Energy Sector Reform Awaits Action by Parliament and a Government Missing-in-Formation

August 14, 2018

When you think that dysfunctional Lebanon can’t get any worse, politicians make sure that there is another “shame on Lebanon” issue. This month, it’s the haggle over electricity, nothing new, but this time the consequences can be more pain for the consumer and more plunder for those protecting their interests in keeping Lebanon energy in-efficient.

 

First up was the “gift” of a 235mw power barge from Turkey, free of charge for three months with Lebanon paying for the fuel (diesel that is only getting more expensive daily). Not only are Amal and Hezbollah fighting over where it should dock, but the FPM-led energy ministry can’t figures out how to utilize the full potential of the barge, continuing the blackouts for most residents without generators and enabling the private generator operators to acquire more business.

 

Amal is concerned that the temporary fix will only postpone construction of a permanent facility to serve the South. “But critics seized on the statement as confirmation that Amal’s leaders were in bed with the operators of private generators, who have been making fortunes selling electricity during blackouts at many times the state price,” according to the Turkish press.

 

This issue has very large financial consequences. The public debt of $80 billion is driven by the electricity sector’s annual $36 billion cost. Much of the anger is directed at the lack of agreement as to how to upgrade and reform the services of the electricity company of Lebanon, EDL. According to a recent article, “There are vacancies in 50 percent of EDL and only two representatives remaining in a seven-member board of directors. A law was issued in 2011 to fill these posts and, yet, seven years later, nothing has been done. EDL was supposed to be restructured and its rules were supposed to be modernized. The private sector was supposed to renovate power plants and take part in the distribution and tax collection process, while the state would keep control of the grid,” a plan that was dead on arrival due to competition over who would benefit from the changes.

 

Ironically, one of the major cost overruns is fueled by importing liquid gas and diesel fuel to run the generators, even though Lebanon sits on projected very rich gas deposits. Politics are also hindering deals with regional providers such as Syria, Iraq, and Iran that could take advantage of existing pipelines to transfer gas to Lebanon.

 

At the April CEDRE donor conference, General Electric offered to build power plants in six months that would meet Lebanon’s needs, with a surplus, at a cost less than what the country is currently paying. Nothing has happened, even though the monies are available from the World Bank and the private sector. Without enabling legislation, stuck in the Parliament, nothing can be done without desperately needed reforms. One reason reforms are critical is summed up in the article, “As for EDL’s financial deficit, it can be blamed on several reasons, such as government decisions to exempt some regions from the power bill for security and social reasons. Other regions have been exempted for political reasons, while influential powers do not pay their power bill.”

 

As another story pointed out, “A lack of investment in energy infrastructure over the years has made it impossible for Lebanon to meet its power demands. The country was ranked 125th out of 127 countries in the World Economic Forum’s Energy Architecture Performance Index (EAPI) released last year, and a worsening economy makes it unlikely that much-needed investment will arrive any time soon.” It went on that EDL only generates about half of Lebanon’s needs, rationing power throughout the country and enriching private generator operators.

 

Adding to the  problem, “With EDL unable to provide 24-hour power, officials are reluctant to increase the price of household bills — set years ago and never increased to reflect the cost of electricity generation today. As such, the government continues to cover EDL’s over $2 billion annual deficit that represents around 15 per cent of the state’s total yearly spend — compared with seven per cent on healthcare or nine per cent on education.”

 

This stalemate demonstrates the lack of political will to overcome obstacles to needed reforms, delays that have immediate and long-term consequences. Ferid Belhaj, the World Bank’s vice president for the Middle East and North Africa, told reporters in Beirut that the economy is “in a state of fragility,” and that the country should take steps to reform the electricity sector, where the state-owned provider operates on a $1.5 billion annual deficit.”

 

Belhaj said the World Bank has a portfolio of more than $2 billion of projects in Lebanon, including about $1.1 billion which is still “not converted into actual investment, meaning they are sitting with parliament and the council of ministers.” Saroj Kumar Jha, the World Bank’s regional director for the Middle East said the projects include improving roads in rural areas, building rapid bus transit across Beirut, and improving the electricity sector.

 

 

 

 

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