Exclusive: Corruption and mismanagement drain billions from Iraq's electricity sector
Shafaq News/ In a troubling exposé, a series of revelations have surfaced regarding systemic corruption and inefficiencies plaguing Iraq’s electricity billing system, revealing a complex web of deceit that undermines the nation’s financial stability.
Major Corruption Scandal
An Iraqi government source has disclosed to Shafaq News a substantial corruption case implicating the collection of energy fees across prominent commercial establishments in Baghdad. Billions of Iraqi dinars are reportedly being siphoned each month due to “administrative loopholes” affecting payments from hotels, malls, and other entertainment complexes, according to the source.
The Ministry of Electricity, responsible for exposing the scheme last month, has been actively investigating the extent of these irregularities.
A representative, speaking to Shafaq News Agency and presenting documentation of the case, noted that this incident is “only one example of several similar files” within the sector. However, concerns over confidentiality have prevented the source from making these documents publicly available.
Political Protection and Scapegoats
Insights from the source have exposed the depth of corruption within Iraq’s energy billing system, implicating influential figures allegedly protected by political networks. According to the source, “The scheme is structured so that low-level employees serve as public faces of the operation, while those orchestrating the corruption remain hidden and shielded. In the rare instances when cases do emerge, these minor employees typically face only light administrative penalties, effectively serving as scapegoats while the main actors evade accountability.”
The latest case, brought to public attention by a parliamentary member, has caused significant unrest within the Ministry of Electricity. In an attempt to manage the scandal, the ministry quickly enacted personnel changes, including reassignments and dismissals. However, the source argued that this corruption case, which points to potential embezzlement or gross mismanagement of public funds, “needs thorough investigation by Iraq’s Commission of Integrity to ensure transparency and accountability.”
Iraq’s Electricity Billing System
Providing context to Iraq’s electricity fee system, the source highlighted the structure introduced under former Prime Minister Haider al-Abadi. The framework categorizes billing into five segments—residential, commercial, industrial, agricultural, and governmental—each with distinct rates. Residential fees are further divided into four consumption tiers, with charges starting at 10 dinars per unit for minimal use and climbing to 120 dinars per unit for higher consumption levels.
Contrary to popular belief, the source clarified that electricity fees in Iraq are not low. “In fact, they are among the highest in the region, placing a considerable financial burden on households. A family using three to four cooling units during the sweltering summer months can see monthly bills exceeding 200,000 dinars ($152.6).” With consumption surging during extreme weather or heating seasons, many residents are shocked by unexpectedly high bills, especially in neighborhoods lacking private generator alternatives. This pricing structure, the source explained, has intensified the strain on Iraqi households already grappling with economic challenges.
Fraudulent Billing Tactics
The Baghdad Electricity Distribution Company’s Al-Rusafa branch has become the focal point of the latest corruption scandal, with several high-end hotels in the capital reportedly avoiding electricity payments for years. According to an inside source, these hotels, listed as “commercial consumers,” had managed to evade their dues through fraudulent billing practices.
One striking instance involves a prominent hotel in Baghdad’s Al-Karrada district. Although the hotel appeared to have paid its dues, investigators discovered that its payments had been fraudulently logged under the account of a nearby hotel. This deceitful arrangement only came to light when the paying hotel’s management was surprised by a new debt notice, exposing that its previous payments had been redirected.
Highlighting the intricate ownership of Baghdad’s hotels, the source noted that most operate under a mixed ownership model—private investors hold the majority stake, while the government retains a minor share. “With this structure, these hotels often accumulate significant electricity expenses, sometimes reaching billions of dinars, which makes the discovery of such widespread billing fraud even more consequential for both private investors and public accountability.”
Anomalies In Billing
Compounding the issues related to hotel billing, recent official documents have revealed discrepancies concerning a major shopping mall in Baghdad. The mall’s electricity account was flagged as a “disabled” or “999” account—a designation used by the Ministry of Electricity to indicate technical errors in data processing. This classification effectively suspended all billing for electricity, leaving the account untouched for an extended period.
According to the source, such technical errors are typically straightforward to correct but can languish unresolved for months or even years. During this prolonged period, the disabled account racks up no charges, significantly benefiting the establishment. When these accounts are eventually audited, the Baghdad distribution company often engages in a “settlement” process, where a committee estimates the outstanding charges. “This situation frequently allows businesses to negotiate down significant arrears, which can total billions, to far lower settlements that barely reflect the original debt.”
Striving for Stability
The persistent problems within Iraq’s electricity billing system highlight a wider struggle to bolster non-oil revenue, a critical focus for the government amid ongoing economic challenges. Iraq has historically faced economic volatility due to fluctuations in global oil prices, which jeopardize the state’s capacity to meet salary obligations and support essential public welfare programs.
As the government seeks to diversify its revenue streams, improving the efficiency and integrity of the electricity billing system becomes increasingly imperative. By addressing these systemic issues, Iraq aims not only to stabilize its finances but also to reduce its dependence on oil revenues, fostering a more resilient and sustainable economic future.
“Negative Debt” Scheme Exposed
The corruption scandal within Iraq’s electricity sector has unveiled a scheme known as “negative debt.” This practice not only exempts certain consumers from fulfilling their payment obligations but, alarmingly, can even lead to the state making payments on their behalf. The source disclosed that a staggering 414 instances of negative debt have already been identified.
According to the source, negative debt typically originates from data entry errors. For example, if a customer’s electricity bill amounts to 50,000 dinars ($38.15) and they make the payment, a clerk might mistakenly record this as 150,000 dinars. This discrepancy, when processed into the company’s main database, appears as an overpayment of 100,000 dinars. Consequently, the company allows the customer to offset this “debt” by waiving future payments until the excess is balanced, even though no actual overpayment occurred, and the clerk never received extra funds.
The source emphasized that the primary beneficiaries of these discrepancies are not small residential users or local shop owners. Instead, the majority of negative debt cases involve large commercial, industrial, and agricultural accounts, often accruing energy charges in the millions. For instance, if a major consumer’s true bill is 10 million dinars ($7,631), they may only pay 1 million dinars, alongside an additional million as a bribe. By inflating the bill amount—whether intentionally or by mistake—these consumers can claim to have paid 100 million dinars, subsequently leaving the state indebted to them for 90 million dinars in “overpayment.”
Non-Functional Privatized Company
The source has disclosed that the state now owes a privatized electricity company millions, despite the firm having provided no services over the past four years. This company, established as part of a privatization initiative, allegedly “secured its contract through bribery, without actually spending any funds on services,” according to the source.
“The corruption traces back to an unofficial agreement made by the head of a sales department, who transferred the responsibility for electricity collection in a residential area to this privatized company without any approval from the Al-Rusafa Distribution Company or any legal authorization. This arrangement effectively placed the privatized firm in charge of billing customers long before the agreement was formally signed.”
It was not until four years later that the Al-Rusafa branch finally formalized the contract. By that time, the company was demanding back payments for energy usage, despite having neither collected nor managed these fees as outlined in their agreement. Consequently, the government now faces a significant financial burden, owing the company millions in “profits” based on a contract that was never fulfilled.
Heavy Costs
A 2019 report from the Iraqi Federal Board of Supreme Audit has exposed the substantial financial losses incurred from the privatization of electricity billing in the Al-Rusafa district. Three companies contracted for bill collection collectively owe the Ministry of Electricity a staggering 49 billion dinars ( $37.4 million), with several failing to meet their contractual obligations.
The audit detailed the operations of “Al-Noor Al-Thaqib,” which managed billing services in Zayouna, Palestine Street, and Al-Ghadeer, while Fadhaa Al-Rafidain was responsible for 42 neighborhoods. Notably, Fadhaa Al-Rafidain struggled to meet its monthly revenue target of 8 billion dinars ($6.1 million), generating only 305.5 million dinars in the last two months of 2017. Other firms, such as Ahl Al-Wisal and Middle East Nakheel, also faced significant challenges, accumulating vast unpaid debts.
The findings indicate a troubling trend for Iraq’s privatization experiment, with collection rates varying dramatically—some areas reported compliance as low as 0%, while others achieved only moderate success at 54%. In response, the Ministry of Electricity has called upon these companies to enhance their collection efforts to bolster the country’s financial resources and reduce its reliance on oil income.
Outstanding debts are alarming, with Ahl Al-Wisal owing 6.7 billion dinars ($5.1 million), Middle East Nakheel accumulating 36.5 billion dinars ($27.9 million), and Al-Noor Al-Thaqib liable for an additional 5.8 billion dinars ($4.4 million). As uncollected debts continue to mount, Iraq’s privatization initiative has not only failed to deliver the anticipated revenues but has also imposed a considerable financial burden on the government as it struggles to recover losses.
