Lebanon electricity crisis: ‘Disaster in the making’ | Business and Economy News – About Your Online Magazine

Beirut, Lebanon – Lebanon’s electricity sector is again on the verge of total collapse, and the government has once again continued to throw money at it rather than fix it.

State-owned producer Electricité du Liban (EDL) ran out of funds to buy fuel, so the government issued a letter to the central bank asking for an advance on its diminishing reserves.

An energy ministry source told Al Jazeera the advance is $200 million. Central bank subsidies, estimated at more than $15 million, are rapidly depleting, and Lebanon’s expensive and inefficient electricity sector is partly to blame.

In a May 2020 presentation to international donors, Energy Minister Raymond Ghajar said electricity sector losses cost about $1.6 billion in public funds each year, though some reports say it could bleed as much as $US$ 2 billion. That’s about 3 percent of the entire economy of the country, and experts told Al Jazeera that it accounts for nearly half of the country’s cash-strapped public debt.

“In the absence of any political solutions, we are just kicking the way,” Marc Ayoub, Energy Researcher at the Issam Fares Institute at the American University of Beirut, told Al Jazeera. “If we pay $200 million [pounds], we continue for another two or three months, so what? We can’t go on like this. ”

struggling economy

Other interim measures have failed or been stalled, notably a fuel agreement for medical services with Iraq, where interim Prime Minister Hassan Diab allegedly failed to fly into the country to secure the agreement at the end of April for security reasons. On Tuesday, Hezbollah secretary general Hassan Nasrallah suggested the Tehran-backed group was ready to negotiate and buy fuel from Iran.

Lebanese families for nearly three decades have endured intermittent daily power cuts that last for three hours in Beirut, though power cuts elsewhere generally last longer.

Those who can afford it pay private generator suppliers for an extra power boost. And despite its utter inefficiency, the government continued to sustain the system: subsidizing fuel and keeping its bloated workforce, which activists and experts say are part of political parties’ “clientelist networks”.

While citizens and policy experts have condemned the country’s inefficient electricity sector, Lebanon’s ailing economy has renewed concerns about not being able to keep the lights on. Lebanon is recovering from a crushing economic crisis, with a local currency that has lost around 85% of its value and food prices among the highest in the world.

Today, power cuts have become more frequent, even in some of the richest parts of the capital. The plants are closing, after running out of fuel to operate. In some cases, EDL cannot pay for fuel for tankers that have already arrived in the country. More recently, Turkey’s Karpower closed two floating barges – which supplied a quarter of the country’s electricity – due to payment delays.

Generator suppliers now say they are struggling to balance expenses because of rising demand and exorbitant costs. One distributor, Kassem, told Al Jazeera that they are resorting to buying extra-priced fuel on the black market amid shortages.

“The power cuts in Beirut lasted three hours, but sometimes they reach 12 hours,” he said eagerly, explaining that most generators will overheat after about six hours. “The weather is fine at the moment, but when it gets warmer, demand will increase.”

And, as elsewhere in Lebanon’s troubled markets, Kassem said price increases are imminent to cover expensive fuel and generator maintenance. “We cannot fill in the gaps left by the state. To think that we can replace state electricity almost entirely with generators is absurd. ”

Lebanon asked the international community to contribute nearly $5.6 billion to the development of the electricity sector [Aziz Taher/Reuters]

Empty promises and vested interests

For more than a decade, Lebanese authorities have promised comprehensive structural reforms that would guarantee uninterrupted electricity while preventing the hemorrhaging of public finances. Whether it’s bringing in more plants, diversifying fuel sources for more efficiency, and even investing in solar panels, wind farms and hydroelectric dams, officials say they have a vision to reduce the deficit and develop this archaic sector.

Many of these pledges are based on an “ambitious but realistic” 2010 policy document by then Energy Minister Gebran Bassil, which he said would reduce the sector’s losses to zero by 2014. Bassil also said in his article that this reform plan could make the sector possibly profitable in 2015.

Bassil’s successors were often from the same political party he now leads, the Free Patriotic Movement, and have since pressed for that plan both in government and in the international community. Its last reiteration was in April 2019.

Not much of the plan went into effect, except to bring in two Turkish floating barges. Initially a temporary measure, the barges are still docked in Lebanon to this day. Despite worsening economic circumstances and repeated failure to implement the plan, the Lebanese authorities continue to pressure it, with virtually no adjustments.

“The ministry often has the feeling it has its policy document and doesn’t need to look elsewhere,” independent energy policy adviser Jessica Obeid told Al Jazeera. “This is problematic because at some point the ministry’s main concern became implementing this policy rather than finding a different way to supply electricity.”

Implementing the policy plan is quite expensive from start to finish; Then Energy Minister Bassil said the government would contribute up to $1.55 billion, the private sector $2.32 billion and a total of $2.65 billion from the international community.

With the country’s financial well-being rapidly deteriorating since then, Lebanon in 2018 asked the international community to contribute nearly $5.6 billion to its electricity sector development projects at an international donors’ conference in Paris. The international community has since called on Lebanon to enact economic reforms and accountability mechanisms to unlock billions of dollars in development aid.

That said, an energy ministry source told Al Jazeera that the current government, functioning only as an interlocutor, has its hands tied.

“[The caretaker government] cannot make any financial decisions,” the source said. “The main impediment is [the lack] of a government in its own right. ”

‘Not reinventing the wheel’

Lebanon has been without a government for 10 months, and ongoing disputes between President Michel Aoun and Prime Minister-elect Saad Hariri have caused a crippling stalemate. Not even French President Emmanuel Macron, who promised to guarantee development aid, managed to break the deadlock.

But Obeid and other experts say the country’s sectarian power-sharing system is based on “acquired interests.”

Even the construction of plants or the hiring of companies for development projects is linked to the country’s political class. A notable case was the proposed power plant in the northern coastal town of Selaata in late 2019. The town is not on the grid, and activists and politicians have accused the FPM-backed Ministry of Energy of proposing the site of its own political reasons, given its location in a Christian town.

Although the plant faced strong opposition, even from within the country’s ruling political parties, it continued to be a heavily promoted component of Lebanon’s electricity reform proposals until May 2020. In September, even French President Emmanuel Macron reportedly demanded the scrapping of plans for the controversial power plant.

Électricité du Liban itself is a politicized entity. A year ago, the government appointed its new board through an opaque process based on sectarian quotas.

Marc Ayoub, the energy researcher, said many viable steps could be taken to resolve this crisis. “We are not reinventing the wheel here,” he said, explaining that any solution to solving Lebanon’s energy problems also lies in broader economic restructuring. But will the country’s leadership give up its endemic nepotism and political interests?

“Whatever we are proposing, it is against the interests of the political elite,” added Ayoub. “We’re telling them to stop benefiting from something they’ve enjoyed for 20 years.”

At the same time, officials and experts do not expect any investment in Lebanon to restructure its fragile electricity sector without an economic rescue plan approved by the International Monetary Fund, although talks have not resumed for nearly a year since they were interrupted in July 2020 .

So how long can Lebanon continue to keep the lights on while its current configuration depletes what little public finances are left? A year, said Obeid.

“In the current situation we’re heading into, my guess is that they will continue to deplete what’s left of depositors’ money,” she said. “It’s a disaster in the making.”

Paula Fonseca