Iraq Far From U.S. Goals for Energy

$50 Billion Needed To Meet Demand

By Dana Hedgpeth
Washington Post Staff Writer
Sunday, September 2, 2007; A01

Iraq's crucial oil and electricity sectors still need roughly $50 billion to meet demand, analysts and officials say, even after the United States has poured more than $6 billion into them over more than four years.

Since the U.S. invasion of Iraq in 2003, the Bush administration has focused much of its $44.5 billion reconstruction plan on oil and electricity. Now, with the U.S.-led reconstruction phase nearing its close, Iraq will need to spend $27 billion more for its electrical system and $20 billion to $30 billion for oil infrastructure, according to estimates the Government Accountability Office collected from Iraqi and U.S. officials.

Even with the funding, the GAO notes that it could take until 2015 for Iraq to produce 6 million barrels of oil a day and have enough electricity to meet demand. A commanding general of the Army Corps of Engineers says it could have enough electricity sooner -- 2010 to 2013.

"The U.S. money was intended to get those industries started on recovery," said Stuart W. Bowen Jr., the U.S. special inspector general for Iraq reconstruction, who is charged with finding waste, fraud and abuse in the multibillion-dollar effort. "We were working with a dilapidated, run-down system. It still has a long, long way to go."

A former top-level Pentagon official who was involved in rebuilding the oil and electricity sectors put it more bluntly. "People said the money was to rebuild the country, but it was just a down payment," said the official, who spoke on condition of anonymity because he still works for the government. "The money was never enough to handle all that was there. It was merely a Band-Aid."

If the problems aren't fixed, it will be difficult to establish a strong economy and improve the standards of living, and could cause people to lose confidence in the government.

Oil and electricity are two of Iraq's most important industries, each depending heavily on the other. Iraq imports about $2.6 billion worth of petroleum products a year. Oil exports account for 90 percent of the Iraqi government's revenue, but oil production is crippled without enough electricity for refineries and pipelines. Electricity, in turn, cannot be generated without the fuel that powers most of Iraq's power plants.

U.S. officials say they found the country's infrastructure in worse shape than they expected, hit hard by the Persian Gulf War of 1990-91 and a decade of economic sanctions. Oil wells hadn't been cleaned. Power plants had antiquated equipment and no parts available for repairs. One U.S. auditor said he spent a day with 22 Iraqi electrical engineers who proudly showed him how they jury-rigged a generator using the sawed-off bottom of a Pepsi can.

The Americans put $4.6 billion into more than 2,600 projects to repair electricity-generation facilities, transmission lines and distribution networks. They put $1.75 billion into improving the country's oil infrastructure.

Another huge problem: Armed groups regularly attack oil and electricity facilities.

Analysts say Iraq needs to invest money to improve its infrastructure for pumping and processing oil, upgrade and maintain equipment, and train workers at power plants and refineries. One U.S. adviser said, "They need more of everything."

"Our piece was to jump-start the infrastructure here," Brig. Gen. Michael J. Walsh, commanding general of the Army Corps of Engineers' Gulf Region Division, said in a telephone interview from Baghdad. "Everything we've been doing in the last four years was just enough to start it. Now the Iraqi government needs to continue."
Distribution of Power

Iraq does not have enough electricity partly because Iraqis now consume more of it.

After the fall of Saddam Hussein, electricity demand soared 70 percent, as more Iraqis bought computers, televisions, refrigerators and air conditioners. Officials say the country now needs about 10,000 megawatts per day but it is producing only 4,110 megawatts -- although some days in August it has reached nearly 5,000 megawatts.

Although Hussein supplied Baghdad with nearly 24 hours of electricity a day and starved the provinces, the U.S.-led reconstruction has aimed to spread power more evenly throughout the country. Baghdad has six to eight hours of electricity, while the rest of Iraq gets about 13 hours a day.

Electricity Ministry officials control the flow of electricity from huge power plants in the north and south, often using cellphones to call regional officials and order them to manually flip switches. Local officials often refuse to follow orders because their lives have been threatened by armed groups, Electricity Minister Karim Wahid said at a recent news briefing in Baghdad. At night, he said, when power stations in rural areas are empty, armed groups take over the switches.

Nor is everyone sharing power. "Some provinces only supply the power to their citizens and isolate Baghdad," he said. "This greatly affected the equal distribution of power throughout Iraq."

Another problem is that insurgents regularly blow up the towers that support transmission lines. On one major line between Kirkuk and Diyala, U.S. officials say, damaged towers have been down for more than a year.

Attacks have taken a huge toll on people as well as infrastructure. Wahid said he lost more than 1,000 Electricity Ministry employees this year, mostly engineers working on repair teams. Four hundred were kidnapped and killed; 300 were injured and 300 were kidnapped, he said.

The lack of security has pushed many U.S. contractors off the job. Bechtel, a California contractor that was paid $1.5 billion to take on electricity projects, said it pulled its workers off jobs repairing electrical substations near Baghdad last year.

"The risk was just too high," said Bill Shoaf, program director of Bechtel's work in Iraq. "The insurgents and militia activity there just didn't allow us to do it."
Infrastructure Obstacles

Even if security improved enough to make infrastructure advances possible, Wahid says another big problem is that Iraq's oil refineries don't make enough fuel to run the country's power plants. Imported fuel has not been enough because power plants are competing with average Iraqis trying to run at-home generators.

U.S. officials say about 1,500 megawatts of power -- enough for well over a half-million homes and businesses -- are down at power plants across the country simply because they don't have enough fuel.

That problem stems partly from the unintended consequences of a U.S. reconstruction policy aimed at updating Iraq's aging infrastructure.

The United States spent millions of dollars on 35 turbines built to run on natural gas, replacing older thermal units that burned heavy fuel oil. Turbines are used to help generate electricity. Natural gas is cleaner and the gas-powered were easier to get and could be installed faster.

But while natural gas is an abundant by-product of Iraqi oil drilling, very little of it is captured. Instead, at Iraq's 52 gas-oil separation plants, the valuable gas is treated as a waste product -- ignited and allowed to burn off.

"The Americans came in and looked at their 1970s power plants and said, 'Throw it all out. Let's start over,' " said Joseph A. Christoff, director of the GAO's international affairs and trade teams who spent time recently with a group of two-dozen Iraqi engineers who talked about their experiences. "The Iraqi engineers were just shocked. . . . They felt they had no input in dealing with the electricity problems."

With little access to natural gas, Iraqis turned to running some of the newly installed gas turbines on diesel, crude or heavy fuel, causing them to break down faster and need more maintenance.

"It's like putting regular gas in a car that needs high-test," said Walsh, the commanding general for the Army Corps. "It's still going to run, but not as efficiently."

These days, inspectors say, 16 of the gas turbines the United States put in are running on crude oil or diesel, which could reduce their output by half. At the Qudas power plant, four of the eight gas turbines are down because they haven't been well-maintained and there's a lack of fuel to run them.

The electricity minister said he is developing a long-term plan to improve the electricity situation -- the first time in 30 years there has been any strategic planning for the sector. Wahid said the Planning Ministry has agreed to spend $40 million a year over the next four years to increase the electricity generated at major power plants, including crucial ones in the northern town of Baiji and Baghdad's Dora district -- where the United States has already spent millions.

But U.S. officials say there needs to be more coordination between the electricity and oil ministries and that the oil ministry lacks clear plans. Without a long-term program for turning around the oil industry and legislation that determines how Iraq's oil revenue would be divided, overseas companies won't invest in Iraq, and that could cost it substantial investment dollars.

"We've tried to help them, but we didn't," said Robert E. Ebel, energy expert and senior adviser at the Washington-based Center for Strategic and International Studies. "We thought they'd quickly take over and get production back up, but it hasn't happened. You'll be lucky if it comes back this decade."