Electricity crisis in Lebanon: “Disaster in the making” | Economic and business news


Beirut, Lebanon – Lebanon’s electricity sector is on the verge of catastrophic failure again and the government has once again thrown money at it instead of repairing it.

State-owned producer Électricité du Liban (EDL) ran out of money to buy fuel, so the government sent a letter to the central bank to get an advance on its devastating reserves.

A source from the Department of Energy told Al Jazeera that the advance was worth $ 200 million. Central bank subsidies, valued at over $ 15 billion, are quickly being used up, and Lebanon’s expensive and ineffective electricity sector is partly responsible.

In a presentation to international donors in May 2020, Energy Secretary Raymond Ghajar said losses from the electricity sector cost about $ 1.6 billion in public funds each year, although some reports say they can bleed up to $ 2 billion . That’s about 3 percent of the country’s total economy, and experts told Al Jazeera that it accounts for almost half of the country’s national debt.

“In the absence of political solutions, we just take to the streets,” Marc Ayoub, energy researcher at the Issam Fares Institute of the American University of Beirut, told Al Jazeera. “If we pay $ 200 million, we’ll go on for another two or three months, then what? We cannot go on like this. “

Struggling economy

Other stopgap measures have failed or stalled, notably a deal on fuel for medical services with Iraq, under which Prime Minister Hassan Diab reportedly failed to fly into the country for security reasons in late April to secure the deal. On Tuesday, Hezbollah Secretary General Hassan Nasrallah suggested that the Tehran-backed group be ready to negotiate and buy fuel from Iran.

Lebanese households in Beirut have suffered intermittent blackouts of three hours a day for nearly three decades, although blackouts typically last longer elsewhere.

Those who can afford it pay private generator suppliers for an additional boost in performance. And despite the sheer ineffectiveness, the government kept the system going: it subsidized fuel and maintained its bloated workforce, which activists and experts say are part of the “clienteleist networks” of political parties.

While citizens and policy makers alike have condemned the country’s ineffective electricity sector, Lebanon’s troubled economy has re-voiced concerns that they cannot leave the lights on. Lebanon is suffering from a devastating economic crisis, with a local currency that has lost around 85 percent of its value and food prices among the highest in the world.

Today, even in some of the wealthiest parts of the capital, blackouts are more common. Power plants are shut down after they run out of fuel to operate. In some cases, the EDL cannot pay for fuel from oil tankers that have already arrived in the country. Most recently, the Turkish Karpower had shut down two floating barges, which supplied a quarter of the country’s electricity, due to payment arrears.

Generator suppliers are now saying they are struggling to break even due to soaring demand and skyrocketing costs. A dealer, Kassem, told Al Jazeera that given the shortage, they would buy fuel on the black market at exceptional prices.

“The power outages in Beirut lasted three hours but sometimes reach 12 hours,” he said anxiously, explaining that most generators would overheat after about six hours. “At the moment the weather is nice, but as soon as it gets warmer, demand will increase.”

And like elsewhere in Lebanon’s troubled markets, Kassem said price hikes are imminent to cover expensive fuel and generator maintenance. “We cannot fill the gaps left by the state. It is nonsense to think that we can almost completely replace the state electricity with generators. “

Lebanon has asked the international community to contribute nearly $ 5.6 billion to develop the power sector [Aziz Taher/Reuters]

Empty promises and self-interest

For more than a decade, Lebanese officials have promised major structural reforms that would ensure uninterrupted electricity supply while halting the weakening of public finances. Be it more power plants, diversifying fuel sources for greater efficiency, and even investing in solar panels, wind farms and hydropower – authorities said they had a vision to reduce the deficit and develop this archaic sector.

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

Bassil’s successors often belonged to the same political party he now chairs, the Free Patriotic Movement, and have since pushed for this plan in both government and the international community. The last repetition took place in April 2019.

Not much of the plan went into effect, except for two Turkish floating barges. Initially a temporary measure, the barges are still in Lebanon to this day. Despite the worsening economic situation and repeated failure to implement the plan, the Lebanese authorities are pushing for it practically unchanged.

“The ministry usually felt that it had its strategy paper and didn’t need to look elsewhere,” independent energy advisor Jessica Obeid told Al Jazeera. “This is problematic because at some point the main concern of the ministry was to implement this policy rather than find another way to provide electricity.”

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

As the country’s financial well-being has deteriorated rapidly since then, Lebanon asked the international community to contribute nearly 5.6 billion to an international donor conference in Paris in 2018.Since then, the international community has urged Lebanon to implement economic reforms and accountability to unleash development aid running into billions.

However, a source from the Department of Energy told Al Jazeera that the hands of the current government, which is acting only as an administrator, are tied.

“[The caretaker government] unable to make financial decisions, ”the source said. “The main obstacle is [the lack] a full-fledged government. “

“Don’t reinvent 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 resulted in a crippling impasse. Not even French President Emmanuel Macron, who promised development aid, could break the deadlock.

Obeid and other experts say, however, that the sectarian system of power-sharing in the country is based on “self-interest”.

The construction of power plants or the commissioning of companies for development projects is also associated with the country’s political class. A notable case was the planned power plant in the northern coastal city of Selaata at the end of 2019. The city is not connected to the grid, and activists and politicians alike accused the FPM-backed Ministry of Energy of having proposed the location for its own political motives – its location in a Christian city .

Although the plant met with great resistance even within the country’s ruling political parties, it was still a heavily promoted part of Lebanese electricity reform proposals in May 2020. In September even the French President Emmanuel Macron allegedly demanded the plans for the controversial power plant.

The 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 feasible steps could be taken to resolve this crisis. “We are not reinventing the wheel here,” he said, explaining that any solution to Lebanon’s power problems would also lie in broader economic restructuring. But will the country’s leadership give up its endemic nepotism and political interests?

“Whatever we propose, it goes against the interests of the political elite,” added Ayoub. “We tell them to stop benefiting from something that they have benefited from for 20 years.”

At the same time, officials and experts alike are expecting no investment in Lebanon to restructure its fragile power sector without an International Monetary Fund-approved economic rescue plan, though talks have not resumed for nearly a year since the collapse in July 2020.

So how long can Lebanon keep the lights on while its current setup sucks the rest of the public finances? A year, said Obeid.

“In the current situation we are moving into, I expect that they will continue to use whatever is left of the depositors’ money,” she said. “It’s a disaster emerging.”


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