Lebanon’s power crisis: “A disaster in the making” | Business and Economic News

Beirut, Lebanon – Lebanon’s power sector is once again on the verge of complete failure, and the government once again continues to invest money in it instead of repairing it.

The state producer Électricité du Liban (EDL) ran out of funds to buy fuel, so the government sent a letter to the central bank asking for advances from its depleted reserves.

A source from the Department of Energy told Al Jazeera that the advance payment was worth US$200 million. The central bank’s subsidies are estimated to exceed US$15 million and are rapidly depleting, partly because of Lebanon’s expensive and inefficient power sector.

In a speech to international donors in May 2020, Energy Secretary Raymond Ghajar stated that losses in the power sector cost approximately US$1.6 billion in public funds each year, although some reports suggest that it may lose up to US$2 billion. This is about 3% The economy of the whole countryExperts told Al Jazeera that it almost made up half of the public debt of the country that is short of funds.

Mark Ayub, an energy researcher at the Issam Fare Institute at the American University of Beirut, told Al Jazeera: “Without any political solution, we are just delaying time.” “If we pay $200 million [pounds], We insist on two or three months, and then? We can’t go on like this anymore. “

Struggling economy

Other expedients have failed or stagnated, the most notable being the fuel-for-medical service agreement reached with Iraq. According to reports, the caretaker Prime Minister Hassan Diab did not fly to the country for security reasons at the end of April. Make a deal. On Tuesday, Hezbollah Secretary-General Hassan Nasrallah stated that the Tehran-backed organization is ready to negotiate with Iran and buy fuel.

For nearly three decades, Lebanese families have endured intermittent power outages lasting three hours a day in Beirut, although power outages in other places are usually longer.

Those who can afford it pay additional power upgrades to private generator suppliers. Despite its inefficiency, the government continues to maintain the system: subsidizing fuel and maintaining its bloated workforce, which activists and experts call part of the party’s “customer network”.

Although citizens and policy experts condemned the inefficiency of the country’s power sector, Lebanon’s troubled economy has once again raised concerns about the inability to continue to supply electricity. Lebanon is experiencing a devastating economic crisis. The local currency has depreciated by about 85% and food prices are among the highest in the world.

Today, even in some of the wealthiest areas of the capital, power outages have become more frequent. After the fuel ran out, the power plant was shutting down. In some cases, EDL cannot pay for fuel from tankers that have already arrived in the country. Recently, Turkey’s Karpower shut down two floating power barges due to payment arrears-they provide a quarter of the country’s electricity.

Generator suppliers now say that they are struggling to achieve a breakeven due to soaring demand and soaring costs. A distributor, Kassem, told Al Jazeera that they are buying fuel at extremely high prices on the black market due to fuel shortages.

“The power outage in Beirut is three hours, but sometimes it reaches 12 hours,” he said anxiously, explaining that most generators would overheat after about 6 hours. “The weather is good at the moment, but once it gets hot, demand will increase.”

And, as elsewhere in Lebanon’s troubled market, Qasim said prices are about to rise to cover expensive fuel and generator maintenance. “We cannot fill the gap left by the state. It is nonsense to think that we can almost completely replace national electricity with generators.”

Lebanon has asked the international community to donate nearly US$5.6 billion for the development of its power sector [Aziz Taher/Reuters]

Short promises and vested interests

For more than a decade, Lebanese officials have pledged to carry out comprehensive structural reforms to ensure uninterrupted power and prevent the loss of public finances. Whether it is introducing more power plants, diversifying fuel sources to improve efficiency, or even investing in solar panels, wind farms, and hydropower, the authorities have stated that they have a vision to reduce the deficit and develop this ancient sector.

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

Basil’s successor usually comes from the same party he now leads, the Freedom Patriotic Movement, and has been promoting this project in the government and the international community ever since. Its last reiteration was in April 2019.

Apart from the introduction of two Turkish floating-powered barges, the plan did not take much effect. Initially a temporary measure, these barges are still docked in Lebanon. Although the economic situation has deteriorated and the plan has repeatedly failed to implement, the Lebanese authorities continue to push forward with almost no adjustments.

Jessica Obeid, an independent energy policy consultant, told Al Jazeera: “The ministry usually thinks that they have their own policy documents and don’t need to look elsewhere.” “This is problematic because at some point , The main focus of the ministry is to implement the policy, not to find a different way of power supply.”

The implementation of the policy plan is very expensive from beginning to end; the then Minister of Energy Basil said that the government will contribute US$1.55 billion, the private sector will contribute US$2.32 billion, and the international community will contribute a total of US$2.65 billion.

Since then, the country’s financial situation has deteriorated rapidly, and Lebanon asked the international community to donate nearly US$5.6 billion to its power sector development projects at the International Donor Conference in Paris in 2018. Since then, the international community has urged Lebanon to implement economic reforms and accountability mechanisms to release billions of dollars in development aid.

In other words, a source from the Department of Energy told Al Jazeera that the current government only operates as a guard, and its hands and feet are restrained.

“[The caretaker government] Cannot make any financial decisions,” the source said. “The main obstacle is [the lack] A mature government. “

‘Don’t reinvent the wheel’

Lebanon has been without a government for 10 months, and the continuous quarrel between Michel AOUN and Prime Minister Sad Hariri has led to a paralyzed stalemate. Even French President Emmanuel Macron, who promised development assistance, could not break the deadlock.

But Obaid and other experts said that the country’s sectarian power-sharing system is based on “vested interests.”

Even companies that build power plants or contract development projects are related to the country’s political class. A notable case is the proposed power plant in the northern coastal town of Selaata at the end of 2019. The town is not connected to the grid, and activists and politicians have accused the FPM-backed Department of Energy of proposing the site out of its own political motives because it is located in a Christian town.

Although the power plant was even strongly opposed by the country’s ruling party, as of May 2020, it was still an important part of Lebanon’s power reform proposal. According to reports, by September, even French President Emmanuel Macron called for the cancellation of the plan. Controversial power plant.

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

Energy researcher Marc Ayoub said that many feasible steps can be taken to resolve this crisis. “We are not here to reinvent the wheel,” he said, explaining that any solution to Lebanon’s electricity problem lies in broader economic restructuring. But will the country’s leadership abandon its unique nepotism and political interests?

“No matter what we propose, it is against the interests of the political elite,” Ayub added. “We told them to stop benefiting from what they have benefited for 20 years.”

At the same time, officials and experts agree that in the absence of an economic rescue plan approved by the International Monetary Fund, there will be no investment in Lebanon to reorganize its fragile power sector, although it has almost No recovery for a year.

So, how long can it last when Lebanon’s current setup runs out of public finances? One year, Obaid said.

“In the current situation where we move forward, my assumption is that they will continue to drain the remaining money of depositors,” she said. “This is a disaster in the making.”

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About the Author: Agnes Zang