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May 1, 2019 | 21:15 GMT

3 mins read

Iraq: Baghdad Looks to Germany's Siemens to Help It Improve Its Electricity Supply

(Stratfor)
The Big Picture

Unreliable electricity supplies have hampered Iraq's reconstruction efforts since the U.S.-led invasion in 2003. An agreement signed April 30 with Siemens to boost its power generation capabilities will help Iraq slowly diversify its electricity sources away from Iran and reduce protests driven by chronic brownouts and blackouts.

What Happened

Iraq has approved a deal with Germany-based Siemens to upgrade its dilapidated power sector and build electricity projects. The deal, which could be worth at least $14 billion, was announced April 30 while Iraqi Prime Minister Adel Abdul-Mahdi was in Germany for a meeting with German Chancellor Angela Merkel. The Iraqi-Siemens "road map" to restore and boost Iraq's electricity supply "includes the addition of new and highly-efficient power generation capacity, rehabilitation and upgrade of existing plants and the expansion of transmission and distribution networks," Siemens said in a statement.

Why It Matters

Upgrading Iraq's power sector is a clear objective of Abdul-Mahdi's government. The country has suffered from rolling blackouts and unpredictable electricity generation since the U.S.-led invasion in 2003 — with damage exacerbated by the fight to retake parts of the country captured by the Islamic State in 2014. The frequent outages have impeded Iraq's economy and prompted recurring protests. To improve its power generation, Iraq plans to spend $14 billion on repairs and new power generation plants. Its road map agreement with Siemens envisions boosting the country's power supply by 50 percent and covers an initial phase valued at $785 billion that involves constructing a 500-megawatt gas-fired power plant in Zubaidiyah, about 70 kilometers (45 miles) south of Baghdad. The agreement also requires Siemens to build a health clinic, train Iraqi workers and donate software to Iraqi universities.

Between direct electricity imports and imports of the natural gas used in its power plants, imports from Iran account for about a third of Iraq's overall electricity generation capacity.

In addition, the United States has been pressuring Iraq to reduce its energy imports from Iran. Between direct electricity imports and imports of the natural gas used in its power plants, imports from Iran account for about a third of Iraq's overall electricity generation capacity. While the United States gave Iraq another 90-day waiver in March to continue importing energy from Iran, it made continued waivers dependent on Baghdad approving a long-term road map to reduce imports from Iran. Signing agreements like the one with Siemens is a part of charting that course.

That said, the United States may not be entirely happy with Iraq. The Trump administration had lobbied Baghdad to select General Electric as the main contractor of its plan to repair and build power generation projects, and last fall the White House thought it had been successful in its efforts. But deepening partnerships with the United States is increasingly controversial in Baghdad; in that light, the selection of a European company is not a surprise. Though Siemens looks likely to win many of Iraq's electricity contracts, $14 billion is a lot of money to spread around and Iraq could still reach agreements with GE on other electricity projects.

Background

Iraq's electricity capacity falls well short of meeting increasing demand. Its struggles to provide adequate levels of power have hampered its economic progress and led to widespread unrest, especially in the southern city of Basra. And its reliance on Iranian imports to help it generate and supply its electricity has aggravated its relationship with Washington.

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