Power Delayed: Iraq’s Electricity Crisis

With Iraqis managing to restore their electrical grid on a shoestring budget and complete sequestration from the outside world, war planners anticipated a rapid post-invasion reconstruction. Prior to the war, the Office of Reconstruction and Humanitarian Assistance predicted that they would be able to output 6,000 MW within a few months. A year later, the war administration was not even able to muster pre-war production levels of 4,000 MW. To understand how the early occupation fumbled, it may be worth looking at the lead electricity advisor to ORHA’s mission, GE CEO and Chairman Jack Welch.

Awarded ‘Manager of the Century’ by Fortune Magazine in 1999, Welch was an infamous figure in corporate America. Taking helm of GE in 1981, he sought to drive growth in a lukewarm economy beset by oil shocks and stagflation. To do so, GE transformed from an industrial powerhouse to a services conglomerate. Describing product service bundling as the “biggest growth opportunity in GE history,” Welch fought to “offset slowing growth in GE products by supplementing them with value-added services.”^[1] A conversation with a senior GE executive who oversaw the financing of turbine deals in the United States and Middle East confirmed this transformation in the electrical system business model. He explained that GE essentially competes in a market of new turbines to secure an aftermarket parts-and-services monopoly.^[2] The durability of this income is not only secured by the terms of the contract or broader intellectual property law, but also physically installed in the machinery itself. Spare parts are serialized such that they are essential to the functioning of the entire system, replaceable only by GE, and serviceable only by their technicians. By 1997, services made up more than two thirds of the company’s profits.^[3] In 2000, GE became the most valuable corporation in the world, largely thanks to Welch’s novel approach to revenue growth.

Welch’s transformation of General Electric fundamentally altered the relationship between infrastructure’s physical robustness and its financial returns. Inducing demand for energy consumption was no longer necessary. Instead, rising energy efficiency was met with failure-prone complex designs that required increased servicing. In this light, the popular adage ‘they don’t make them like they used to’ underlies a deeper truth. In everywhere from laundry machines to medical devices and turbines, electrical equipment companies undermine the physical durability of their products to increase profits from their repair and replacement. This is especially true for GE. While no worldwide review has been conducted, data from French utilities show that GE plants are closed for repairs or testing more than twice as often as non-GE plants.^[4] For a full sense of the scale of this shift, consider the panic among economists in 1990s when electricity consumption decoupled from gross domestic product growth in the United States.^[5]

Although there is no direct evidence to suggest that Welch steered the Iraq’s electrical grid toward lucrative dysfunction, the influence of his emphasis on product-service integration on reconstruction cannot be understated. Iraqi engineers “from the beginning wanted steam plants,” yet they received dozens of gas and diesel engines.^[6] Beyond issue of a lack of available fuel, the choice to install intricate gas and diesel engines introduced an additional challenge to powering Iraq. Even if Iraq had access to the appropriate fuel, American engineers foresaw that the intricacy of these turbines would require “master mechanic skills” that would take “several 10-year generations” to cultivate.^[7] For the generators that did not sit idle, if (or more appropriately when) crude oil or less refined gasoline was fed into these turbines, they would accumulate greater debris and break down at a much faster rate. Another delay, another service call, another expense report – GE has mastered the art of extracting profit from postponing power delivery in Iraq.

With that, the full extent of this paper’s argument comes into vision. Iraq’s electricity crisis is not the product of Iraq’s supposed penchants for war, decadence, or corruption. Nor is it due to a lack of foresight or poor planning on behalf of the American military. Iraq cannot supply power to its people because its infrastructure was designed and installed for the sole purpose of extracting billions of dollars in spare parts and servicing agreements from the Iraqi government. That their turbines actually generate electricity is merely their alibi. That is why power has not been restored for the past 18 years and will not be restored for years to come.