After years of stalling reforms, Lebanon is running out of time – and money – to keep the lights on.
Lebanon’s electricity sector is again on the verge of total failure, and the government has once more continued to throw money at it, instead of fixing it.
State-run producer Électricité du Liban (EDL) ran out of funds to purchase fuel, so the government issued a letter to the central bank for an advance from its withering reserves.
A source from the energy ministry told Al Jazeera the advance is worth $200m. The central bank’s subsidies, estimated at more than $15bn, are depleting rapidly, and Lebanon’s expensive and ineffective electricity sector is partly to blame.
In a May 2020 presentation to international donors, Energy Minister Raymond Ghajar said that losses from the electricity sector cost about $1.6bn in public funds every year, though some reports say it can bleed up to $2bn. That is about 3 percent of the country’s entire economy, and experts told Al Jazeera it makes up for almost half of the cash-strapped country’s public debt.
“In the absence of any political solutions, we’re just kicking the can down the road,” Marc Ayoub, Energy Researcher at the American University of Beirut’s Issam Fares Institute, told Al Jazeera. “If we pay $200m, we carry on for two or three more months, then what? We cannot continue like this.”
Struggling economy
Other stopgap measures have failed or stalled, most notably a fuel-for-medical-services deal with Iraq, where reportedly for security reasons caretaker Prime Minister Hassan Diab did not fly to the country to secure the deal in late April. On Tuesday, Hezbollah Secretary General Hassan Nasrallah suggested the Tehran-backed group is ready to negotiate and purchase fuel from Iran.
Lebanese households for almost three decades put up with daily intermittent power cuts that last for three hours in Beirut, though power cuts elsewhere usually last longer.
Those who can afford it pay private generator suppliers for an extra power boost. And despite the sheer ineffectiveness, the government continued to sustain the system: subsidising fuel and maintaining its bloated workforce, which activists and experts say are part of the political parties’ “clientelistic networks”.
While citizens and policy experts alike have condemned the country’s ineffective electricity sector, Lebanon’s struggling economy has renewed concerns of not being able to keep the lights on. Lebanon is reeling from a crushing 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, power cuts have become more frequent, even in some of the most affluent parts of the capital. Power plants are shutting down, after running out of fuel to operate. In some cases, the EDL cannot pay for fuel from oil tankers that had already arrived in the country. Most recently, Turkey’s Karpower shut down two floating power barges – which provided a quarter of the country’s electricity – due to payment arrears.
Generator suppliers now say they are struggling to break even because of soaring demand and skyrocketing costs. One distributor, Kassem, told Al Jazeera they are resorting to buying fuel at extraordinary prices on the black market, amid shortages.
“Power cuts in Beirut were three hours but are hitting 12 hours sometimes,” he said anxiously, explaining most generators will overheat after about six hours. “The weather is nice at the moment, but once it gets hotter, demand will increase.”
And, like elsewhere in Lebanon’s struggling markets, Kassem said price hikes are imminent to cover expensive fuel and generator maintenance. “We can’t fill gaps left by the state. To think that we can replace state electricity almost entirely with generators is nonsense.”
Empty promises and vested interests
For more than a decade, Lebanese officials have promised sweeping structural reforms that would secure uninterrupted electricity while stopping the haemorrhaging of public finances. Whether it was bringing in more power plants, diversifying fuel sources for more efficiency, and even investing in solar panels, wind farms and hydroelectric power, the authorities said they had a vision to reduce the deficit and to develop this archaic sector.
Much of these promises are based on a 2010 “ambitious but realistic” policy paper by then-energy minister Gebran Bassil, which he said would reduce losses from the sector to zero by 2014. Bassil also said in his paper this reformation plan could make the sector possibly profitable by 2015.
Bassil’s successors were often from the same political party he now heads, the Free Patriotic Movement, and have since pushed for this plan both in government and to the international community. Its latest reiteration was in April 2019.
Not much of the plan went into effect, apart from bringing in two Turkish floating power barges. Initially a temporary measure, the barges are still docked in Lebanon to this day. Despite worsening economic circumstances and the repeated failure to implement the plan, the Lebanese authorities continue to push for it, with virtually no adjustments.
“The ministry has typically had that sense that they have their policy paper and don’t need to look elsewhere,” independent energy policy consultant Jessica Obeid told Al Jazeera. “This is problematic because at some point the ministry’s key concern became implementing that policy than finding a different way to provide electricity.”
Implementing the policy plan is quite expensive from start until finish; then-Energy Minister Bassil said the government would contribute up to $1.55bn, the private sector $2.32bn, and a total of $2.65bn from the international community.
With the country’s financial wellbeing rapidly deteriorating since then, Lebanon in 2018 had asked the international community to contribute almost $5.6bn for its electricity sector development projects at an international donor conference in Paris. The international community has since urged Lebanon to enact economic reforms and accountability mechanisms to unlock billions of dollars in developmental aid.
That said, a source at the energy ministry told Al Jazeera the current government, only functioning at a caretaker capacity, has its hands tied.
“[The caretaker government] cannot make any financial decisions,” the source said. “The main impediment is [the lack] of a full-fledged government.”
‘Not reinventing the wheel’
Lebanon has been without a government for 10 months, and continuing quarrels between President Michel Aoun and Prime Minister-elect Saad Hariri have caused a crippling deadlock. Not even French President Emmanuel Macron, who promised to secure development aid, could break the logjam.
But Obeid and other experts say that the country’s sectarian power-sharing system built on “vested interests”.
Even building power plants or contracting companies for development projects is linked to the country’s political class. One 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 alike accused the FPM-backed Energy Ministry of proposing the site for its own political motives, given its location in a Christian town.
Though the plant faced major opposition even from within the country’s ruling political parties, it continued to be a heavily promoted component element of Lebanon’s electricity reform proposals as recently as May 2020. By September, even French President Emmanuel Macron reportedly demanded to scrap plans for the controversial power plant.
Électricité du Liban itself is a politicised entity. One year ago, the government appointed its new board of directors 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’re not reinventing the wheel here,” he said, explaining that any solution to solving Lebanon’s power problems also lie in a wider economic restructuring. But will the country’s leadership give up its endemic nepotism and political interests?
“Whatever we’re proposing, it’s against the interest of the political elite,” Ayoub added. “We’re telling them to stop benefitting from something they’ve been benefitting from for 20 years.”
At the same time, both officials and experts alike do not expect any investment into Lebanon to restructure its fragile electricity sector without an International Monetary Fund-approved economic rescue plan, though talks have not resumed for almost a year since they broke down in July 2020.
So how long can Lebanon continue to keep the lights while its current setup drains the little that is left of public finances? One year, Obeid said.
“In the current situation where we’re heading, my assumption is that they’re going to keep depleting whatever’s left of depositors money,” she said. “It’s a disaster in the making.”
Source; Aljazeera
