Public Disclosure Authorized Iraq Prime Minister Advisory Commission Public Disclosure Authorized Integrated National Energy Strategy (INES) Final Report Public Disclosure Authorized Public Disclosure Authorized Baghdad, September 25, 2012 This document is confidential and is intended solely for the use and information of the client to whom it is addressed. TABLE OF CONTENTS Acknowledgements ................................................................................................................ 4 Abbreviations .......................................................................................................................... 5 Units of Measures ................................................................................................................... 6 Executive Summary ................................................................................................................ 7 1. Introduction ................................................................................................................... 26 2. Baseline of the Energy Sector in Iraq ........................................................................ 28 2.1. Overview ............................................................................................................... 28 2.2. Upstream Oil Subsector ...................................................................................... 29 2.3. Downstream Oil Subsector ................................................................................. 34 2.4. Natural Gas Subsector ......................................................................................... 41 2.5. Power Subsector ................................................................................................... 44 2.6. Linked Industries Subsector ............................................................................... 50 2.7. The Oil & Gas Legal and Institutional Landscape .......................................... 53 2.8. The Power Legal and Institutional Landscape ................................................ 58 2.9. The Linked Industries Legal and Institutional Landscape ............................ 61 3. Baseline of Socio-Economic and Environmental Situation .................................. 63 3.1. Overview ............................................................................................................... 63 3.2. Socio-Economic Situation and Contribution of the Energy Sector ............... 63 3.3. Environmental Situation and Impact of the Energy Sector ........................... 68 4. Strategy Framework...................................................................................................... 75 4.1. Overview ............................................................................................................... 75 4.2. Vision Statement .................................................................................................. 75 4.3. Strategy Evaluation .............................................................................................. 76 4.4. INES Building Blocks .......................................................................................... 77 5. Strategy Formulation .................................................................................................... 88 5.1. Overview ............................................................................................................... 88 5.2. Strategic Choices .................................................................................................. 88 5.3. The INES Plan ..................................................................................................... 116 5.4. INES Results ....................................................................................................... 128 5.5. Sensitivities and Risk ......................................................................................... 134 Prepared for PMAC 2 6. Institutional Reform ................................................................................................... 138 6.1. Overview ............................................................................................................. 138 6.2. Short-Term Institutional Reform ..................................................................... 138 6.3. Medium to Long Term Institutional Reform ................................................. 151 6.4. Institutional Reforms Outside the Energy Sector .......................................... 159 7. Path Forward ................................................................................................................ 163 7.1. INES Roadmap ................................................................................................... 163 7.2. INES Governance ............................................................................................... 171 Appendix Appendix A – Infrastructure baseline Appendix B – Regional and International Market Trends Appendix C – Legal and Institutional Baseline and Benchmarks Appendix D – Socio-Economic and Environment Baseline Appendix E – Strategy Framework Appendix F-– Strategy Formulation and Detailing Appendix G – Data Sources, Assumptions, and Additional Analyses Prepared for PMAC 3 Acknowledgements This report summarizes the findings and conclusions of an 18-month study to develop a national energy strategy for Iraq. The study was initiated by Iraq’s Prime Minister’s Advisory Commission (PMAC). It was supervised by a Project Steering Committee comprising selected PMAC members as well as senior representatives from Iraq’s Ministry of Oil, Ministry of Electricity, Ministry of Industry and Minerals, Ministry of Finance, and Ministry of Planning. Parts of the study also have been reviewed with Iraq’s Ministry of Environment and Ministry of Water Resources. The Project Steering Committee has been deeply engaged throughout the study: establishing objectives, identifying issues, approving methodologies, reviewing and discussing findings, and providing necessary information. Virtually all the data in this study pertaining to Iraq has been contributed and updated through the efforts of the PSC and the Ministries it represents. Individual acknowledgement and gratitude are due particularly to Mr. Thamir Al Ghadban (PMAC), Mr. Abdulilah Al Amir (DPM Office), Dr. Ali Al-Mashat (PMAC), Mr. Natiq Al Bayati (PMAC), Mr. Ahmed al-Shamma (MoO), Mr. Hashim Farag Al Musawi (MoO), Dr. Qussay Sattar (MoE), Mr. Amer Saleh Al Rawi (MoE), Mr. Munqith Al Baker (MoIM), Mr. Sufyan Al-Mallah (MoIM), Dr. Waleed E. Khidder (MoIM), Mr. Haider Abbood Hassoon (MoP), Ms. Anwaar Buni Qasir (MoP), Mr. Salman Naser Al-Mghoter (MoF), Mr. Hikmat Gorgees (MoEnv), and Mr. Sami Muohyaldeen (MoWR). In addition, a special acknowledgement is due to Dr. Hussein Al-Shahristani, Deputy Prime Minister for Energy, for his continuous support throughout the INES project. Booz & Company provided technical assistance throughout this effort. It identified information needs, collected and analyzed that information, provided international benchmark analyses, presented findings and recommendations, and offered strategy alternatives. It documented the PSC’s conclusions, and prepared reports at each milestone of the project. Communication between the PSC and Booz & Company occurred on a continual basis, with almost daily exchanges concerning information and project updates. In addition, more than forty meetings were held between Booz & Company and the full PSC to review findings and explore implications. This process of strong interaction and collaboration has been critical to the accuracy of the study and the credibility of its conclusions. The World Bank provided a major portion of the funding required for this study and participated actively in selected milestone review sessions. World Bank staff reviewed the study carefully at critical points, challenged constructively the logic behind various conclusions, and provided valuable suggestions for improving clarity and presentation. The study profited greatly from these reviews. Acknowledgement and gratitude are due particularly to Mr. Simon Stolp (World Bank). Above all, acknowledgement is due to the Government of Iraq, not only for providing an important portion of the funding for this study, but more importantly for committing generously the time and expertise of many of its most senior experts, in a period when their attention has been urgently needed on pressing day-to-day matters. The Government’s willingness to lift its view from the many challenges of the moment in order to conceive and detail a long-term vision and plan is a strong sign of confidence in Iraq’s promising future. Prepared for PMAC 4 Abbreviations ABOT Al Basra Oil Terminal BOT Build Own/Operate and Transfer CAPEX Capital Expenditure CCGT Combined Cycle Gas Turbine CSSF Common Seawater Supply Facility DG Directorate General E&P Exploration and Production EPC Engineering Procurement and Construction ERP Enhanced Redevelopment Plans FDP Field Development Plans FEED Front End Engineering and Design GHG Greenhouse Gases GoI Federal Government of Iraq GSA Gas Sales Agreement GT Gas Turbine HSE Health, Safety and Environment ICC Integrated Control Center IEA International Energy Agency IFRK Iraq Federal Region of Kurdistan IGEC Iraq General Electricity Company INES Integrated National Energy Strategy INGC Iraq National Gas Company INOC Iraq National Oil Company IPA Industrial Park Authority IPP Independent Power Producer IREA Iraq Renewable