596 trillion dinars were spent on electricity… so why did this spending turn into a chronic economic crisis?
596 trillion dinars were spent on electricity… so why did this spending turn into a chronic economic crisis?
7-13-2026
Researcher Shatha Khalil
notes that from 2005 to 2023, media outlets and political statements circulated a shocking figure: spending on Iraq’s electricity sector reached approximately 596 trillion and 265 billion dinars. However, this figure should not be presented as definitive before the publication of a unified official statement detailing expenditures year by year, separating investment spending from operational expenses, fuel subsidies, employee salaries, and gas and electricity imports. Nevertheless, Iraqis don’t need a single figure to grasp the magnitude of the problem; international institutions themselves confirm that the electricity sector has drained enormous financial resources while remaining incapable of providing a stable service commensurate with the scale of the expenditure.
The real question is not: How much did Iraq spend? But: What economic and social value did each dinar spent achieve?
Is it an electricity crisis or a financial management crisis?
Economically, the efficiency of any sector is not measured by the size of its budget, but by the return on investment. If expenditures increase without a corresponding improvement in processing hours, network efficiency, revenues, and production stability, then the spending transforms from a productive investment into a recurring burden on the budget.
The International Monetary Fund indicates that Iraq’s electricity sector recovers only a very limited portion of its costs, and that its annual losses exceed 3% of GDP, potentially rising to over 6% when implicit fuel subsidies are included. This means the problem is not merely technical, but represents a financial drain that impacts the state’s ability to spend on health, education, water, and infrastructure.
This situation represents what is economically called opportunity cost. The money consumed annually to cover the losses of the electricity sector could have been directed towards building schools, hospitals, and transportation networks, or towards financing productive projects that create jobs and help diversify the economy away from oil.
Spending does not equal investment.
A distinction must be made between two types of spending:
Investment spending, which adds new production plants, develops transmission and distribution networks, and increases the actual capacity of the system.
Operating expenses, which include salaries, maintenance, fuel, purchase of gas and electricity, and payment of daily obligations.
The budget allocated to electricity may seem enormous, but if a large portion of it goes to operating expenses, subsidies, and imports, without building long-term assets, the sector remains dependent on government spending every year. This partly explains how huge sums can be spent without eliminating the deficit.
The problem, then, is not just the lack of projects, but the composition of the spending: how much went to production? How much went to transportation? How much was spent on distribution and collection? And how much was consumed in fuel subsidies, contracts, maintenance and imports?
The vicious cycle: high subsidies and low revenues
Iraq’s electricity sector suffers from a closed financial cycle:
The state produces electricity at a high cost and then sells it at subsidized prices, while revenue collection remains weak and the grid suffers from illegal connections and losses. With declining revenues, institutions are unable to finance maintenance and development from their own resources and are forced to turn to the general budget for funding.
According to IMF estimates, the sector recovers only a small portion of its costs. Therefore, simply increasing production, without reforming meters, billing systems, and addressing violations, could lead to increased electricity waste rather than resolving the crisis.
But reform doesn’t mean suddenly imposing high tariffs on low-income citizens. What’s needed is a gradual system that protects basic consumption for low-income households while imposing a price closer to cost for high-consumption users and businesses that can afford it. Furthermore, any price adjustments must be preceded by genuine improvements in service and collection, because citizens cannot be expected to pay more for unreliable electricity.
Network losses: Electricity is produced but does not reach the grid.
A significant part of the crisis occurs after electricity is produced. Outdated networks, transmission bottlenecks, poor distribution, overcharging, and inaccurate metering lead to a large portion of energy being lost before it reaches the consumer or before its value is collected.
World Bank documents confirm that Iraq’s electricity networks need significant investments to improve quality and reduce technical and commercial losses, and that reforming the distribution sector is essential to raise financial and operational efficiency.
From an economic perspective, building a new power plant without repairing the existing network is like pumping water into a leaky pipe. Production capacity may increase on paper, but the average citizen doesn’t see the full benefit, and the state doesn’t generate enough revenue to cover the cost.
Gas flaring and imports: A paradox of an energy-rich country
Iraq has large oil and gas resources, but it has remained partly dependent on imported fuel to operate power plants, while part of the associated gas in the oil fields is burned.
The International Energy Agency believes that investing in flared gas and improving the efficiency of power plants and grids can help Iraq close a significant portion of its electricity gap and reduce its reliance on imports. The agency also points to significant opportunities for utilizing solar energy and diversifying production sources.
This paradox creates three losses at once:
Iraq loses an energy resource that could be used locally, bears the cost of importing an alternative, and then pays an additional economic cost due to power outages.
Therefore, electricity reform cannot be separated from gas policy. Collecting associated gas, processing it, and connecting it to power plants is not only an environmental project, but also a financial and strategic reform that reduces the import bill and enhances energy security.
Cost of unprepared electricity
The losses from the crisis are not limited to the Ministry of Electricity’s budget. When power is cut off, households bear the costs of subscribing to generators, purchasing fuel, and maintaining appliances. Businesses also face higher production costs, and factories may be forced to run their own generators or reduce working hours.
The International Energy Agency estimated that Iraq’s inability to provide sufficient electricity has cost its economy huge sums due to lost production and the cost of alternatives, and that the high cost of generators is putting particular pressure on small and medium-sized enterprises.
Herein lies the hidden tax of electricity: the citizen pays once from taxes and public funds to finance the government sector, then pays a second time to private generators, and may pay a third time through the increase in prices of goods and services, because the merchant or manufacturer adds the cost of energy to the price of the product.
Electricity and disruption of the private sector
A modern economy cannot attract investment without a stable electricity supply. Investors don’t just look at land prices or tax breaks; they also ask about energy, transportation, the justice system, and the banking system.
Power outages increase production costs, reduce competitiveness, and make investment in Iraq riskier. The International Monetary Fund has described unreliable electricity as a major constraint on private sector growth.
Therefore, reforming the sector is not just a social service, but a prerequisite for economic diversification. Without a stable electricity supply, it is difficult to develop modern industry, agriculture, tourism, and digital services, and the economy remains dependent on government spending and oil revenues.
Why hasn’t the spending translated into results?
The poor return on investment can be explained by several interrelated factors:
First, the absence of a long-term plan linking generation, transmission, distribution and fuel projects within a single system.
Secondly, the repeated focus on increasing the nominal capacity of the stations, without addressing fuel, maintenance, networks and collection.
Third, the lack of transparency in contracts, and the failure to publish detailed data that would allow citizens, parliament, and researchers to compare spending with results.
Fourth, plans change with changes in governments and ministers, leading to separate projects that do not always operate within a unified vision.
Fifth, weak accountability for projects that are delayed, stalled, or not operating at their designed capacity.
Sixth, the distortion of the tariff and collection system, and the continuation of abuses and losses, deprives the sector of the resources necessary for maintenance and investment.
These factors mean that the crisis is not just a lack of funds, but a flaw in governance, planning, implementation and follow-up.
What reform is needed?
The solution is not just about allocating a new budget, but about changing the way the sector is managed.
An independent financial and technical audit of all major expenditures and contracts since 2005 must first be conducted, and its findings made public. The audit should detail the cost of each project, its percentage of completion, its design capacity, its actual capacity, the funds disbursed, and the reasons for any delays.
Secondly, a performance-based budget should be adopted. The Ministry of Electricity should not be measured by the amount it spends, but by clear indicators, such as hours of supply, reduced losses, increased collection, improved fuel efficiency, and a decrease in the cost of producing a kilowatt.
Third, priority should be given to repairing transmission and distribution networks and smart meters before continuing to add production capacities that the network cannot accommodate.
Fourth, investment in associated gas should be accelerated, dependence on imported fuels reduced, and energy sources diversified through well-planned solar projects.
Fifth, the tariff should be reformed gradually, while protecting low-income families, and linking any price increase to a tangible improvement in service.
Sixth, major contracts should be subject to open competition and oversight, and the splitting of projects or changes to their costs without published justifications should be prohibited.
In conclusion: The issue is not a number, but a whole decade of accountability.
The figure being circulated, 596 trillion and 265 billion dinars, may be accurate, exaggerated, or include expenditures that don’t all fall under direct investment. But the mere existence of significant disagreement over the figure reveals a more serious problem: the absence of a unified and transparent financial database that citizens can access.
The public doesn’t need to hear another astonishing figure; they need to know what has been achieved with public funds. How many power plants have been built? How many megawatts have actually been added to the grid? How much have losses decreased? How much have the hours of electricity supply improved? And who is responsible for the stalled projects?
The electricity crisis in Iraq is not merely a production crisis, but a crisis of management, transparency, and political economy. As long as success is measured by the size of the budget allocations rather than the quality of the results, budgets will continue to escalate, and citizens will continue to pay for electricity twice: once to the state and again to the generator.
The question that should be asked is not: How much will we spend next year?
Economic Studies Unit / North America Office,
Links Center for Research and Strategic Studies
rawabetcenter.com
