Common use of Background and Necessity of the Project Clause in Contracts

Background and Necessity of the Project. (1) Current State and Issues of the Electricity Sector in Iraq The long-term economic sanctions and conflicts had been devastating the economic and social environment of Iraq. However, after the Iraq War in 2003, the country is finally undergoing reconstruction and development with the support from the international society. The electricity sector is the foundation of various activities of the economy and society, and it is essential for the reconstruction of Iraq. However, due to years of lack of new investments/maintenance management and plunder, the functions in all sub-sectors, such as power generation, transmission, transformation, and distribution, have been extremely deteriorated until today. The average daily power supply which was 9,000 megawatts (MW) in 1990s was declined to lower than 3,000MW right after the Iraq War. After the war, with the support from international society, the Government of Iraq has been making effort for the reconstruction of the electricity sector as one of the priority areas. However, the power supply had recovered only up to 5,500MW as of 2009, while the average daily demand is 12,000MW, and long unplanned power outage are forced regularly accordingly. Thus the reconstruction of the electricity sector in Iraq, especially the improvement of power generation capacity, is one of the top priority issues. (2) Development Policies for the Electricity Sector in Iraq and the Priority of the Project In the Third National Development Strategy by the Iraqi Government in February 2007, the following four pillars for the post-war reconstruction and national development for 2007-2010 were announced; 1) Strengthening foundations of economic growth, 2) Revitalizing the private sector, 3) Improving the quality of life, and, 4) Consolidating the good governance security and stability in the country. The prioritized target of this strategy includes reduction of unplanned outage hours, fulfillment of power-supply demand, improvement of power generation performance, and expansion of transmission/transformation performance. (3) Japan and JICA’s Policy and Operations in the Electricity Sector At the International Conference on Reconstruction in Iraq held in Madrid, Spain in October 2003, the Government of Japan announced up to 5 billion US$, that consists of 1.5 billion US$ in grant aid in reply to the emergency reconstruction demand of Iraq, and up to 3.5 billion US$ in ODA Loans to meet middle-term reconstruction demand. Since “Revitalizing of the private sector” is one of JICA’s priority areas of the reconstruction assistance to Iraq, electricity sector assistance matches JICA’s assistance strategy. Prior to implementation of the Project, ODA Loans projects were provided for the Al-▇▇▇▇▇▇▇ Thermal Power Plant Rehabilitation Project, Electricity Sector Reconstruction Project, and the Electricity Sector Reconstruction Project in Kurdistan Region in 2008. (4) Other Donors’ Activity The United Nations Development Programme (UNDP) mainly assisted for the electricity sector in Kurdistan Region. The United States assisted this sector through the United States Agency for International Development (USAID). The World Bank is implementing the rehabilitation project for the hydropower plant and thermal power plant. Korea is assisting the micro hydropower plant project, etc., through the Korea International Cooperation Agency (KOICA). (5) Necessity of the Project Anbar Governorate is located in the Mid-Western area of Iraq and industries such as plants for phosphate fertilizers, ammonia, and cement are active there. However, power supply does not meet its needs through the frequent power outage that reaches around 16 to 18 hours a day on average. The demand of power-supply in the governorate is 293MW, while the average daily power supply was only around 177MW in 2008. Since the gap between power supply and demand is still large, construction of power plant is an urgent need for the development of industries and stabilization of citizen’s livelihood. Therefore, the necessity and the relevance of JICA’s assistance for the Project are high.

Background and Necessity of the Project. (1) Current State and Issues of the Electricity Sector in Iraq The long-term economic sanctions and conflicts had been devastating the economic and social environment of Iraq. However, after the Iraq War in 2003, the country is finally undergoing reconstruction and development with the support from the international society. The electricity sector is the foundation of various activities of the economy and society, and it is essential for the reconstruction of Iraq. However, due to years of lack of new investments/maintenance management and plunder, the functions in all sub-sectors, such as power generation, transmission, transformation, and distribution, have been extremely deteriorated until today. The average daily power supply which was 9,000 megawatts (MW) in 1990s was declined to lower than 3,000MW right after the Iraq War. After the war, with the support from international society, the Government of Iraq has been making effort for the reconstruction of the electricity sector as one of the priority areas. However, the power supply had recovered only up to 5,500MW as of 2009, while the average daily demand is 12,000MW, and long unplanned power outage are forced regularly accordingly. Thus the reconstruction of the electricity sector in Iraq, especially the improvement of power generation capacity, is one of the top priority issues. (2) Development Policies for the Electricity Sector in Iraq and the Priority of the Project In the Third National Development Strategy by the Iraqi Government of Iraq in February 2007, the following four pillars for the post-war reconstruction and national development for 2007-2010 were announced; 1) Strengthening foundations of economic growth, 2) Revitalizing the private sector, 3) Improving the quality of life, and, 4) Consolidating the good governance security and stability in the country. The prioritized target of this strategy includes reduction of unplanned outage hourspower outage, fulfillment of power-supply demand, improvement of power generation performance, and expansion of transmission/transformation performance. (3) Japan and JICA’s Policy and Operations in the Electricity Sector At the International Conference on Reconstruction in Iraq held in Madrid, Spain in October 2003, the Government of Japan announced up to 5 billion US$, that consists of 1.5 billion US$ in grant aid in reply to the emergency reconstruction demand of Iraq, and up to 3.5 billion US$ in ODA Loans to meet middle-term reconstruction demand. Since “Revitalizing of the private sector” is one of JICA’s priority areas of the reconstruction assistance to Iraq, electricity sector assistance matches JICA’s assistance strategy. Prior to implementation of the Project, ODA Loans projects were provided for the Al-▇▇▇▇▇▇▇ Thermal Power Plant Rehabilitation Project, Electricity Sector Reconstruction Project, and the Electricity Sector Reconstruction Project in Kurdistan Region in 2008. (4) Other Donors’ Activity The United Nations Development Programme (UNDP) mainly assisted for the electricity sector in Kurdistan Region. The United States assisted this sector through the United States Agency for International Development (USAID). The World Bank is implementing the rehabilitation project for the hydropower plant and thermal power plant. Korea is assisting the micro hydropower plant project, etc., through the Korea International Cooperation Agency (KOICA). (5) Necessity of the Project Anbar Governorate is located The average daily power supply in the Mid-Western area Kurdistan Region, which consists of Iraq and industries such as plants for phosphate fertilizersthe 3 governorates (Dohuk, ammoniaErbil, and cement are active thereSulaymaniyah) with the population of approximately 4.4 million, was around 459 MW in 2008. However, the average daily demand of power supply does not meet its needs was 1,850MW based on the estimation in 2008. The condition of the existing power generation facility of this region is unstable due to aging and lack of fuel supply; therefore citizens’ lives and economic/social activities are seriously affected through the frequent power outage that reaches around 16 to 18 is more than 15 hours a day on averageaverage in 2007. The As the demand of power-supply for power in the governorate region is 293MWexpected to rise 12 percent per year, while the average daily new power supply was only around 177MW in 2008. Since the gap between power supply and demand is still large, construction of power plant is an urgent need for the development of industries and stabilization of citizen’s livelihoodgenerating facilities that can be operated without relying on fuel supplies are urgently needed. Therefore, the necessity and the relevance of JICA’s assistance for the Project are high.