In 2010, everything was looking up for Lebanon’s electricity sector. Gebran Bassil, then minister of energy and water, had put forth a master plan that by 2015 would have delivered 24 hours of uninterrupted electricity generated cheaply by clean burning natural gas. The plan, needless to say, did not fully materialize, leaving individual areas to come up with their own plans to produce electricity – starting in Zahle in 2014, with plans announced for Jbeil (Byblos) and Tripoli in 2015.
There is uncertainty in the legal framework governing the electricity sector; Law 462 from 2002 remains unimplemented, but a parliament resolution from April 2014 allows cabinet a two-year window to grant production licenses. Time may be running short but that has not stopped Byblos Bank subsidiary, Byblos Invest Bank, from investing in the capital of the newly formed company Byblos Advanced Energy (BAE), which plans to build a 64 megawatt (MW) power plant in Jbeil. The project is shovel ready, pending the results of an environmental impact assessment and license approval by cabinet.
Lebanon’s state-owned provider, Electricité du Liban (EDL), is not capable of generating enough electricity to meet the country’s demand. Lebanon currently has 1,500 MW of installed capacity, with that number set to rise as new reciprocating generators are scheduled to come online at the Zouk and Jiyeh power plants by spring 2016. Demand, however, exceeds production capacity by an average of some 800 MW, causing daily blackouts throughout the country.
At the same time, EDL is a huge drain on the state’s coffers because of the significant subsidy at which electricity is generated. Since 1996, the government has helped cover the cost of generation, capping the purchase of fuel by EDL at $25 per barrel, with the treasury covering the difference. This partly explains why the treasury transfers some $2 billion per year that Alain Bifani, director general of the Ministry of Finance, says has been mitigated in the short term because of the decrease in the cost of oil. But EDL also sells electricity at the fixed rate of LBP 75 ($0.05) per kilowatt hour to distributors, while subscribers are charged on average only LBP 133 ($0.09). “This decision has to be changed – we are simply unable to continue to subsidize the sector in the same way,” Bifani tells Executive.
Because EDL is not able to reliably supply electricity, customers must resort to costly private generators. Every month the ministry of energy circulates a list suggesting a price at which to offer 5 and 10 amps to subscribers – and the ministry of economy has a hotline for consumers to report price violations – but it is not clear how well the policy is enforced. The business of private generation is a lucrative one which, according to a 2011 ministry of energy study, was worth $1.7 billion per year.
With large amounts of money on the line, however, comes trouble. In 2015, Zahle implemented a local plan to bring some 53,000 subscribers 24 hours of electricity by generating 48 MW of power. Assaad Nakad, chairman of Electricité de Zahle, did not respond to Executive’s requests to fully understand the plan. Generator owners’ demonstrations on the streets of Zahle escalated in February 2015, shutting down four transformers operated by Electricité de Zahle. Since then, however, there have been no more security incidents and the company has delivered on its promise to provide 24-hour electricity.
The Jbeil plan
Following on from the success of Zahle, BAE announced plans to install generation capacity for the area of greater Jbeil. Mario Chelala, board member of BAE, insists that the days of paying twice for electricity are over. “Today if you are living in Jbeil you are receiving two [bills] – one from Electricité de Jbeil (EDJ) and one from a separate company that has multiple generators all over the region. We have maybe 80 percent of the generators under our control,” says Chelala. Jbeil has some 350 generators – local institutions like the universities and some factories having their own, with the rest for the public. Chelala says that a sister company of EDJ began consolidating ownership of the public generators over the course of the past 10 years so taking those generators offline will not be an issue.
BAE’s plan is to build a 64 MW power plant in the industrial area of Blat, outside of Jbeil, on land leased from the Maronite church for $500,000 per year, according to a plan prepared for potential investors; Chelala says that amount may end up being lower and that the terms of the lease would be valid for at least 40 years. In the study, Chelala calculates that customers of EDJ – the concession distributing EDL-generated electricity in the Jbeil region – receive 30 amps and, with a generator subscription for 10 amps, pay on average $150 per month. “We are aiming to have [customers] pay less than $95, [a] 37 percent decrease in the bill.” The investment study also calculates the current kilowatt per hour at $0.09 for electricity from EDL and $0.49 for electricity provided by private generators with a total average cost calculation at between $0.20 and $0.30, depending on variations in fuel price.
In 1964 a decree created EDL, establishing it as the sole producer of electricity in the country since. EDJ was producing electricity prior to 1964, as were a few other concessions. EDJ has the exclusive right to distribute electricity through a concession that expires at the end of 2020. The distribution area covers nine municipalities in the Jbeil area with 27,890 customers as of September 2014. Chelala says that since EDL is breaching its contract, EDJ has the right to produce. “Our engagement with EDL is that it provides us with enough capacity for 24-hour electricity, which has not happened, so there is a breach of contract. That’s why we think we are entitled to produce,” Chelala says. His legal argument is bolstered by Parliament passing Law 288 in 2014, amending article 7 of Law 462 allowing the cabinet – at the recommendation of the ministers of energy and finance – to grant production licenses within a two-year window. Chelala says their proposal has been sent to cabinet for approval, and that it responded with a request to conduct an environmental impact assessment which Chelala says will be completed before the end of 2015. “We hope [cabinet will approve] but if it doesn’t we are continuing with our project,” Chelala says, adding that “legally, either way, we think we are entitled to [build] our power plant.” Once it moves forward he says Jbeil can expect a maximum of two years before full delivery of the power plant.
Uncertainty over the legal framework has not deterred investors. In October, Byblos Invest Bank announced it would buy approximately 35 percent of shares in BAE – the company owning the project – alongside Vectra Holding sal, whose primary shareholder is Elie Bassil, chairman of EDJ. Chelala says Byblos Bank will provide loans to finance the initial investment.
The investment study for potential investors forecasts an estimated funding requirement of $68.4 million. The funding source follows an equity-to-financing mix with 30 percent, $20.5 million, to be raised, with an additional $38 million in long term loans and another $10 million in working capital loans. “We aim – once [the power plant is completed] – to go public with this company and to sell up to 60 percent of the shares to the public. We want each subscriber to have the option to have one share, be present in the company and [be represented by] the board of directors,” Chelala says. He also says that they have not yet decided whether BAE would list on the Beirut Stock Exchange, though he indicated it as a likelihood. Chelala also says IFU – a state-owned Danish investment fund for developing countries – has expressed interest and has greenlit the project for investment once it receives a license.
BAE’s client, EDJ, as the bill collector, secures the source of revenue. “What we’re forecasting is a net profit [margin] after amortization, loan repayment, interest and maintenance between 10 and 15 percent – that’s what the shareholders [can expect],” Chelala points out.
But when cabinet might meet again, and whether Jbeil’s plan will surface on the agenda, is anyone’s guess. Chelala’s confidence in the plan moving forward is underlined by the broad consensus that has been built among the various local stakeholders – religious institutions in the area have extended their support. At the government level, the political forces that approved Law 288 in 2014 are the same ones that reside in cabinet at the end of 2015. The minister of energy, Arthur Nazarian, is a board member of Byblos Bank, which, leaving conflict of interest issues aside, suggests some prospect that the license will be approved.