In spite of widespread, frequent power cuts affecting the population, various Lebanese governments have failed to fix Lebanon’s electricity problems.
“The main issue with the electrical sector is the lack of continuity brought by the various administrations and not corruption,” says Ziad Hayek, secretary general at the Higher Council for Privatization.
According to an electricity expert working with the Lebanese government to improve the sector, up until 1994 ministerial decisions had to be approved not only by the minister in charge but also by the director general of the ministry. The expert spoke anonymously because he was not authorized to comment to the media.
But, he says, starting in 1994, the power of the ministry’s directors was overturned by a decision of the Shura Council, Lebanon’s highest court.
“This decision may have accounted for many of the problems faced today by the electricity sector,” the expert says. “Each program that was promoted by one minister was usually abandoned by the following politician, which might partially explain why Lebanon’s four main electricity plants were initially built to operate on gas, when there was no gas pipeline connecting Lebanon to a gas producing country until 2009.”
According to Lebanon’s Minister of Energy and Water, Alain Tabourian, this month one of two turbines at Lebanon’s northern Deir Ammar station will start running on gas supplied by Egypt through a pipeline. The supply from Eygpt has been delayed several times in the past year for reasons that remain unclear.
Whatever the reasons underlying the electrical sector’s grim reality, Lebanon is constantly faced with new challenges, with the country’s electrical needs growing every year and further putting pressure on a failing network.
Not enough charge
“Our electricity needs are increasing by 6 percent every year,” says Tabourian. “We are confronted by a growing deficit of 800 megawatts resulting from the difference between a supply of 1,500 megawatts and a demand of 2,300 megawatts. The pressure on the sector is further exacerbated by the establishment of new large industrial projects, each requiring more than 15 megawatts of electricity. Finally, our production is also losing 3 percent every year.”
The minister attributed the state’s electrical difficulties to the aging installations.
“Some of the plants were built over 40 years ago. Two of our plants run on heavy fuel, one on diesel and a fourth which used to be operated on diesel is now partly functioning on gas, starting at the end of August,” explains Tabourian.
The electrical sector’s dependence on fuel has translated into a massive financial deficit for the budget of the Lebanese government. The deficit of Electricité du Liban (EDL) amounted to $1.6 billion in 2008, and $985 million in 2007, according to Marwan Mkhael, head economist at BLOM Invest Bank.
“When we speak of a $1.7 billion deficit, we forget that the actual expenses of EDL actually exceed that figure by some $500 million dollars, representing collected bills,” Hayek points out.
Part of the Arab pipeline that connects Egypt to Syria runs for 32 kilometers in Lebanon, stretching out from the Syrian border, but it will not impact Lebanon significantly, according to Hayek. The pipeline — which originates in the area of Arish, in Egypt, runs through the Jordanian port of Aqaba and the Al Rehab power station before ending in the Syrian city of Homs — was originally supposed to supply both turbines of Lebanon’s Deir Ammar northern plant. However, due to the recent uptick in economic activity witnessed by Egypt coupled with increased Jordanian and Israeli demand for gas, Egyptian gas production has been tightly squeezed.
“Egypt has promised us, however, to beef up the supply by next year,” reassures Hayek.
Tabourian explains that up until today, about 60 percent of Lebanese electricity was produced by diesel turbines, a source of energy that is more expensive than heavy fuel, hence the need for cheaper types of combustibles like gas. The heavy burden of buying expensive fuel for Lebanese plants has been aggravated in recent years by high oil prices. Last year, oil prices, at their height, reached $147 dollars per barrel.
“The deficit can’t be attributed to EDL but to the policy adopted by the various governments, which relied on heavily subsidizing the sector. This strategy is a real danger to Lebanon, if reforms fail to be institutionalized,” adds Hayek. He believes that to be efficient, subsidies need to be organized and allocated on the basis of certain considerations, such as the income level of each area, and the needs of the different economic sectors, while favoring low-income areas and specific industries.
Many EDL detractors have also mentioned the EDL labor syndicate as another obstacle on the road to revamping the sector. Hayek emphasizes, however, that syndicate members have received governmental reforms very positively.
“Their priority is not to be left in a difficult situation, which is understandable; in any case, they do not account for more than 5 percent of the total electricity budget, which is a minor expense,” he says.
Tabourian says that former governments have invested very little in the electricity sector in spite of the subsidies disbursed.
“No real improvements or modernization[s] were brought to the sector. In nearly 17 years, Lebanon has only spent $750 million on improvements to the plants and $650 million on the electricity network. The fact that various governments have not made any real and tangible investments has led us to the current situation,” he says.
Another challenge faced by the sector lies in the modernization of the electrical grid. “We are also facing difficulties with the high voltage grid, which is incomplete in certain areas such as the Mansourieh region. We also need to put in place a national control center for the network,” Hayek says.
EDL also has to manage electricity theft on a daily basis, a problem played down by Tabourian. “Electricity theft is estimated at about $150 million, a minimal cost when compared to the sector’s deficit that can reach $2.5 billion when oil prices are at $140,” he says.
Average electricity tariffs in the MENA region, 2006
Hayek disagrees.
“The value of actual electricity theft is much greater than figures provided, because it is calculated based on the official subsidized rate,” he says. The expert underscores that theft occurs all over Lebanon, mostly in areas such as the south, the southern suburbs and the north. He adds that massive electricity theft is not necessarily committed by private individuals, but by large companies, with greater electrical needs and which tend to bribe governmental employees.
In order to supplement yearly electricity losses, Tabourian recently suggested purchasing large generators that can be ordered within a period of one year and each have a capacity of 17 to 80 megawatts.
“We are currently trying to negotiate their purchase from the French government, but one has to keep in mind that it would only be a temporary solution. A second solution would be in equipping turbines with special kits [that would] beef up their potential by 180 megawatts in the summer time, a season during which the heat negatively affects the capacity of the turbines,” Tabourian says.
“These solutions are temporary, but more importantly the government needs to develop long-term solutions relying on a diversification of fuel needs, something that will reduce Lebanon’s exposure to the volatility of fuel prices and its dependence on any oil producing country in particular,” Tabourian says.
This approach seems to meet the approval of Hayek. So why the holdup? According to Tabourian, who submitted a report on the electricity sector to Prime Minister Fouad Siniora a few months ago, the study was never discussed by the Council of Ministers. But the electricity expert adds that a similar study had been submitted by the previous government, one that was later abandoned by Tabourian.
Another point of contention between the two factions concerns the sector’s privatization. Tabourian advocates the building of new plants on the basis of a private-public partnership, an agreement between government and the private sector that would marry public policy with the managerial skills of the private sector.
“Rather than completely transferring public assets to the private sector, as with privatization, the government will still finance the cost of the plants. This would allow the state to rein in electricity prices, which would be extremely high if the private sector had to assume the costs of building the actual power plants,” says Tabourian.
Hayek rejects this idea.
“I doubt any company would be willing to take over a sector plagued by such a huge deficit,” he says. “We are proposing instead to privatize certain services such as billing and collection, as well as the installation of digital meters.”
He adds that the sector should be open to private companies which would be allowed to sell electricity to complement the power supplied by the state.
