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Iraqi Kurdistan Energy Crisis Threatens
Investment
20.1.2007
By Fazil Najeeb in Erbil (ICR No. 209, 20-Jan-07)
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Investors in Iraqi Kurdistan say escalating fuel
costs are trying their patience.
January 20, 2007
Since the fall of the Saddam, foreign investors have
flocked to Kurdistan and Iraq’s northern provinces
thanks to the north’s relative safety - but business
development even in these relatively safe parts of
the country is fraught with problems.
Like other parts of the country, foreign and Iraqi
investors alike are plagued by power outages. State
energy plants only provide electricity for a few
hours per day - even in Kurdistan’s capital, Erbil -
and shortages force business to buy expensive
fuel-powered generators.
But the problems don’t end there because fuel is
itself in short supply and rising demand means that
it has become prohibitively expensive.
Some investors warn they will lose profits and be
forced to leave Kurdistan if power cuts persist and
fuel prices continue to rise.
Zewar Alknach, head of a Kurdish branch of a Turkish
construction company known as Renas, said generator
fuel for their three offices and a construction site
comes to more than 5000 US dollars a month. The
government, he complained, should grant subsidies
for such costs.
Yassein Sheikh Qadir, owner of another construction
company based in Erbil, warns that if the energy
crisis continues there may be little point in doing
business in the area.
"Building costs have already increased 20 per cent
due to high fuel prices,” he said. “If they…increase
further, we will reach a stage where construction is
not profitable anymore."
Qadir said profit from a current project was already
less than he expected, though he was not prepared to
say what this amounted to.
In Erbil, the government currently provides
electricity for a maximum three hours per day. Some
days, it goes down to two and on others there’s none
at all.
Escalating energy prices have affected the local
economy in myriad ways - one of the main causes of
concern is that it drives inflation, which in turn
impacts on the cost of living, even the price for
basic goods like flour is affected.
Aso Yassein, owner of Sebar, a company that imports
flour from Turkey to Kurdistan, said up until the
end of 2005, it used to cost four dollars per tonne
for the trip from Zakho at the Turkish-Iraqi border
to Erbil. "Now it costs us 12 dollars," he said.
The fuel crisis here dates back to 1991, when the
autonomous Kurdish region was established and Iraq’s
central government stopped supplying energy. Prior
to this, Kurdistan enjoyed a relatively stable power
supply, thanks to a small population and limited
demand.
Following the fall of Saddam regime in 2003, the
region has witnessed an economic boom. Demand for
power has increased and has become a serious threat
to local economic growth.
Officials say one of the main reasons for the fuel
shortage is instability in Iraqi areas that supply
Kurdish region with fuel. Kawa Abdulla, head of
Sulaimaniyah City Council, said that tankers are
constantly attacked and oil pipelines blown up by
insurgents.
To solve this problem, said Abdulla, the Iraqi
government imports fuel from Turkey and the Kurdish
government does so from Iran. But he warned that
there were no guarantees that supplies would
continue or that they will be sufficient.
"There could be shortages at any time,” said
Abdulla, "because there’s no major solution to the
problem, like the construction of refineries.”
For Alknach, the Kurdistan business sector would
improve if it enjoyed the same investment laws that
exist in Turkey, where, he said, the government
compensates companies when fuel prices rise; an
important reassurance for investors.
"So far there is no such a law in Kurdistan and this
worries us," said Alknach.
Nooradin Hamid, general manager of Erbil Fuel
Distribution, maintained that the regional
government doesn’t plan to reimburse companies for
higher energy costs.
"When they [the companies] sign a contract, they
have to take into consideration that fuel prices
might rise,” he said.
Until the beginning of 2006, the regional government
did allocate fuel to private companies in order to
foster investment.
"But now, as we ourselves suffer from a fuel crisis,
we don't help them,” said Hamid.
Alknach says he’s close to giving up on the region.
"When a litre of diesel costs one dollar, all of our
projects will lose,” he said. “And we will be
obliged to leave Kurdistan."
Fazil Najeeb is an IWPR contributor in Iraqi
Kurdistan.
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