Addressing delegates to the Construction Week conference, Parsons Brinckerhoff talks about firing up Iraq’s energy sector.
Entering Iraq in March 2004, executives from Parsons Brinckerhoff (PB) knew they were taking on a challenge. Post-conflict, war torn and isolated, the country was suffering from a major power generation deficiency. While 25 years of war and subsequent looting had caused significant damage to its substations, power plants and lines, more than two decades of neglect and poor maintenance had led to the inevitable deterioration of other power systems and infrastructure. Meanwhile, 12 years of sanctions meant the country witnessed a prolonged period of underinvestment.
Recognising the urgent need for development, in 2003, the US congress donated $18.6 billion for reconstruction, otherwise known as the Iraq Reconstruction and Relief Fund (IRRF). Of this, roughly $5.6 billion was allocated to energy and power projects, $1.7 billion for the oil sector and $4.3 billion for the electrical sector.
Entrusted with the responsibility of managing this part of programme, (so spending the money, putting the contracts in place and overseeing the work), the energy project management specialists (which by this time had formed a joint venture with Worley Parsons to form the Iraq Power Alliance JV), had a key part to play in Iraq’s development after the war.
According to PB’s country manager Jeff Larkin, power generation facilities had become a massive priority in the hopes of eventually achieving 24 hour power supply. The sheer amount of money allocated to these projects did much to reveal the emphasis put on power generation at that time. He explains however, that his company did lose some of its budget to other programmes.
“It wasn’t just us at that time, there was also an organisation called US Aid who won an order to manage $1 billion of the budget, then Iraq went through a reprogramming exercise, and we lost $1.3 billion to other causes. So they wanted to put more money into security, more into governments and into the first elections after the war.”
Nevertheless, with a massive $3.6 billion, PB still had its work cut out. In the coming years, they worked closely alongside the US Army Corps of Engineers Gulf Regional Division (responsible for construction supervision and programme management), to implement as many as 600 projects in various different areas. (At the start, an organisation called the Projects and Contracting Office oversaw the entire programme, but this was eventually disbanded and the US Army Corps of Engineers took over).
Among the main contractors were Fluor-AMEC JV, responsible for 11 projects worth a combined $252 million, Washington International, that was contracted for as many as 70 projects at a value of $ 479 million, and the Perini Corporation, which looked after 19 projects worth $127 million. Separately, PB was also responsible for managing two initiatives known as the Rapid Contracting Initiative (RCI) and the Direct Contracting Initiative (DCI), each consisting of a group of companies contracted to carry out distribution projects (345 projects valued at US$588 million) and transmission projects (83 projects valued at $1,025 million) respectively.
“The distribution group was named the Rapid Contracting Initiative,” says Larkin. “The idea was to work with local contractors, and it was meant to be fast as work needed to be performed in a short period of time in order to increase power generation to the grid as quickly as possible.
“We’d put a scope of work together in less than 30 days, we’d invite tenders over 30 days and then have the contracts awarded within 30 days.
“Also, by using local contractors it meant we didn’t have the costs of bringing in international contractors, and it lowered the security costs as they didn’t need security like we did.”
The Direct Contracting Initiative, on the contrary, involved bringing on board international energy specialists such as Siemens, ABB and Areva, through an alternative and more sustainable procurement strategy.
Larkin explains: “We’d exhausted our options on the prime contracts. After two years we had to come up with an alternative contracting process and we were looking to get the likes of Siemens, ABB and Areva involved. So we decided, rather than going through an American prime on a cost-plus reimbursable basis [pay as you go, commission-type payment method], we wanted to push tenders out directly to the international contractors on a fixed-price, lump sum basis [where contractors are required to stick to the budget they tender with].
“The alternative procurement strategy was important to us because we were given $ 3.6 billion to spend, but when we started the programme we were only given three contracting vehicles, and we didn’t have enough financial control over the contracts.” By contracting vehicles, Larkin is referring to the three main contracting firms/joint ventures mentioned above.
Explaining more about the new procurement strategy, he says that it was this, or at least convincing the US government of it, which proved to be one of the biggest difficulties when executing the programme.
“We had to prove to the US government that this could work, that we could get contractors to work on a fixed-price basis in a post conflict country – that was the biggest challenge,” said Larkin.
“I have no doubt that the initial procurement strategy was the right thing at the time , as we had to mobilise people and guarantee to pay them. But what wasn’t thought through was what was going to happen after two years, when we didn’t need rapid mobilisation anymore – we needed a consistent procurement strategy that would work in the long term and that would give us more control over what we were paying.”
Evidently, PB’s alternative strategy was, in the end, accepted by the US government, allowing the company to successfully implement the rest of the programme and reduce contractor overspending, as well as contribute significantly to Iraq’s energy reconstruction programme. In 2003, the power generation output was just 2,500MW, but by summer 2009, this had increased to 7,500MW.
According to Larkin however, PB can’t take credit for all of it. “The reconstruction programme itself added another 2,500MW, but also the Ministry of Electricity Kurdistan and Ministry of Electricity in Baghdad added their own projects, so that by the end of December 2008 there was an output of 6000MW, and by the end of the summer 2009 there was an output of 7500MW.”
PB’s contribution, Larkin explains, involved building the 250MW Khour Alzubayr power plant under the programme, (US Aid did approximately four), as well as a programme called the Operation, Maintenance and Sustainability (OMS) programme which involved supporting Ministry with OMS of existing plants to increase output by 25%.
“The OMS programme was meant to train and help them operate the new plants, but also looked at some of the older plants and tried to improve those as well,” said Larkin.
To date, PB has completed all of its work under both programmes, although some of the projects are still ongoing, and being managed by the US Army Corps of Engineers.For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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