Keeping the Lights on in Baghdad: An Interview with Harry Istepanian

HI: I think the involvement of provinces in generation and distribution business will present a significant shift in the future role of the ministry and central government in general, however, the most critical aspects will be related to management practices and commercial operation of these assets by the local governments. I believe the local governments have considerable lack of experience in commercial business practices in power generation but are able to play a better role in operating the distribution network within their provinces especially in retail business. But, the shift to decentralizing distribution and retail operation along commercial lines will require significant restructuring of the sector’s operational and business practices by the Ministry and local governments to become commercially viable entities.

RT: In any nation, and in any reform of a big institution, there is the politics of the ideal and the politics of the possible. What are in your opinion the main possible changes to make to the national energy policy?

HI: The government needs to take a tough decision to cut down expenditures.The increasing demand for electricity is currently accompanied by a budget deficit of billions of dollars and the large government subsidies are making the situation even worse. In my opinion, the highest policy priority in the electricity sector should be to rebalance the structure of tariffs and realign prices with underlying costs over the next 5 – 10 years, in part to restore revenue adequacy and generate internal funds for capital investment. The logical place to address revenue shortfall is at the distribution end by creating retail companies separate from the distribution companies and subject them to price or revenue cap regulation.

RT: In 2010 the director of planning and studies department at the MOE said that “Iraq needs foreign expertise to implement its plans … the country will have a stable electricity supply by 2013, when its production capacity will reach approximately 12,000 MW, and this what Iraq effectively needs.” Up until the end of the program, the US Department of State-funded Iraqi Energy Reliability, Survivability, and Resiliency Program trained 90 Iraqi engineers at the MOE as a part of the Strategic Framework Agreement. How much foreign support is Iraq getting now, and how much is needed? Perhaps the US should restart this program, since both Maliki and Obama have mentioned the importance of transitioning to a civilian relationship between Iraq and the US.

HI: Since the end of withdrawal of US troops from Iraq in 2011, the involvement of US government agencies such as USAID has become less visible on the reconstruction of power sector. However, I believe the United States needs to continue working on developing the capacity building and institutional strengthening within the MoE including legislative and regulatory reform on operational matters and restructuring strategy based on the experience of similarly difficult circumstances to Iraq. The country will require the assistance of international organizations such as the World Bank in developing the skills for establishing definitive policies with clear strategic guidance, framework legislation and detailed regulations for the electricity sector, which are collectively impeding the private investment and competition in the future.

One of my criticisms to the draft Electricity Law is the absence of an independent regulatory body with responsibility for implementing policy for the electricity sector in a fair, open and transparent manner. Establishing such an institution will only encourage the private sector to compete with the MoE owned enterprises. This should improve the efficiency of the sector while balancing the interests of consumers against increasing demand, while maintaining the economic viability of the sector.

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