MINISTER OF ELECTRICITY KARIM WAHID HASAN ON

C O N F I D E N T I A L SECTION 01 OF 03 BAGHDAD 003516

SIPDIS

SIPDIS

E.O. 12958: DECL: 09/14/2026
TAGS: ENRG EPET PBIO PREL IZ
SUBJECT: MINISTER OF ELECTRICITY KARIM WAHID HASAN ON
HYDROCARBON LAW, ELECTRICAL SECTOR, BUDGET AND ICI

REF: BAGHDAD 3341

Classified By: CDA DANIEL SPECKHARD, EO 12958, REASONS 1,5 (B) AND (D)

1.(C) Summary: On September 13, Econ Mincouns met with
Minister of Electricity Dr. Karim Wahid Hasan to discuss the
hydrocarbon law, the state of the electrical sector in Iraq,
Iraq's budget implementation difficulties and the
International Compact for Iraq. Hasan confirmed that the
Energy Committee had agreed on four major elements of a
hydrocarbon law, but was unable to agree on what government
level should have final contract approval authority for
development of new oil fields. On this and several other
issues he was critical of Minister of Oil Shahristani,
characterizing him as ill-suited to lead GOI development of
the law. Hasan did not believe that agreement on the law
would come unless there was a resolution of the Kurd's
interpretation of their rights under the constitution.
Ultimately the law will have to be settled by politicians -
it cannot be resolved by oil experts. Hasan, an electrical
industry expert, quickly raised daily peak output from 3700
megawatts (MW) to 5000 MW after taking office 4 months ago.
He blames insurgent activity for preventing him from going
further, and now estimates that it will take 3-4 more years
to meet peak demand of 9,600 MW. Hasan blames Iraq's budget
problems on the reluctance of ministry managers to authorize
expenditures for fear of being caught up in Iraq's
anti-corruption machinery. He characterized the Committee
for Public Integrity (CPI, the principal anti-corruption
organization in Iraq) as inexperienced and arbitrary. He
noted that officials are afraid to be interrogated by CPI's
investigators, and inaction is the safest way to avoid such
questioning. End Summary.

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Hydrocarbon Law
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2.(C) On September 13, Economic Minister-Counselor met with
Dr. Karim Walid Hasan, Minister of Electricity. Hasan is
also a member of the Energy Committee, the group of
ministerial level officials tasked with formulating a
national hydrocarbon law. Hasan confirmed what other
interlocutors have told us, i.e. that the committee has
reached consensus in four areas: national policy setting;
central collection and sharing of revenue; management of
fields by regional companies, and regional negotiation of
contracts. The group still disagreed on who would have final
authority to sign contracts for exploitation of new oil
fields (reftel).


3.(C) Hasan believes that it is possible to reach consensus
on a national oil law. Nevertheless, he sees a number of
difficulties that still must be resolved in addition to the
contract approval issue. The toughest problem is the
fundamental mistrust among Shia, Kurd and Sunni that
underlies all parts of the negotiation. The Kurds adamantly
assert that their positions on the hydrocarbon law are based
on their constitutional rights, which they will not dilute
via the new law. Hasan said that the Kurds narrowly focus on
2-3 constitutional articles (Articles 114 and 115). In his
opinion the hydrocarbon law needs to be developed in the
context of the whole constitution (especially Article 111).

4.(C) Despite the agreement in principle on central revenue
collection, Hasan said the Kurds are being unreasonable.
Kurdish insertion of regional rights into the revenue debate
exacerbates the Sunnis' nervousness that they will somehow
get nothing. Hasan, a Shia (his wife is a Sunni),referred
to the historical background underlying the constant mistrust
among the ethnic/sectarian groups. He said that a unified
Iraq is the only solution, and added that before anyone could
dismantle Iraq, civil war would occur. In addition to ethnic
mistrust, Hasan said that many employees of MoO, who have run
the oil industry for the past 30 years as a centralized
entity, are reluctant to see a shift to largely independent
regional operating companies.

5.(C) Hasan characterized Minister of Oil Dr. Husayn
Shahristani as uncooperative, citing four instances over the
past year when MoO raised fuel prices to the MoE without
bothering to consult his ministry first. Hasan clearly
preferred oil advisor to the Prime Minister and former oil
minister Thamir Ghadban. Hasan said that Deputy Prime
Minister and energy committee chairman Barham Salih was very
clever, but not well organized. Dr. Ashti Hawrami, KRG
Minister of Natural Resources, on the other hand, is part of
a government that has been preparing for this hydrocarbon law
for years. (In a recent meeting, Ashti told emboff that
Hasan was the minister who finally got tired of the sectarian
bickering in the energy committee meeting and brought

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everyone back on track to start hammering out a compromise.)
Hasan said that the ministry and government have the best
people in Iraq to deal with the hydrocarbon law issue.
Unfortunately, he said, they have never gotten together to
undertake this task, leaving the door open to the better
organized Kurds who prepared a road map for the GOI to follow
for the Kurds benefit. Hasan said that compromise with the
Kurds will be necessary to get a law. He emphasized that the
ultimate solution will have to come from the politicians -
this issue can not be solved by oil industry professionals.
Hasan said that "if both sides stay hard," he is worried. He
said that the Shia have made some concessions, but that the
contract signing authority impasse is fundamental.

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Electric Power Sector
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6.(C) Hasan gave a brief overview of the last 30 years in his
industry. The Iraqis implemented a master development plan
in 1976, but it was interrupted by the Iraq-Iran war from
1981-1988. At the end of the war, the country was carrying a
huge debt, and did not restart the development plan until

1989. The first Gulf War and the ensuing sanctions began a
13 year period of deterioration, leading to the present
"technically weak" power sector unable to deliver much more
than half of daily demand. Hasan described his distribution
system as especially weak, and said MoE's control centers
were destroyed in the war (for the second time).

7.(C) Hasan has held his ministerial post for about 4 months.
In his first 45 days in office, Hasan raised daily peak
power supply from 3,700 megawatts (MW) to 5,400MW. His goal
for August was 6,000MW, but he has been unable to reach that
level because of insurgent attacks on MoE's infrastructure.
He estimated that attacks on his plants and transmission
lines were 80% political and 20% economic (e.g., destroying
transmission lines to steal wire for sale as scrap metal).
Hasan said the GOI needs to generate 9,600MW to meet daily
peak demand. He expects to reach that level by 2009-2010.
To do so will require $2-3 billion annually in capital
expenditures. MoE has produced a 10-year master development
plan covering training, economic and legal issues, as well as
basic generation, transmission (high voltage, cross-country
power lines) and distribution (low voltage neighborhood power
lines) systems upgrades. IRMO electrical consultants
characterize the master plan as overly optimistic with
respect to the time required to restore Iraq to 24hr/day
power. They estimate it will take 5-10 years.

8.(C) Hasan said that he was one of only two ministers that
is not affiliated with a party, a fact which, he implied, may
have limited his influence with the prime minister. He said
that Maliki respects him and sometimes consults with him, but
does not often follow his advice. He has advised PM Maliki
that the country really needs a joint master plan for oil and
electricity.

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GOI Budget Problem
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9.(C) Hasan attributed the GOI's problem in spending its
budget dollars on big projects to the fear that has
accompanied the government's anti-corruption campaign. He
said the Commission on Public Integrity (CPI, the agency
charged with investigating and prosecuting corruption) has no
experience, takes actions that are "sometimes silly," and may
be corrupt itself. As a result workers are very reluctant to
resume contracting activity for fear of being interrogated by
CPI. Hasan said that it is necessary to change the budget
rules immediately to streamline the procurement process, and
let the experts take charge. He added that at this point too
many dollars are being diverted to security. Hasan also
stated that the Letter of Credit system needs to be fixed.

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Comment
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10.(C) Hasan comes across as a candid technocrat, dedicated
to doing his job of improving the power supply to the general
public. He also expressed some bitterness about the way he
was treated under the CPA (no salaries for ministry employees
for the first several months). Nevertheless, given his
background he is a good source on the politics of energy
policy here as we enter the critical phase of hydrocarbon law
development.


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Biographical Information

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11.(C) Hasan holds a Ph.D. in Electric Power Engineering from
the University of Dundee in the U.K., and has worked in the
electrical power sector for years. Previously he was the
Director General of Dura Power Station and Technical Director
of the Iraq Electricity Commission. He never lived in exile,
a fact which helps his public image in Iraq. His family,
however, lives in Jordan.
SPECKHARD