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By Chris Bowers, British Consul General in Erbil. This article was originally published by Rudaw, and is re-published with permission by Iraq Business News.

Let me start by asking a question: why is gas less talked about than oil in Iraq? I am not sure why this is the case but it does seem to be true. In fact, the development of Kurdistan’s huge gas reserves is vital to energy security in Kurdistan, Iraq, the region and beyond. I am proud to say that UK energy companies are playing an important role in this.

Kurdistan is blessed twofold on gas: firstly on reserves, and secondly in its proximity to growing markets for that gas; markets that won’t wait. There is a growing and urgent demand for gas-powered electricity in Kurdistan’s neighbouring provinces. Iraqi gas should, of course, first be used to satisfy domestic demand and is great to see KRG reaching out to neighbouring provinces. This is an excellent example of Kurdish and Arab interests coinciding exactly and to the benefit of everyone.

Once domestic demand is sated, the second and growing market is Turkey. Turkey’s booming economy needs a significant amount of extra power every year. Naturally, much of that can be fuelled by Iraqi gas from Kurdistan.

Cementing the recent progress on Turkey-Kurdistan relations through deepened energy co-operation makes obvious strategic and more importantly economic and business sense. Turkey is a great market for Kurdistan and Europe as a whole has an interest in Turkey sustaining its strong economic growth.

But, Europe also has a broad interest in Iraqi gas from Kurdistan. There is a gas shortage in Europe and the gap between supply and demand is likely to increase in the long run. Gas is better for the climate than coal, is less costly initially than most forms of renewable energy and less controversial than nuclear.

Bloomberg reports that Iran has agreed to supply 1.5 million liters a day (9,400 barrels), of gasoil to Iraq over the next 12 months for power generation.

Masaab Serri, spokesman for the Iraqi Electricity Ministry, said in an interview that the fuel will enable power plants to generate 250 megawatts, according to the agreement signed by officials from the neighboring countries in Baghdad. The gasoil will be transported by truck and sold at international prices, he said.

Iraq, holder of the world’s fifth-largest crude reserves, is seeking fuel to meet domestic demand. The nation’s refineries at Doura [Dora, Daura] in Baghdad, in the northern city of Baiji [Bayji], and in the southern region of Basra, have a combined capacity of about 700,000 barrels a day.

In practice, they process less crude than that because of wartime damage and are unable to meet the domestic demand of about 600,000 barrels a day, according to a U.S. Energy Department report.

(Source: Bloomberg)

Lanco Infratech Ltd. (LANCI) of India signed an $81.3 million contract to build a gas-fired, 250-MW power station in western Iraq.

Masaab Serri, an Electricity Ministry spokesman, told Bloomberg that the company is scheduled to build the plant within 16 months in Al-Qaim, in Anbar province in western Iraq, using natural gas from the nearby Akkas field, which the Iraqi government has recently awarded to Korea Gas Corp (KOGAS).

The country sought bids this year to build more than 60 generation plants to add more than 14,000 megawatts to the national grid. Iraq currently produces 7,000 megawatts and imports 1,000 megawatts while domestic demand totals about 14,000 megawatts, Iraqi Electricity Minister Raad Shallal said in April.

(Sources: Dow Jones, Bloomberg)

Iraq’s Prime Minister, Nouri al-Maliki, has said on Sunday that his government can’t solve the country’s electricity supply problems without the help of private investment companies, reports Aswat al-Iraq.

“The government is unable to increase the electric power alone, without the help of investing companies, and we have information that several businessmen wish to invest in the electricity sector,” Maliki told a meeting of the leaders of the Independent Commissions.

He said that “investors have demanded protection by the security forces ... adding that they demanded their supply with power and we gave such promise, demanded fuel and the Oil Ministry’s Undersecretary had given such commitment; but the problem, facing the sector are high prices ... if we allocate all the State budget, it won’t cover the wages of the investing companies.”

Maliki said that over the past 7 years Iraq had paid $10.5 billion [13 trillion Iraqi dinars] to companies investing in electric power sector, to secure an output of 2,500 Megawatts.

(Source: Aswat al-Iraq)

Iraq's core annual inflation rose to 6.3 percent in May from 6.1 percent in April, a senior official at the Central Bank of Iraq told Reuters on Sunday.

The agency reports that the figure is driven by the cost of imported goods and services, especially healthcare.

Inflation had previously risen from 5.5% in February to 5.7% in March due rising electricity prices.

(Sources: Reuters, AKnews)

The exiled former head of the Trade Bank of Iraq (TBI), Hussein Al-Uzri [Hussein al-Azri], has denied allegations of corruption and mis-management in a telephone interview with Reuters.

"It's about control of this bank," the U.S.-educated banker, aged 48, told the news agency in his first media interview since fleeing Iraq. "Having control of the bank gives them control of substantial assets and they can basically utilize it."

For his own security, he did not want to say from which country he was speaking.

A top Maliki aide, cabinet general secretary Ali al-Alaq, has said authorities moved against the bank because its leadership was suspected of violating banking regulations and issuing improperly secured loans. Alaq said the irregular practices had cost the country "millions of dollars."

But Sir Claude Hankes, a British adviser to TBI’s board, has written an open letter to Iraqi President Jalal Talabani saying that the charges are simply a political ploy to give Prime Minister Nouri Al-Malik control of the bank.

The full text of Sir Claude's letter follows:

According to a report from Bloomberg, the $130 million [150 billion Iraqi dinar] contract to build a 500-megawatt power station in central Iraq has been won by the Baghdad Company for Gas Turbines Ltd.

The privately owned company was founded in 1993, and re-registered in 2003.

The company is scheduled to build the natural-gas fired power plant within 18 months in Haidariya in the Najaf region, Electricity Ministry spokesman Masaab Serri told the news agency.

The other five bidders for the project were South Korea's Hyundai Engineering & Construction Co., Metka SA (METTK) of Greece, Turkey's Enka Insaat & Sanayi AS, Lanco Infratech Ltd. (LANCI) of India and one unidentified Jordanian company.

AKnews reports that the plant will consist of four 125 MW turbines.

(Sources: Bloomberg, AKnews, Baghdad Company for Gas Turbines Ltd)

The Iraqi government energy committee decided to cancel plans for the construction of four power plants to boost power-generation capacity by 2,750 megawatts, according to Bloomberg.

The bids were for a 1,250-megawatt plant near Basra, and three 500-megawatt plants in the cities of Samawa, Diwaniya and Amara.

“These proved to be non-profitable for the Electricity Ministry, as the tenders were for building and operating the stations,” Electricity Ministry spokesman Masaab Serri said.

“We are studying the possibility of issuing new tenders just for their construction.”

(Sources: Bloomberg)

Overview

Levels of violence rose in Iraq last week, making it the worst recorded by AKE since the national elections were held in March 2010. There were over 90 separate attacks documented, mainly in Baghdad and the districts surrounding it, although the southern city of Basrah also saw a rare suicide attack, potentially conducted by an al-Qaeda affiliated group such as the Islamic State of Iraq. The same group may be responsible for a similar style of suicide attack on a provincial council building in Diyala province on 14 June, although investigations are ongoing and at the time of writing an official claim of responsibility has not yet been made. The majority of victims and targets of the latest spate of attacks have been the Iraqi police, the Iraqi government and its various devolved entities (such as the provincial councils) and the US military. US forces have experienced a notable rise in attacks over recent weeks with a number of troops having been killed in targeted attacks. This rise in targeting may be aimed at pressuring Washington into adhering to its 31 December withdrawal deadline.

Violence continues to rise in Iraq

North

The north was relatively quiet last week, with no incidents reported in Kurdistan, and a decline in militant activity around Kirkuk. Mosul on the other hand saw a rise in attacks, with a number of bombings and targeted shootings. A series of bodies were also recovered scattered around the city, usually from unrelated, opportunistic attacks, potentially related to failed kidnap for ransom attempts, although civilians continue to be murdered for reasons of community intimidation and even in order to take revenge on the family members of suspected al-Qaeda militants.

Centre

Protests are likely to become a more common occurrence in urbanised parts of the central region over the course of the summer. Many residents are going to be frustrated by the slow progress of the government’s reconstruction plans and the lack of tangible progress in electricity provision. Although work is certainly being done to improve the output of the sector it is going to take many months for output to increase sufficiently.

Many are also upset at possible plans to extend the mandate of the US military beyond the current 31 December mandate of the Status Of Forces Agreement (SOFA). As discussion on the withdrawal continues there has been a rise in the number of attacks against US troops in recent weeks, with a number of American soldiers killed in recent bombings and indirect fire (rocket and mortar) attacks, primarily in Baghdad and provinces to the south of the capital. Baghdad saw a large number of attacks last week, although most of the bombs were relatively small devices, usually incurring injuries rather than large numbers of fatalities. At present it is targeted shootings which are causing the majority of the deaths in the city, particularly amongst the police and mid-level civic employees.

On 14 June terrorists attacked a provincial government building in Ba’qubah, Diyala province. Five suicide bombers gained access to the facility, killing at least eight people and injuring over 20 more. The incident will likely be claimed by the Islamic State of Iraq, which has conducted similar attacks in recent months. It remains a highly relevant threat group, despite the killing of key leadership figures over recent months.

South

While the south of Iraq remains far quieter than the central provinces, a notable suicide attack in the city of Basrah serves as a reminder that conditions are not entirely safe in the region. Further information on this specific attack is available in the Iraq Business News article here. Otherwise, there have been a scattering of roadside bombs and indirect fire attacks over recent weeks in the southern provinces, primarily targeting US military interests such as bases and convoys.

John Drake is a senior risk consultant with AKE, a British private security firm working in Iraq from before 2003. Further details on the company can be found here while AKE’s intelligence and political risk website Global IntAKE can be accessed here.

You can obtain a free trial of AKE’s intelligence reports here.
You can also follow John Drake on twitter here.

The Iraqi government has approved only $927 million [1.1 billion Iraqi dinars] in the 2011 budget to tackle the electricity shortage in the country.

In February, the Ministry of Electricity had demanded $6 billion (6.99 trillion Dinars) to resolve the energy crisis. On top of that an investment of between $3 billion and $4 billion (3.5 trillion to 4.7 trillion Dinars) a year would be needed, a ministry spokesperson said then.

AKnews reports that the cabinet of Prime Minister Nuri al-Mailiki decided yesterday to spend only 16 percent of what was originally demanded for electricity projects, such as the installment of gas turbines that were purchased from General Electric and Siemens in 2008.

The government hopes to add up to 9,000 megawatts of electricity to the nation’s grid with these turbines.

With temperatures often soaring over 50 degrees Celsius during the summer months, demand for electricity in Iraq during this period is estimated at around 14,000 MW.

According to government figures, the energy currently available to Iraq stands at around 9,000 MW.

The provision of adequate electricity supplies was a central point of contention in the wave of public protests that swept through the Iraqi provinces in recent months.

In 2010, several civilians were killed in clashes with the police when angry protestors took to the streets to demonstrate against the government as national electricity supplies left them with just four hours of power a day.

Former Electricity Minister Karim Washid was forced to step down due to mounting public pressure.

Iraq’s acute shortage of electricity is the result of damage and neglect of its generating plants and power lines during more than three decades of economic sanctions, successive wars and more recently, targeting by insurgent groups.

(Sources: AKnews, Aswat al-Iraq)