable schedule rather than on one which is random and haphazard.
So our goals set for us have been established, and then some, over the last four months. But the problem is that people expect us to be miracle workers when we come into a country. They have very high expectations for the U.S. to get everything done in a matter of weeks, and the fact is it was not possible to get everything they wanted done in a matter of the time they asked for it, given the condition of the power sector when we arrived there and given the degree of looting and terrorism and sabotage that has taken place since we've been there. I think no one anticipated the degree which it would take place, the looting or the power sector. It's been on a scale no one could have imagined, certainly not us.
Let me talk to you briefly about some of our goals. Over here on this map, you can see [inaudible] every day, [inaudible] up until yesterday. There is really not steady progression upward, although there have been obviously some ups and downs. [inaudible] here [inaudible] megawatts [inaudible]. Now we're down here again. So the units are so bad condition they keep breaking. We fix them, and then they break again.
In fact, there was a fire yesterday at a power station near Basra due to the fact that the cables had all inside the conduit [inaudible] over, so we lost the power station for two weeks, probably. It's just the maintenance has been so poorly done over the years that you can't keep all the problems solved at the same time, it seems. So we're gaining ground on a progressive basis, but we still have losses from time to time, as you can see from that chart over there.
We have a goal now to get 4,400 megawatts by the 1st of October, and we're working very aggressively to get to that goal. And we're hopeful that we can make. There are always unforeseen events that you can't anticipate which could take place to prevent that from happening. But we are shooting for that goal, which is the pre-war level of capacity within Iraq.
Let me put it in context, the power supply situation over the last 12 years in Iraq. In 1992, the capacity on an average basis was 5,570 megawatts available in Iraq that was generated in 1992. And just before the war, it was 4,400 megawatts. So nothing happened, but it just deteriorated over that time due to lack of maintenance and lack of repair.
But over the same time period, the actual consumption increased from 18 billion kilowatt hours to 34 billion kilowatt hours. So the same--less plant was generating more kilowatt hours, which means that those plants were working harder and had less down time for maintenance. So you're getting more energy out of them, but you have less time--but you have less capacity. So it's exacerbated the problem of lack of capacity.
We're working actively to repair existing facilities. That's really the shortest lead time for new--for getting capacity online rather than new capacity. The problem--one of the problems we're having, among other problems, is the lack of fuel supply, and that's related, of course, to the power supply. It's this tremendous chicken-and-egg problem. You need the power to run the refineries. You need the refineries to provide the fuel to the power stations. So trying to break that spiral, you have to get the power stations up and running first, and then get the refineries working.
At the present time, the Department of Defense is working to install power generators at each of the refining operations in Iraq so they'll have an independent power supply, not be dependent on the grid for the fuel supply. That will relieve the connection between fuel and the grid power supply.
I was mentioning this issue of the fuel. Most of you probably know that natural gas is a primary fuel for power stations in Iraq--and in the U.S., for that matter. The natural gas in Iraq is in the same well with the oil. It's co-produced, so you have to separate out the gas from the oil at gas-oil separation plants.
The problem is it takes a certain amount of oil to get enough gas to do that. We think about two million barrels a day of production will give enough natural gas to fire all the gas power stations in Iraq. They've been averaging 1.7 million recently per day of oil production, so they're still a little bit below the threshold we need to get enough gas produced to run all the power stations.
Then there's the problem of the gas pipelines. In recent years, Saddam Hussein has ordered them to pump wet natural gas in these gas power plants, which probably some-- (?) and the pipelines are damaged by that. So the pipelines are very fragile and causing a lack of operating pressure and also throughput is too low. So the pipeline system is just as bad off as the power system is. USAID is not involved in the gas pipeline system. U.S. DOD is involved through their contractors.
I have to go to a point which all of you are aware of, and that's the problem of security in Iraq. Since we arrived in Iraq in April and started to see the power system, we saw most of the damage that has taken place has taken place since then. The U.S. Government deliberately did not destroy power stations, and very little damage to the transmission system, but the Iraqis did that for themselves. But it was not the Iraqi people in general who did it. The looting and the sabotage was not done by people who were desperate for food or just on the street. It was an organized criminal activity. It took large resources to tear down transmission towers, get the copper cut up, get to smelters, and get it overseas, across the borders the next day. This was a criminal activity. It was not small-scale looting by people who were just hungry. So it's taken a long time for us to deal with that.
The current approach to that is to deny them access to markets so they can't sell it anywhere. If they can't sell it, then they can't very well tear it down. That's the military's approach to that solution.
When we first arrived in Iraq, we went by a power line--this line over here, from Basra to [inaudible], and there were like--I think there were 30 towers down at that time. [inaudible] a month later, and a hundred towers were down. The fact is, as of last Friday, 600 towers were down throughout the country, all over the country. So it's not a problem which has diminished as yet. So we're working very hard, but it's hard to provide security out in the middle of the desert. You can pretty well defend power stations and substations because they're nice discrete units. It's hard to defend it out in the country where it's out in the desert.
What we're doing in that regard, the military is doing, is hiring and training an Iraqi power police force. Over a thousand have been trained, and more are scheduled to be trained. Additionally, they're working with the local tribal leaders in the desert areas to get them to provide security as well in their respective territorial areas.
It was a particularly damaging issue back on July 23rd. I think [inaudible] started to go down. This line from--we had in Iraq an excess of power in the South. We were shipping power up here into the Baghdad area, the [inaudible] area. This line was destroyed so we could not get power exported. The red here--I'm sorry, the red means the line's out of service. The green means it's in service. The yellow-orange is partly in service. The [inaudible] line here was torn down. [inaudible] lines out of the South were torn down. So no power could be exported into the Baghdad area.
So we're now working quickly to try to get--at least the Iraqis are, to rebuild this [inaudible] here so power can be exported into the northern parts of Iraq.
What they did was--and you may recall this, that the riots took place when we couldn't get power into here. At the same time the same--the same week, almost, saboteurs destroyed all the power lines into the Basra refinery, the biggest refinery in Iraq. So we had no power supply into that refinery. The refinery had to shut down, creating a shortage of fuel for the citizens of Basra. I'm sure you recall the rioting that took place in Basra towards the end of--the middle of August. We're working very hard now to get that refinery back in operation. The military is buying equipment to power that refinery independently of the grid. And that really creates a situation where we have fuel for the people of the southern part of Iraq plus provide power supply fuels for the power plants in that part of the country.
Let me speak briefly to our plans for the future, both immediate and longer term. We have a renewed emphasis on the power supply in Iraq, and we're trying very hard to achieve the pre-war capacity of 4,400 megawatts by the end of September. And we have a very detailed plan to do that. It involves repairing some existing gas turbines that were there, which have not run because they had some minor--minor problems. Those are being repaired as we speak using a contractor who built them from India, PHEL.
We're also adding a hundred megawatts of diesel plants for the area in and around Baghdad at each one of the water pumping stations, which will have two benefits: it will provide a steady power supply to the water plants, allowing much higher water supply to the citizens of Iraq, of Baghdad; as well, about a hundred megawatts to the grid. So it's a dual benefit adding these diesel generators, and those are basically on order now and should be in place within weeks from now.
We're also going to repair 270 megawatts of existing diesel fire generation which is at various locations throughout Iraq, located near grain storage facilities. Those have been there. They needed some minor repairs also. So that's an ongoing project of USAID.
And, finally, the biggest contributing factor will be getting natural gas to all these power stations, and the U.S. Corps of Engineers is working with the military to get--make natural gas available to all the power stations that use them.
We're looking at 4,400 megawatts by the end of this month, and the long-range plan is 6,000 megawatts by next summer. That, we think, is the estimated peak demand for power in Iraq, about 6,000 megawatts, but no one knows for sure. But we think that's the estimated peak demand.
We're working on another issue of trying to establish an Iraqi electricity regulatory authority for the long run. There is none that fit that need at this point in time. So we are doing that as well through a different contractor, Bering(?) Point, who is our economic governance contractor in Iraq.
The problem with trying to commercialize the sector is that the income levels are so low in Iraq that they cannot afford to pay for electricity at commercial rates. They'll require a sustainable and significant subsidy for some time until the income levels will support commercial power supply and process.
In conclusion, I'd say we've made lots of great strides. We haven't done all we'd like to have done. We're always trying to do more because the people of Iraq expect us to do that, and we expect to help them to achieve a higher standard of living through more electricity. But, still, the challenges of underinvestment in the past and lack of maintenance in the past make the job more difficult. But we still hope to achieve our goals in the next month and in the next 12 months, and we're working hard to do that.
I'm open to questions now from anyone. Yes, sir? Please, yes, sir. Thank you.
QUESTION: My name's Kerry Hoolihan (ph) with the Shaw Group. Could you clarify the numbers, that is, what is unallocated in terms of the power sector under the Bechtel contract? And, secondly, the power gen sets at the refineries and grain storage, have all those been spoken for in terms of U.S. companies that would be supplying those power gen sets?
Thank you.
MR. GUY: First of all, let me answer the question about the silos. They're already in place. They were there before. They were not operational. In terms of the power supply, the refineries, that is being done by the DOD through their contract with KBR, (?) Rio. We're not providing funding for that.
And the first question was allocation of monies?
QUESTION: Unallocated portions under the Bechtel contract, if there are any funds available.
MR. GUY: All the funds are allocated to existing or planned task orders at this moment.
Anyone else? Yes, sir, please.
QUESTION: Charles Denton.
MS. GUY: Could you please identify where you're from as well?
QUESTION: Yes, Power(?) East. My question for you is: In closing the gap between 4,400 megawatts and 6,000, is there a specific plan for actually closing that gap over the next 12 months?
MR. GUY: Yes, there is. Some of it is repairing old facilities, like the Duer (ph) power station is being repaired. Also, we're putting in some new gas turbines in and around Baghdad. Most of it's repair of (?) that have been burned or broken. There was an explosion at a plant down in Basra about a month ago. That will be replaced. Those kind of--most of it's going to be repairs to existing plant, not new plant particularly.
Any more questions? Yes, please.
QUESTION: Josh Chapman from the Financial Times. How realistic is it to achieve these goals given the security situation? It seems that anything you do could be--anything you repair could either be stolen or blown up sort of the next day. I mean, is that the biggest kind of X factor in getting where you need to be?
MR. GUY: Well, it's clearly a factor. That's why we're providing all the security guards. We're training other guards to protect the infrastructure facilities, including the power sector.
It is an issue, and we have to deal with that issue. So we have to just make sure we provide people to take care of that security. It does exist. You have to--it is there. It's not something you can run from.
QUESTION: How--sorry.
MR. GUY: Go ahead, please.
QUESTION: I was going to say, how many more--in terms of resources to provide security, how many more people would you need? How much would it cost? And who would--would you provide that or would the military, or would that go under--would that be Bechtel's responsibility?
MR. GUY: I think it's all of the above. Some people--the military is there, of course, in large--in large part. Bechtel is providing some security under their contract from USAID. But the military is the company largely responsible for security. They know that's their role to do that.
QUESTION: But it sounds like there aren't sufficient people to guard these transmission lines or what have you across the country.
MR. GUY: There's all this training of people to do that. They are being trained for that purpose. The power police, the so-called, to guard those infrastructure facilities.
Yes?
QUESTION: You said you were--you said you were putting up gas turbines around--additional gas turbines around Baghdad. Are those going to be private sector? Are they going to be public sector? Who will own those? And you said there's a big subsidy, there was a considerable subsidy. What's the--any idea of what it actually costs to generate power over there? I'd just be curious.
MR. GUY: The first question, those will be owned by the Iraqi people. Those gas turbines will be funded by USAID and owned by the Iraqi people eventually.
In terms of the subsidy, in the past it was a high--a very high subsidy, maybe almost like--almost like free in some cases. What the actual cost of production is, it's hard to know, as you know, what the cost of fuels are. It's--it's a very amorphous kind of thing, what things cost in terms of production.
Oil production is very cheap. Oil processing is very high. So it's hard to say what the cost of production--we don't know--we have not done any analysis of the cost because the numbers aren't known at this point. Yes?
QUESTION: Diane Monroe, Middle East Economic Survey. The Wall Street Journal reported last week that the government is considering an additional $2 billion in funding for electricity and power supplies and water for Iraq. Within the next they're going to announce it. Has USAID--and this time around they're supposed to have an open bidding process. Has USAID made any plans for this?
MR. GUY: Not that I'm aware of at this moment. Ross, would you like to answer that question? You show up, you have to work.
MR. WHERRY: You're doing a good job.
Okay. The question was related to whether or not there are further plans or further money that would be invested in electricity and other infrastructure in Iraq?
QUESTION: Yes.
MR. WHERRY: We know that--we know that the needs for additional electric infrastructure in Iraq are substantial. One of the things, as Jim was telling you, that we got in there and we found out that the power plants were in a lot tougher shape than we had been led to believe, working from the secondary sources that were available to us. And we found out that the Iraqis trashed the place. Things--areas that we had not expected to be looted were indeed looted, and things that we didn't know where the secondary market for them were, they got taken and sold.
So the money that we had didn't go as far as we thought it could, and you can see from the way that the graph jumps up and down there, each time the graph comes down, that generally represents some sort of a major problem at one or another generating facility. So, yes, we're going to have to do more than we had thought.
There's a great deal of discussion within the U.S. Government, and some of it you've seen in the press. I think it was on the front page of the Post this morning that additional funds are being talked about. The question for us is: What is the appropriate role for taxpayer dollars in such a--such an additional appropriation? How much of your money and mine should be sent over there to work on those, to repair those facilities? How much of it should be arranged through an eventual private sector investment? And what kinds of frameworks and commercial operations would be necessary in order to cause that investment to be profitable?
A great deal of that sort of thing hasn't been decided yet. We know, however, that in order to have a stable country, both politically and socially, you've got to have the lights on 24/7. If we're going to have a growing economy in a country like Iraq, you're going to have to have electricity 24/7, or you can't run the factory. You can't refrigerate or freeze. Many of the other things that economic growth depends on couldn't happen.
So we expect that we're going to be involved in some way, and probably fairly soon, because the money that we have put forward so far has been put to work, and it's not been enough.
QUESTION: That's what I was curious about, allocating [inaudible] Bechtel's pretty much gone for most of it. I mean, they clearly must have had a plan when they budgeted [inaudible]. So how much of that is [inaudible] an additional $2 billion or somewhat less than that. It's a significant amount. There must be some kind of [inaudible] repairing gas turbines here, you know, this amount. There must be a working plan for this volume of $2 billion.
MR. WHERRY: I can tell you what AID's plan was. There are other people and other plans, and you'll have to talk to them. But for USAID, what we came into was the requirement that electrical service would have to be restored as quickly as possible. So we're looking at how do you repair the electrical generation and transmission infrastructure, concentrating on the 400 and the 132 kilovolt lines. Those are the ones where you actually service the most people rather than the small--the smaller lines. And, indeed, the Iraqis have an indigenous capacity to repair the smaller lines themselves.
For us, what we are looking--what we have been looking at and what--when we came into the country after the conflict was officially ended, we said, okay, what can we do to get electricity up online as quickly as we can? And, indeed, you can see from the graph we were relatively successful in the first three weeks. It came up--well, I guess I better say the first six weeks. It came up pretty quickly, and then the trend leveled off. And as we went through and inventoried power plants, what works, what doesn't, is the fuel supply regular, what kind of hidden difficulties do we face--because the Iraqis have been very clever about being able to repair power plants and other parts of infrastructure, even during the time of the sanctions, when sometimes the promised supplies did not come from the central government.
We're very proud of the spike that happened last week. That was 400 megawatts. Then they blew a boiler, and it came back down. So we're in the process of repairing the boiler.
Our plan was to make the repairs and get as much power back online as we could. What we found out is that it was a tougher job than we had originally planned on. The infrastructure was in a more difficult condition. We're not going to build new capacity because there you're talking about a billion dollars a throw for a new generation station. And that's something that we don't see as AID's role.
What we're looking at is continued repair. We're looking at point sources of electrical generation. For instance, we're bringing in a number of generators into Baghdad and putting them as what we in the United States would call back-up power for water pumps in the public system. Now, they won't be back-up power. They'll run 12 hours a day, because during the time that the grid is off for the three hours, then those generators will be the primary source. And if we can run them for several more hours, then we get the benefit for additional power that's left in the grid. So we're doing that--those are also easier to guard. Point security is easier than something called linear security where you'd have to go along the entire power line.
So we came into it with the idea that we're going to repair, we're not going to build new. Building new is for the private sector or for a sovereign government that would be able to borrow against sovereign risk.
QUESTION: Just to follow on to the previous question, this new round of funding and new work, this $2 billion, whatever that figure might be, will this be open bidding by U.S. contractors for that? Or would this simply be an extension of the Bechtel contract?
MR. WHERRY: The best answer to that was to refer you to the website called FedBizOpps, where we expect tomorrow to publish our intention to do a full and open competition for additional--for additional infrastructure work. A substantial portion of that infrastructure is likely to be electricity, and we don't have a lot of details on it because they're still working that in Baghdad. But it will be--the next big contract for infrastructure will be full and open.
One of the things, however, that we are evaluating--and this is a political discussion more than a technical discussion--is what needs to be done now, what needs to be done quickly in order to get more electricity flowing, because the social and political stability of the country does depend in part on the ability for electricity to flow regularly and for more electricity to flow. And in dealing with the requirement for a politically stable and safer Iraq, where fewer Americans are targeted, where fewer Iraqis are targeted, then we will have to look at is there anything that's required between now and the time that that full and open competition would be awarded, which would be between now and, say, the end of November, something like that.
Any further questions? Anybody wake up?
Okay, good. I was supposed to be here at the beginning, and I wasn't, so I'll put in the advertisement now. We're going to do one of these a week for the next about eight weeks on different topics. Please look at the website and see what's there. If there are things of interest, please come. And we expect to be posting as much information as we can on the website because we think that our piece of reconstruction is generally accomplishing what we intended it to do, and we would like you all and the public that you talk to to know that.
I think we are done. The press lady is outside, so those of you that are press, if you wish to stay, this concludes the public portion of our presentation.
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