CommentFinanceSpecial Report

Deal or no deal?

by Mounir Rached
written by Mounir Rached

Today, one-and-a-half years after the April 2022 staff-level agreement between the International Monetary Fund (IMF) and the Lebanese government, the challenges to implementing the proposed $3 billion deal have become increasingly evident.  A final agreement hinges on a fundamental demand from the IMF: the sustainable and serviceable restructuring of public debt in foreign currencies. In the current IMF scenario, the burden would indisputably fall on the depositors, while the state would be relieved of the $73 billion it claims in estimated losses. A deal under these conditions would indubitably do more harm than good.

This massive unburdening of the state would happen through the write-off of bank deposits in dollars at the central bank, Banque du Liban (BDL) which is offset by the write-off of bank deposits from both citizens and foreigners, and, finally, the write-off of the government’s obligations to the central bank. As a result, the state would only have market debts in foreign currency–including from eurobonds (banking and non-banking)–and bilateral and multilateral debt. Half of these eurobonds are held by international financial institutions, and most have been acquired at high discount. Although this strategy would enable the rescheduling of eurobonds after reevaluation, it is not possible to write them off. Major financial institutions have too much dominance in financial markets, and the local and international courts where eurobond debts have been registered would be too severely impacted.

The crux of the impasse

In the IMF’s view, writing off deposits would transform the state’s dollar debt into an amount less than 100% of the gross domestic product (GDP), making its solvency level acceptable. The state would then be able to service its debt with a reform program supervised and financed by the IMF.

The most important question is: why does the IMF require the cancellation of dollar deposits and the debt owed by the BDL to banks? In short, the IMF is obligated to protect the quotas of its member countries. From these reserves, the IMF members obtain interest equivalent to the interest of Special Drawing Rights. The IMF must ensure that the quotas of its member countries are not exposed to any risks, as it is responsible for lending to countries facing liquidity shortages and providing global liquidity.

For this reason, the IMF first demands that Lebanon, as a member state, avoid high sovereign risks by writing off the BDL’s—and the state’s—obligations to banks. An agreement will not be reached without cancelling most of the deposits and banks’ capital against their assets in the BDL. It seems the government’s leadership is moving in this direction to obtain a certificate of good behavior from the IMF.

A bankruptcy crisis?

The IMF justifies its position by stating that the current situation is one of bankruptcy and not default, and, consequently, writing off most of the banks’ liabilities and corresponding assets would ensure Lebanon’s ability to service its debt to the IMF without default. This scheme was developed by the technical team comprising government and IMF representatives, based on the 2020 Lazard rescue plan initially presented to the Diab  government at the beginning of the crisis. The aforementioned plan, which never reached implementation, proposed a massive bail-in scheme by depositors and equity holders. What is surprising is that the IMF, through its consultations with the Lebanese state, did not give enough attention to stopping waste and only focused on the role of reform.

Can the state realistically implement the IMF’s demands and gain its assistance? That is, can the state write off $73 billion in exchange for a loan from the IMF of only $3 billion? If the government wants to pursue this option, it must convince the banks to write off their capital, and depositors to write off most of their deposits in the banks. It is very difficult for society and the parliament, which represents the Lebanese people, to accept this option.

The government acknowledges the difficulty of achieving the IMF scenario, and is trying to convince the citizens that it will preserve their dollar funds by maintaining deposits of up to $100,000, which represent only 15% of the total deposits, to be paid over several years. According to the government’s assertion, the remainder would be transferred to a fictitious deposit recovery fund, where the nominal deposits would only be replaced after 70 years.  

The reality of the matter is that the BDL and the state are not bankrupt. Bankruptcy requires liquidation, and the state and the central bank have enough assets to cover their liabilities. The crisis is a liquidity crisis. In 2019, the central bank had $50 billion in reserves, exceeding the dollar debt and equivalent to what would be considered the loss for the central bank.

An alternative path

The government’s alternative solution is to secure confidence and liquidity first (and not by writing off deposits or returning them). This is possible by taking these immediate steps:

• Completely liberalize the exchange rate and abolish both the ‘Sayrafa’ platform and the multiple routes for the exchange of the Lebanese pound issued by the BDL, which set various rates. Liberalizing the exchange rate restores confidence and liquidity, equalizes the role of the dollar and the Lebanese pound for internal transactions, and puts an end to the ‘lollar’ phenomenon. In addition, the liberalization of the exchange rate eliminates the need for holding dollar deposits in the central bank, providing banks with additional liquidity equivalent to at least $10 billion and ensuring the return of billions of dollars from the local cash market (the dollarization) to banks. It also restores check and credit card payment methods.

• Reschedule all financial obligations, bank assets, and public debt for a period not exceeding five years for deposits.

• Achieve a fiscal balance within a short period through an increase in revenues after liberalizing the exchange rate. This will improve the revenues of public sector institutions by relying on the private sector to manage them, curb useless spending, and take advantage of the rescheduling of the state debt and its interest.

• Establish an integrated program whose cornerstone is to preserve all deposits. Citizens have lost billions of their own deposits through restrictions on exchange rates and withdrawals. It is enough.

The new government should take into consideration that the IMF looks at the solution from one perspective, which is preserving the rights of the member countries and recovering their loaned-out funds without risk. Its primary concern is not preserving the deposits of the Lebanese and foreigners using Lebanese banks. Is a consensus with the IMF achievable? This seems impossible, given that the requirements of such a deal place an insurmountable burden on the Lebanese people.

A  version of this article was originally published in Arabic in Aljoumhouria. 

0 comments
0 FacebookTwitterPinterestEmail
AnalysisFinanceSpecial Report

Who’s to blame?

by Rouba Bou Khzam
written by Rouba Bou Khzam

In the annals of economic distress, poignant statements often serve as harbingers of the challenges that lie ahead. Three years ago, then- President Michel Aoun’s proclamation that we were going “to hell,” echoed through the corridors of power. At the time, he was warning about the road Lebanon would tumble down if a new government were not formed. Today his words have proved prescient: we are once again without a government, and the gravity of the economic predicament has only festered.  

Aoun failed to prevent a tumble into economic and financial hell, government or no government. The work of today is to unravel the costs of past financial mismanagement, spotlight the fissures in the central bank and banking sector, and install a stable government or at least fully uncover its overarching role of financial responsibility for past and future. But citizens’ voices are full of distrust in their government, most of the state’s institutions, and all public and private financial institutions.

With a grand failure to adopt the relevant laws, the process of establishing future accountability has hardly even begun, and the forensic analysis of the responsibilities and misdeeds of institutions and individuals is far from complete. The audits and forensic findings that span the timeframes from 2015-2019, and then from the start of the crisis until now, highlight these pressing questions: What led us to the precipice of economic catastrophe? Who were the ones that the World Bank’s Lebanon Economic Monitor (LEM) described as the “very few” that thrived amidst the turmoil, and who bore the brunt of the nation’s financial undoing?

How did we get here?

The Lebanese economy has long faced challenges arising from lopsided production and consumption patterns. Productive sectors contribute to just 14 percent of the GDP, with the economy heavily dependent on consumption, accounting for 88.4 percent of domestic product from 2004 to 2016. As per the World Bank’s assessment, Lebanon’s economic engines, encompassing real estate and construction, finance, and tourism, have continued to face sluggishness since the onset of the Syrian crisis in 2011. The country’s overreliance on consumption is nothing new: over the 2004-2016 periods, private consumption averaged 88.4 percent of the domestic product.

Crucially, the key sectors, including real estate, trade, and public administration, are not productive by nature, resulting in a significant reliance on imports. Furthermore, total investments, constituting 23 percent of GDP, were concentrated in the real estate sector, which experienced a 2018 decline, creating an employment shortage, as it traditionally provides one in every ten jobs in the country. The trade deficit escalated to $8,431 million in the first half of 2019, indicating a consumption pattern heavily skewed toward imports.

The balance of payments exhibited a considerable cumulative deficit, reaching $5.4 billion by June 2019. Successive deficits were recorded between June 2018 and May 2019, totaling over $10.4 billion. The insufficiency of dollars received by Lebanon to meet its external obligations heightened the demand for the dollar, jeopardizing the stability of the local currency, the lira. 

A public debt crisis

People await to enter a bank that has just reopened in the centre of the Lebanese capital Beirut on November 19, 2019, after the Federation of Syndicates of Banks Employees in Lebanon had announced the end of a strike, saying new security measures had been agreed with authorities to protect banks. – An unprecedented protest movement against the ruling elite entered its second month with the country in the grip of political and economic turmoil. The leaderless pan-sectarian movement has swept the Mediterranean country since October 17, prompting the resignation of Prime Minister Saad Hariri’s government. (Photo by JOSEPH EID / AFP)

In 2018, Lebanon’s fiscal health sharply declined, marked by an expanding public budget deficit soaring to 11.5 percent of the GDP. Despite the central bank’s inverted role of funding government spending, by January 2019, the public debt had surged to $85.3 billion, escalating further to approximately $85 billion by June. In May 2019, the proportion of public debt service relative to total payments reached a concerning 34.3 percent. The estimated cost of servicing this debt, known as interest, stood at about 8.5 billion Lebanese pounds (approximately $5.5 million) in the 2019 budget law, draining a substantial 44 percent of public revenues.

As per the Association of Banks in Lebanon’s December 2019 report, Lebanon faced a severe deterioration in public finances in 2018. The public budget deficit surged to 11.5 percent of GDP, with public debt reaching $85.7 billion by June 2019. The debt service accounted for 34 percent of total payments in May 2019, costing around $5.5 billion or 44 percent of public revenues. This escalation highlights rampant corruption in the government and public administrations. The escalating public debt and fiscal deficit, in relation to the GDP, pose as one of the most critical challenges for Lebanon’s public finances. The public debt crisis stresses the widespread corruption embedded in the Lebanese state and its public administrations.

The perils of BDL’s “unconventional tools”

In 2015, Banque du Liban (BDL), the central bank, led by then-governor Riad Salameh, introduced a massive financial engineering scheme. The rationale, according to BDL’s November 2016 document on the strategy, was that following the regional effects of decreased oil prices, the flood of Syrian refugees into Lebanon, and the two-year lack of consensus to form a government, Lebanon’s economy showed signs of protracted weakness and the central bank would play savior. It cited a 144 percent debt-to-GDP ratio, an eight percent fiscal deficit, and the 11-year absence of an official state budget as some of the woes the country faced at the time. As evidence of its record in steering the country to economic growth, the BDL referenced the stabilizing role of its 2013 stimulus package. It concluded that the financial engineering scheme would make Lebanese society “the ultimate winner: it will benefit from more financial inclusion, better economic development, and a more stable social welfare.”

“Attracting foreign investment through high-interest rates on Lebanese pound deposits could have been a wise move, but it created a dependency on new deposits to meet the returns promised to existing depositors,” Mounir Younes, an economist and head of the economics department at Nidaa Al Watan, a news and media website, tells Executive, capturing the precarious nature of BDL’s financial engineering.

The recent release of a preliminary forensic audit conducted by Alvarez and Marsal, a US-headquartered firm, has uncovered peculiarities in central bank management and hinted at personal culpability at the level of governance. Encompassing the span between 2015 and 2020, the audit revealed a concerning “absence of comprehensive governance and risk management structures” within the central bank. It pointed to Salameh’s “unrestricted” discretion in implementing expensive financial engineering policies, at first widely praised as a buffer to reckless state spending, but now subject to scrutiny.

“A linchpin in BDL’s strategy was the fixation on maintaining a fixed exchange rate between the Lebanese pound and the U.S. dollar. While the government and the central bank believed that the fixed exchange rate would constitute stability at first, it became a source of vulnerability as economic challenges mounted and the fiscal deficit burgeoned,” adds Younes. “In our pursuit of financial engineering to attract foreign currency inflows, often through high-interest financial instruments, Lebanon found itself trapped in a cycle of borrowing to sustain its operations, leading to an ominous cloud of indebtedness hanging over the nation’s economic prospects,” notes Younes.

The repercussions of these strategies were keenly felt in Lebanon’s banking sector, where the fixed exchange rate contributed to a shortage of U.S. dollars. Younes elaborates, “The scarcity of dollars, exacerbated by a loss of confidence in the Lebanese economy, triggered a wave of capital flight, further depleting already strained dollar reserves.” This scarcity undermined the stability that the Lebanese banking system had previously been known for, pushing the financial system to the brink of collapse.

Personal culpability?

The audit points to Salameh’s “personalized” and “unscrutinized” approach. A striking revelation from the audit indicates that the central bank consistently reported profits each year by offloading costs onto its balance sheet, even in years marked by “actual losses amounting to several billion dollars.” Alvarez & Marsal also questioned the “non-traditional” accounting standards adopted by BDL, criticizing the opacity with which the institution published its financial data, effectively concealing substantial losses. “BDL’s unconventional tools were implemented with a notable lack of clarity, leaving investors and the public in the dark,” remarks Younes. 

A picture taken on on November 11, 2019, shows an ATM which has been sealed by Lebanese anti-government protesters in the capital Beirut during a rally against the banking system. – The country has since October 17 been swept by an unprecedented cross-sectarian protest movement against the entire political establishment, which is widely seen as irretrievably corrupt and unable to deal with a deepening economic crisis. (Photo by Patrick BAZ / AFP)

The report unveiled the existence of illegitimate commissions during the 2015-2020 periods, totaling a staggering $111 million, and directed to seven banks, one Swiss and six Lebanese, over the following half-decade, which seemed related to the same commission scheme under investigation by Lebanese and international prosecuting authorities. The report concludes that Lebanon’s problems are due to weak governance, a poor internal regulatory framework, and a largely ineffective government.

Examples of ineffective management

In addition to the state’s record of serial political paralysis that led to repeated absences of state budgets and subsequent spending reports, the fixed peg of the Lebanese pound to the U.S. dollar and the extensive government expenditures had hampering financial effects. These factors have played a pivotal role in triggering the crisis, leading to a lack of trust in the local currency and exacerbating the challenges faced by an inherently uncompetitive economy that relies heavily on importing 80 percent of its products. The repercussions extend to the public sector, where hiring for administrative positions becomes a cumbersome burden. Lebanon’s public debt is due in part to an excessive workforce of around 360,000 employees by some estimations, a public employment structure that many argue far exceeds the country’s actual needs and is fraught with nepotism.

Relying on external assistance, both the central bank and the Lebanese government placed particular emphasis on convening a financial conference to rescue their economic model from impending collapse, drawing parallels with historical instances like the Paris conferences. They were hopeful for loans and aid from the 2018 CEDRE conference to instill confidence in the nation and catalyze economic recovery. However, as Younes points out, a departure from past practices occurred when French President Macron stipulated that financial support would be contingent upon the implementation of reforms.

As an example, proposed reforms included establishing an electricity regulatory authority; a step that would potentially reduce the authority of the Ministry of Energy and Water as designated by the Taif Agreement. Consequently, a consensus was not reached, resulting in the failure to establish regulatory bodies for sectors like electricity and the broader economy. 

Wissam Abou Sleiman, auditor and director of Abou Sleiman & Co (for ERM, Assurance, and Tax Advisory), tells Executive about an instance during Prime Minister Hassan Diab’s tenure from January 2020 to September 2021. Abou Sleiman and other auditors recommended the establishment of an audit committee to supervise both internal and external auditing activities for public institutions handling state finances and project expenditures. Unfortunately, this proposal received inadequate attention, indicating a disregard for transparency and a failure to adhere to established procedures. Another notable occurrence during this period was the neglect to implement suggested reforms, including those targeting the restructuring of state-owned enterprises. This failure exacerbated the crisis, perpetuating inefficient practices and leading to a misallocation of resources. 

What role did sayrafa play?

In 2020, the Sayrafa platform was launched by the BDL in a bid to stabilize the Lebanese pound. Under Circular 157, all banks were mandated to register, facilitating the trading and recording of customer exchange transactions at rates set by the central bank. The platform aimed to enable banks to sell dollars at rates lower than those in the parallel market, supporting businesses and mitigating severe currency fluctuations. However, the platform’s intent shifted as it became a tool for quick profits, exploited by a wide segment led by merchants, importers, financiers, and individuals benefitting from a “quota” system.

Some individuals went as far as borrowing money for speculative trading through “banking.” Notably, cases of “excessive importation” were recorded, where merchants sought to capitalize on profit margins through the platform. The World Bank LEM in spring 2023 criticized Sayrafa, stating it turned into an unfavorable monetary instrument, facilitating profits of up to $2.5 billion for dealers, excluding public sector salaries. The platform’s financing mechanism remains unclear, raising questions about its reliance on Lebanese depositors’ funds in the central bank’s “mandatory reserve.”

Younes highlights a distinction between trades under Circular 157 and public sector salary funding under Circular 161. He notes that the central bank used cash reserves from currency printing to finance government expenses, avoiding inflation. Despite legal provisions, Sayrafa defended the exchange rate using funds from both banks and depositors, violating Lebanese monetary laws. Lack of transparency is a glaring issue, with Younes emphasizing the necessity for clear records of transactions and user identities, a feature currently absent on Sayrafa. Known users include public administration employees and bank depositors, but the identities and benefits of merchants, speculators, and banks remain unclear, underscoring the need for regulatory clarity and oversight in Lebanon’s financial landscape.

Karim Daher, an attorney and chairman of the committee for safeguarding depositors’ rights at the Beirut Bar Association, tells Executive that beneficiaries of Sayrafa can be categorized into two groups: public sector employees receiving salaries in dollars and individuals who rely on Sayrafa as their primary income source. Daher criticized the proposed 2024 budget law, which imposes taxes on Sayrafa earnings, deeming it unreasonable to burden public sector employees when this arrangement was initially permitted by the government in collaboration with the central bank. The proposed law entails progressive income taxes for individuals, ranging from four percent to 25 percent, a 17 percent tax rate for companies, and a 10 percent tax on distribution. Daher recommends additional taxation for those reliant on Sayrafa income, proposing adjustments to standard taxes, the removal of banking secrecy through Law 306/2022, and a census to identify major beneficiaries. He underscores the necessity for regular tax arrangements and increased transparency measures.

Winners and Losers amid Economic Turmoil

Venezuelan opposition leader and self-proclaimed acting president Juan Guaido (C, bottom) speaks during a protest in the fifth day of a crippling power blackout, in Caracas on March 12, 2019. – Venezuelan opposition leader Juan Guaido on Monday called for a new mass demonstration as a devastating blackout that has left millions without power entered its fifth day and the US said it is withdrawing its remaining diplomatic personnel from Caracas. (Photo by Federico Parra / AFP)

Lebanon’s financial crisis, marked by government mismanagement and risky central bank policies, has left a stark divide between a privileged few and a suffering majority. Daher emphasizes the urgent need for accountability, citing the failure to address corruption and implement reforms as exacerbating the crisis.

This sentiment aligns with the findings of the LEM spring 2023 report, which states that the crisis has resulted in a scenario where only a few emerge as winners while the majority faces losses. The report underscores the systemic failure of Lebanon’s banking system and the collapse of the currency, creating a pervasive dollarized cash economy, nearly half of the GDP in 2022.

As the crisis lingers, disposable income sees a marked decline, and a widening current account deficit hampers growth prospects. The ripple effects extend across all sectors – agriculture, industry, and services – leading to soaring unemployment, poverty, and inflation. Moreover, the crisis has given rise to increased informality, tax evasion, and money laundering, further straining the economy.

The Lebanese people bear the brunt of the crisis, with allegations against the political elite for embezzling and laundering hundreds of millions of dollars in public funds. Millions of citizens find themselves robbed of their life savings in a country grappling with the harsh realities of an economic downturn that disproportionately impacts the vulnerable majority.

President Michel Aoun’s warning three years ago about Lebanon heading “to hell” has materialized. The urgency lies in untangling past financial mismanagement, addressing institutional pitfalls, and restoring trust in a government plagued by citizen distrust. Lebanon is at a critical juncture, requiring swift action for economic recovery and sustainable governance.

0 comments
0 FacebookTwitterPinterestEmail
Leaders

Lebanon: a study in interconnectedness

by Executive Editors
written by Executive Editors

Safety, security, stability, and sustainability have become enshrined as humanitarian wishes in our global community. These concepts inform our values and perceptions of universal human rights. In concert with dignity and essential freedoms, these concepts moreover comprise the bedrock of the 21st century’s globalized civilization that prides itself on having climbed to historic peaks of prosperity by practicing humanized capitalism. 

But these values and wishes of safety are historic anomalies in human affairs. They all but vanish entirely from collective awareness at the all too frequent times that are ruled by fear, hatred, greed, acute need, and aggressive search for dominance. 

Rather than non-zero pursuits of security and sustainability for all, our species’ predatory traits have been – and are – the staple diet nurturing human mentalities and actions, demonstrated in the rise and demise of empires. Although diametrically opposed to our deepest values, this edge of human evil is what stares us in the eye when reality really hits us over our collective heads. In the case study of Lebanon, this is what all who reside here are once again being forced to see and acknowledge – apart from some entitled talking heads who are deeply and truly stuck in the sands of fake hopes. 

To our common, everyday minds going about the ordinary business of life, the greatest shock of October 2023 might be witnessing the wider societal capacity for evil. We are witnessing the harvest of long years of suffering and injustice into the winepress of human wrath outdistance  the Lebanese devastating economic experiences with corrupt individuals and perfidious financial zero-sum players seeking profit at the expense of the greater good. 

Notwithstanding the vanity of harboring hopes for restoration of economic democracy, justice, and prosperity during such times, a curious question remains in such a situation: are we deluding ourselves if we think of sustainable prosperity as goal for all or is the business and financial dimension of human affairs a realm where safety, security, stability, and sustainability are valid and achievable paradigms? 

Addressing the same question to geoeconomics makes it a fundamental research challenge. The world of finance, where data today can be sourced with minimal delay and in previous ages unseen accuracy, needs to investigate if it truly is a realm where human behavior can be modeled and modified for the achievement of socially optimized, economically healthy outcomes. 

Can financial safety and social stability be instilled as a mutually co-created and interdependent achievement of an advanced society? Also, can this ideal be sustainable across markets of different size, scope, and maturity? This inquiry is of great interest for Lebanon in both an abstract, principled way, and for evaluating plans to rebuild the country’s financial markets and their supervisory system.

These questions are besetting this country at a juncture where several competing, aggressively confrontational and deeply adversarial geopolitical forces threaten much more than its territorial integrity and way of coexistence. To put it differently, Lebanon just now has been confronted with the drums of war, and wars are two things: murderous and fucking expensive. 

One victim of war, one single universal human war death, is one too many, without regard to their label of racial, religious, national, or age. So much for the moral debate about a terrifying danger that the Lebanese people feel exposed to by forces outside their control. 

In the slightly more detached and intellectualized debates over the economics of conflict and post-conflict, wars wreck economies. To start with, there are direct operational costs, physical destruction of infrastructures (etcetera) and their opportunity costs to combatant countries; the loss of human capital, long-term mental health costs and bodily care and rehabilitation needs; and damages to global environments and climate.   

The fateful connection of war and debt is a new cause for worry today because global debt has risen to monstrous  proportions in relation to global GDP. After climbing to a debt level of 258 percent at end of 2020 in relation to global GDP during the Covid19 pandemic, the world took some courage because the following two years saw this unimaginable debt mountain shrink by 20 percentage points in the next two years. Now, however, the latest news from the US 2023 fiscal year, which concluded at the end of September, jumped by by $320 billion, or 23 percent. Deficit is the progenitor of debt. Witnessing the perilous state of the world, with wars on the rise and unsustainable financial pathways overpowering the world’s richest and most powerful nations, the painful dynamics of war finance seems bound to further burden the coming generations.  

0 comments
0 FacebookTwitterPinterestEmail
Editorial

A tight margin for maneuvering

by Yasser Akkaoui
written by Yasser Akkaoui

Every time I return to Beirut from a meeting in the mountains, driving down during sunset, I marvel at the reflection of the sun from the growing number of solar panels on the city’s rooftops. They appear quite stunning and harmonious, as all these panels are pointing south to south-west for obvious reasons and stand as promises of a bright future that is built on renewable energy. 

Yet, I also know that these urban photovoltaic (PV) installations are isolated, individual projects of uneven quality and have been born out of emergency needs, like the majority of PV panels that today cover many of the country’s rooftops. While it may please our eyes from a distance and symbolize Lebanon’s adoption of an energy security focus, this display of renewable energy (RE) micro-systems is actually one of many contradictory post-crises images that construct the multilayered Lebanese reality as the country is shifting from one crisis to the next. 

It is hard to corroborate whether the annual one billion dollars spent on solar by Lebanese households and businesses is a realistic estimate or not, but one can safely suppose that these resources were disbursed by the wrong stakeholders out of need for a secure and reliable source of energy. 

It is also a fact that our country’s energy infrastructure today remains in dire straits, because the Lebanese government capex on energy and all other infrastructures has been diminishing since the early 2000s. Our electricity sector has for more than 20 years consistently been topping the list of problems that have drained our national financial resources and our private sector competitiveness. The absence of an energy security focus in our public sector policies has exasperated and precipitated Lebanon’s fall into the ongoing sticky financial crisis.

The mere fact that all this solar energy capacity is not connected to a national grid demonstrates again the complete disconnect between private initiatives and the state. With every state failure in addressing security whether medicine, economy, food, or energy citizens find themselves obliged to resort to short term, expensive solutions.

Meanwhile, the world is transitioning to more circular economic models. Call them inclusive models 2.0: these new models of economic circularity are built on a common understanding of public challenges and a collective participation in striving for ambitious impacts. Impacts that are as inclusive as they are profitable. Whether it is regulation-led Europe’s “Fit for 55” green transition package or the technology-led and private sector reliant US approach of carbon capture, both these pathways that contribute to energy security require a multi-stakeholder approach, one that mobilizes efforts from private sector policy and execution to measurement of progress with careful watch from civil society and media.

Lebanese households and businesses, in the absence of any constructive state role seem confined to a margin of maneuvering that is far from optimal, squandering precious resources that should have been spent on growth and job creation. 

0 comments
0 FacebookTwitterPinterestEmail
EnergyInfographicsSpecial Report

Visions of transition

by Executive Editors
written by Executive Editors

An energy transition requires a lot of – energy. This insight is a truism. But it is not a problem of circular reasoning, which would be saying that energy security is unachievable without tapping into new sources of energy through use of terrestrial assets such as wind and water, responsible activation of yet-to-be-discovered extractable sources, as well as focused and heavy reliance on heat and light from the sun. 

The journey of turning the vision of sustainable energy security into reality in Lebanon should include private and public production of energy – ramping up diversified production through joint partnership (PPP) projects but also through separate initiatives; but equally it will require reducing energy wastage as well as auditing and rationalizing energy consumption – the conservation of the energy we have at our disposal and have been wont to squander. Besides restructuring the electricity sector, the journey further needs to pass sustainability checkpoints related to two other, top energy-gobbling sectors, transport and housing. Last but not least, it requires a transparent and reliable sector of financial intermediation and access. 

But above all material investments and physical efforts, the energy that is essential in realizing any dream of Lebanese transition to a complex and comprehensive state of security, one that includes but reaches beyond food security and energy security, can and must be captured firstly through collective and individual mentality changes. 

Constructively capturing and activating the vision of energy security in a country of long energy insufficiency and, currently, acute depravation of electricity must start on the frontlines of the mind – we can do it, but only by investing our human energies of behavioral change, regulatory development, administrative adoption, state incentives, market incentives, corporate responsibility, civil advocacy, education across all levels from kindergarten to vocational, tertiary and adult, as well as cohesive political will – Lebanon’s most vulnerable and elusive energy source – and communications media support.  

0 comments
0 FacebookTwitterPinterestEmail
CommentEnergySpecial Report

Renewable Energy in Organic Farming

by Marie Murray & Mario Massoud
written by Marie Murray & Mario Massoud

Organic farming, a fast-growing industry at the global level, has faced numerous challenges in Lebanon. According to a 2020 EU-led survey on organic ecosystems, these threats and weaknesses have been amplified by the country’s economic crisis and include high production costs, lack of government subsidies, and the reduced purchasing power of Lebanese customers (a problem that has been exacerbated in the following two years with the worsening of the economic crisis). Faced with these challenges, among which a skyrocketing cost of energy was a particularly debilitating element, organic farmers and farming operators are turning to renewable energy (RE) solutions for both cost savings as well as to improve efficiency and reduce harmful environmental impact. 

Biomass, an organic farming operator founded in 2007 which now has over 15 farms under management and works with over 50 farming partners, began a gradual switch to solar energy in February of this year. In addition to introducing water pumps powered by solar photovoltaics (PV) to three farms, they have also transitioned their packaging center in Batroun to solar power. For Biomass, whose name is only serendipitously—or perhaps prophetically—related to the term for fuel produced through organic matter, RE solutions have enabled the company to introduce greater efficiency and think about reduced consumption of resources in a new way. Despite high capital expenditures that make transition to renewable energy a long-term project, the advantages overwhelmingly make it a worthwhile, and even inevitable investment.

Divided energy

As a market participant that is active along the agricultural value chain, Biomass looks at energy use in two phases: the farming phase and the post-harvest phase. At the farming level, energy is used for the nursery, heating greenhouses, and for irrigation. Their focus centers primarily around how to optimize water consumption by irrigating less, improving rainwater collection, and keeping the soil rich, healthy, and moist, and through farming techniques such as strip farming, crop rotation, and companion planting to name a few. The introduction of water pumps connected to solar PV systems is a first step towards RE, but Biomass is also looking to bring in biofuel from composting matter and set up an agrovoltaic system where solar panels share land with agricultural products.

At the post-harvest level, energy is used for cooling, cleaning, storing, sorting, and packaging products. In the packing house in Batroun, fridges and machinery for packaging and labeling are now powered by solar panels which were installed gradually over six months and led to a trial-and-error approach. When energy consumption increased over the summer, more batteries were added to match the growing needs. At the time of this writing, Biomass is in a period of assessing whether more panels will be needed based on how well their fluctuating energy needs are met across production seasons.  

Although Biomass farms and farming partners across Lebanon follow different location-based production timelines and harvest windows to benefit from various microclimates, the efficiency of Biomass’ energy consumption is based on the season. During rainy months when solar energy is reduced, less energy is needed for irrigation. However, when the energy costs are annualized across the four seasons, the first year’s experience with RE has manifested as reduction of operating costs through a 40 to 50 percent lowering of the monthly fuel bill, which in some months had run up as high as $7,000. 

From its perspective as an environmentally and climate conscious actor in the agricultural value chain from soil and seed to packaging and delivery to market, Biomass’ significant reduction in fuel consumption and fuel cost, however, is just one happy peak in a chain of benefits. The four big costs in the industry are land rents, energy and irrigation costs, labor, and costs of organic inputs. Out of these, installing solar pumping systems allows instant cost-saving, efficiency and environmental benefits towards energy and irrigation costs, which is evidenced by the fact that all Biomass’ direct competitors in Lebanon have begun making the move to solar energy. The rationale is striking: once the initial investment can be managed—or made in gradual phases—solar energy allows for longer storage periods by avoiding steep diesel costs, and thus services can be offered for a longer period.  Biomass’ move to solar energy demonstrates—better than any theoretical paper on climate and environmental risks—that reliance on RE is incomparably more advantageous than usage of conventional fuel across the entire food value chain. 

Although RE is more aligned with the organic and regenerative aims of Biomass’ mission than carbon or diesel, the economic value is paramount for the company. To be both economically viable and regenerative, Biomass believes that the commercial must align with the financial which must align with the environmental aspects of the business model, and transitioning to RE is a step forward for all these objectives. 

Mario Massoud is the CEO of Biomass and Marie Murray is an editor for Executive Magazine

0 comments
0 FacebookTwitterPinterestEmail
EnergyQ&ASpecial Report

Strategizing Lebanon’s energy security

by Thomas Schellen
written by Thomas Schellen

To understand how vital energy issues are impacted by and perceived from a broader perspective of political interests and policy priorities located far from Beirut, Executive conversed with Paul Salem, renowned Lebanese academic and director of the Middle East Institute in Washington D.C. 

E  How does Lebanon appear on the various maps of interest that one can find “inside the Beltway,” meaning the circles of power in the capital of the United States of America? Is everything seen through the political lens or are there still human connections to Lebanon? 

Everything has been overshadowed by the war in Gaza, so that not much attention [is given] to Lebanon. When you take a step back and look at the US and policies and relations to Lebanon, there are several things to note. I would mention here firstly that Lebanon and the Lebanese are part of modern American history for over 100 years and play a role in the American conscience, where they are generally viewed positively. Secondly, some Americans who matter have been to Lebanon at different points of recent years. Those who have gone, whether they are journalists, politicians, or business people, come back with a positive impression. 

On a more political-strategic side of things, [the question is] how the US policy community looks at Lebanon. There again are different layers to this. On one layer, the US looks at Lebanon as a place to contain, counterbalance and push back on Iran, and Hezbollah. Part of the [American interest] in Lebanon is to try and make sure that Iran and Hezbollah do not completely take over the country. Secondly, there is a concern that [Lebanon] does not completely fall apart and becomes another collapsed state in the Middle East that becomes a headache of exporting refugees and importing terrorists. [Lebanon] is a problem but so far one that is manageable and contained. In a kind of a negative concern, [the Americans] don’t want it to become more of a problem. Thirdly, the strategic location of Lebanon is one of being next door to the Russians and ISIS in Syria. It is a place on the Eastern Mediterranean where [the US] can keep an eye on Eastern Mediterranean issues. It is an anti-Russian, anti-terrorism, Eastern Mediterranean kind of strategic location. 

More recently, after the Russian invasion of Ukraine, the energy and offshore gas issue has become strategic for both the US and Europe. After the Russian war on Ukraine, gas has become a very strategic issue for NATO and the Western Alliance and so the US sent Amos Hochstein many times to broker a deal with Israel over the gas fields [that lie offshore their territories].

On the other hand, there are [some on the rightwing of the US political field] who look at Lebanon simply as Hezbollah country. Those people, who are still a minority in congress, often say and [try to push decisions] that [the US] shouldn’t fund Lebanon and its army. [They say that] it is all controlled by Hezbollah. The US should not be there, should not be spending any money or helping anybody there because this all benefits Hezbollah, [they argue]. This is a voice in congress, but it is not a dominant voice. 

E  Given the US administration’s perspective of regarding Lebanon, as you describe it, as strategic location in the Middle East and bulwark against terror, how does the issue of energy figure? Does energy in the Eastern Mediterranean actually play a role in American thinking? 

Energy has become one of the elements that the US is interested in and concerned about, but I would not say that the [strands of] thinking have become perfectly integrated to first of all allow Israel to extract its energy but also to allow Lebanon to extract so that eastern Mediterranean gas can become part of the energy imports of Western Europe. This, yes, is an overall US strategy, but is it perfectly integrated? If you look at Washington, there is one administration but there are different power centers and relationships. For example, the Department of Defense has strong and deep, positive and personal relationships with the Lebanese Army. The Pentagon is always a big defender of aid to Lebanon and the Lebanese army when this issue is raised in Congress. The Department of Energy thinks all the time about energy. The Department of the Treasury thinks about sanctions, money laundering and terrorist financing. There are different relationships in this complex web of relationships. 

E  Prior to looking for the Eastern Mediterranean maritime border demarcation, it seemed to me that Lebanese thinking on oil and offshore exploration was insular, not thinking much of the regional interactions and transnational aspects of the oil and gas potentials. Do you see a shift in the Lebanese approaches before 2020 and those between 2020 and 2022? 

I would say that the main obstacle in Lebanon, as for many things in the country, is the fight among different political factions over who gets to do what, and who gets which prize. Lebanon could have begun exploring [offshore gas reserves] years ago, regardless of whether it wanted to use gas internally or externally. The political system is just too divided and dysfunctional. 

E  The maritime agreement was signed, and the blocks were opened for exploration, but do you that the Lebanese readiness for actually capitalizing on the demarcation agreement was present? 

There were two dynamics as to why Lebanon did finally make a deal. On one side there was American interest that came [about] after the Russian invasion of Ukraine. The US had been mediating before, but I don’t think mediating with the same urgency and vigor. On the Lebanese side, the final round of negotiations happened after the Lebanese economy collapsed and the entire population became destitute, and Hezbollah and its allies were carrying the blame for the economic collapse. This meant that Hezbollah would be more eager to make a deal that would provide economic promise so that it could say, ‘look, we are working for you, working for you by making a deal that opens gas’. Also, on the part of President [Michael] Aoun and Gebran Bassil, the President had an interest in having some positive news before the end of his term and Bassil, I think, is still trying to find a way out of sanctions. 

E  The crisis has created a huge impetus for renewables in Lebanon at a time when the global focus is on climate risk mitigation, but at the same time it seems clear that energy security cannot be reached either globally or locally without accessing conventional sources. Do you see the exploration of offshore gas potentials as very important for future energy security in Lebanon? 

You are talking about energy security in a country which does not even have current energy. Usually, you talk about energy security in a country when you [assess] your energy [sufficiency] and look down the road [asking] ‘where could I lose my energy and what is my security?’ It is obvious that Lebanon has very, very little energy, and this is one of the major reasons that is keeping the economy at a standstill. We don’t have energy. Offshore natural gas, which will take many years to come online, would be an obvious way to get onto the energy grid with significantly cleaner hydrocarbon energy production and cleaner fuel than oil. Lebanon with its almost non-existent resources and non-existent capacity to plan or implement [economic projects] is in a very poor situation with offshore gas as the only thing that is out there. When you think longer term and regional energy transition, you first of all have to think regionally. Ideally, this would be achieved on a region-wide level. Electricity grids would be integrated throughout the Middle East, as some countries have a lot of solar, some countries have hydro, some will have wind, others will have cleaner hydrocarbons. The situation that we want to get to by 2035-40 would be an integrated Middle Eastern energy network, but with the way Lebanon is today and how Syria is today, you can’t really imagine that. 

E  In your opinion, can regional energy security be stabilized after the conflict in Palestine ends? 

There has been a temporary interruption where the Tamar field stopped production in a period of heightened insecurity as Hezbollah and Israel starting trading military blows. But my broader sense is that this [situation], even if it looks to go on for more than a few months, does not affect the overall picture. The overall picture is being affected by the fact that the Eastern Mediterranean has not yet figured out the most cost-efficient and sustainable way for getting [its] gas to Western Europe in particular. There has been talk of an underwater pipeline for gas, which has not happened, and talk for an electric cable to transport the energy. It is also not yet resolved how Eastern Mediterranean [gas] forum countries deal with Turkey, which would open options [for transporting Eastern Mediterranean energy] through Turkey. 

E  Do you have any prophetess or prophet at the Middle East Institute who can tell us if we will ever have energy security in Lebanon? 

Lebanon’s problem is sovereignty and governance. It is not the absence of energy options. So, I can easily imagine many scenarios where Lebanon definitely obtains first of all energy sufficiency, and, with proper arrangements, energy security. A lot of that in my view would hinge on the offshore gas and using that to feed the stock inside the country and use some of it to develop the clean fuels that it needs to supplement [fuel imports] and a share of energy. Lebanon is a very small country. You are not talking about energy security for China but for a country that is the size of a municipality in some other countries. It is not a big challenge, but our governance is so miserable that we are not even able to pick up the trash, let alone produce the right energy. 

0 comments
0 FacebookTwitterPinterestEmail
AnalysisEnergySpecial Report

False promises of improvement

by Michael Maalouf
written by Michael Maalouf

The Lebanese authority’s failure to manage the electricity sector is not a new phenomenon for the Lebanese people as electricity shortages have been prevalent in their daily lives for the past 30 years. The internal disputes within the Lebanese government along with the negligence of its institutions left the state-run electricity company Electricite du Liban (EDL) to be a major example of a failed institution. However, with the beginning of the economic crisis in October 2019, the performance of the EDL worsened. Multiple factors, including ongoing political disputes, the COVID-19 pandemic, and the August 4, 2020 explosion at Beirut Port, exerted heavy pressure on the economy and hard currency reserves. Driven by these pressures, inflation rates in Lebanon kept on increasing and reached around 228.85 percent by August of 2023 according to a report conducted by Blom Invest in that same month. At the same time, people’s purchasing power and EDL’s income were hit by the depreciation of the Lebanese pound, with significant impacts on EDL’s ability to produce electricity and on the people’s ability to pay for it.

Jumping forward to the situation at the latter part of 2023, access to electricity services remains a conundrum amidst still high inflation rates and dwindling real incomes. Paying for power to light their homes and run their appliances has become more difficult for locals who already have to pay for commercially operated generators to fill the gap of the EDL, which at its full capacity provides only 12 hours of electricity a day, a number that is not reached in most cases. 

The EDL’s electricity currently covers three to six hours on average depending on the area. There are very few areas that exceptionally have a high number of hours of electricity coverage such as Jezzine district, which is at an average of 14 to 20 hours. In a March 2023 study conducted by Human Rights Watch and Consultation and Research Institute (CRI) which covered 1,200 households, it was found that the cost of electricity has affected nine out of ten households’ ability to pay for other essential services. Low-income households were mostly affected by the rising costs as they had to sacrifice other essentials that they were barely even able to access. Furthermore, the study showed that amongst the poorest 20 percent of households, one in five cannot afford access to a generator which is the sole available source of a more stable electricity supply. 

A fraught landscape for attempted solutions

While there were no large-scale projects to deal with the intensifying electricity crisis by the Lebanese Ministry of Energy and Water, certain agreements were supposed to take place to kickstart major projects. One of these major agreements was signed on January 26, 2022 by Lebanese, Syrian, and Jordanian officials that entailed supplying Lebanon with electricity from Jordan via Syria. The agreement, which would have provided 250 megawatts of energy for Lebanon, was supposed to receive $200 million in funding from the World Bank. Furthermore, this agreement was part of two US-brokered agreements which were supposed to address Lebanon’s severe electricity shortages. A second agreement was signed by Lebanon, Syria, and Egypt on June 21, 2022 to supply Lebanon’s power plants with natural gas from Egypt. The gas was supposed to pass through the Arab gas pipeline, which starts from Egypt, continues through Jordan, and then reaches Lebanon via Syria. At the signing ceremony, Minister of Energy and Water Walid Fayad told the press that around 650 million cubic meters of gas would be brought to Lebanon through the pipeline annually to the Deir Ammar power station in the north. Media reports have even claimed that Syria and Lebanon undertook renovation on select parts of the pipeline before the agreement stalled. Until today there have been no updates by the Lebanese government on the status of these agreements. When approached by Executive, the Ministry of Energy and Water declined to comment on the matter. 

According to Marc Ayoub, an energy policy researcher at the Issam Fares Institute for Public Policy and International Affairs (IFI), the failure of these agreements was caused by a combination of geopolitical factors and the mismanagement of the Lebanese government. “The absence of progress in these energy agreements with Jordan and Egypt goes beyond the Lebanese government’s failure as it is also related to the complex political situation in the region,” he tells Executive. 

In fact, the agreements were proposed by Dorothy Shea, the U.S. ambassador to Lebanon, only weeks after Hezbollah in 2021 announced a plan to import fuel supplies from Iran. The move was viewed by observers as a bid to counter Hezbollah’s strategy to provide fuel. The passage of electricity through Syria sparked internal division in the U.S. Congress as the Caesar Act–legislation that places sanctions on the Syrian government–is still active. Ayoub notes that even so, the agreement was used as a point of persuasion by the U.S. envoy Amos Hochstein during the negotiations over the sea border between Israel and Lebanon. However, Ayoub points out that with the latest war in Gaza, the political atmosphere made it almost impossible to move forward with the agreement.

As per Ayoub, the Lebanese government did what it could to move forward with the deal, but a set of political complications led to stagnation. Funding for the deal hinged on whether the Lebanese government could meet the conditional demands of the World Bank. One World Bank stipulation required the EDL to increase electricity bills. Although the EDL followed through, they failed to meet the World Bank’s requirement of enhanced bill collection, as they were unable to collect fees from various areas.  

In addition to facing political barriers in the US and being hampered by operational conditions at EDL, Dr. Patrick Mardini, the CEO of the Lebanese Institute of Market Studies (LIMS), tells Executive that the project of relying on imported fuel or electricity from nearby countries under the circumstances prevailing in 2022 and the first nine months of 2023 is in itself not a viable idea. Mardini’s rationale is that the financial constraints faced by the Lebanese government would not allow it to continuously fund the electricity supplies from Jordan and gas from Egypt that were supposed to be financed by the World Bank at the initial phase. 

Mardini says that he does not see the problem as solely political or tied to the Caesar Act as Fayad claims, but rather a problem of the government’s noncompliance to the World Bank’s demands, especially when it comes to establishing a regulatory authority. Even though there are conflicting views over the cause of the failure to establish the ERA in the more than 20 years since its legislation, there is no doubt that the agreements have completely failed. 

Moreover, based on the data from Lebanon’s central bank, the Banque du Liban (BDL), which extends until March 2023, the electricity output of the EDL continues to deteriorate. According to Mardini, in lieu of absent government support, outputs have become mostly reliant on the risky solution of arranging fuel deals with the Iraqi government. Maintaining a continuous supply of fuel from Iraq became harder to finance, especially after the step taken by the BDL’s Deputy Interim Governor Wassim Mansouri to put an end to money lending from the central bank to the Lebanese government.

Next steps?

Faced with these challenges, reaching a resolution for the recurring electricity problem seems difficult. Mardini suggests that “the only solution for the electricity sector in Lebanon is to move forward with a privatization process of the country’s electricity sector and take away the full control from the Lebanese Ministry of Energy and Water on electricity services.” In this context, Mardini saw that the revival of Law No. 462/2002 as necessary. The law aims to dismantle EDL’s monopoly, dividing the sector into three areas: production, distribution, and transmission. Also, introduction of independent power producers (IPPs) and electricity distribution companies (EDCs) into the sector would involve creating a wholesale electricity market where IPPs compete to sell electricity to EDCs, who, in turn, sell it to the broader market. “The ministry has been resistant to these changes and has been seeking funding repeatedly and relying on unreliable solutions such as fuel imports,” Mardini tells Executive. 

Ayoub asserts that “given the current political turmoil in Lebanon, which has left the country with an interim government and without a president for a year, it would be impossible to implement the solutions that are needed to revitalize the sector.” He further notes that “with time, people have become more reliant on renewable energy, and commercial generators are an aspect that will eventually shrink the size of outputs required from the EDL in the future.” 

The future of the electricity sector appears grim given Lebanon’s ongoing political paralysis and the Ministry of Energy and Water’s reliance on unsustainable solutions that are barely enough to keep EDL afloat. As the local population cannot afford to wait for resolution of these issues, they are pushed to look to individual and collective solutions to meet their energy needs as the only viable option to deal with constant electricity shortages. However, since the steps taken by the local population, such as solar panel installation, are relatively new, taking such initiatives to the community and municipal level would require a process of trial and error before they could be relied upon more broadly and inclusively. Therefore, innovation is the only way that the Lebanese people will be able to secure their energy needs in the coming years. 

0 comments
0 FacebookTwitterPinterestEmail
AnalysisEnergySpecial Report

Measuring solar at work

by Carol Farah
written by Carol Farah

In the lineup of governmental duties, ensuring a stable electricity supply is a basic expectation. However, in Lebanon, depending on the government for reliable power has become an unpredictable proposition. The country’s businesses have long been self-reliant, resorting to their generators to meet their electricity needs. Yet a notable transition unfolds as numerous Lebanese companies adopt renewable energy (RE) solutions.

Those Lebanese businesses, which in recent years embarked on to greater reliance on solar energy, have undergone a financial evolution, observing significant monetary and environmental savings in the course of their transition. Their moves toward sustainability are evident in noteworthy decreases in CO2 emissions and diesel consumption. This transformation has been facilitated through diverse channels, including active participation in funding projects and judicious securing of loans.

 As many Lebanese companies seek to adopt RE, this analysis looks at three Lebanese companies operating in the manufacturing and agro-business sectors to understand their motivations for transitioning and assess how their businesses are benefiting from this shift in various ways, as well as the impact of their sustainable practices on their operations and the broader industry landscape.

Generator investments 

to solar installation

Even before the 2019 crisis, state electricity failed to reach the industrial zone in Bchamoun, Mount Lebanon, where Beesline, a cosmetics manufacturer, is located. “We’ve always depended on generator suppliers for electricity,” says Mohamad Mouhaidly, technical and facility manager at Beesline. However, at the beginning of 2022, the company faced issues with the generator provider over increased prices and service interruptions. Subsequently, Beesline decided to buy its own generators to have more stability and autonomy. “Our two-shift production relies on continuous electricity; any interruption disrupts our workflow,” adds Mouhaidly.

Beesline’s sustainability department, driven by the company’s policy on environmental care, and animal testing-free products, initiated a reevaluation of continuous generator use and reliance on diesel. The discrepancy between the company’s vision and their means of production, in addition to the inconvenience and high costs of generator fuel, prompted them to consider transitioning to RE to reduce CO2 emissions.

The Country Entrepreneurship for Distributed Renewables Opportunities (Cedro 5), a program initiated by the UNDP in Lebanon and currently in its fifth phase of deployment, focuses primarily on promoting sustainable energy and resource efficiency. It aims to enhance the use of RE sources and improve energy efficiency across various sectors. For Beesline, participation in the Cedro 5 project provided the essential financing to enable its shift to RE in 2022. 

Pre-crisis funding for RE

For Balkis Orchard, a fruit-growing and juice-producing agrobusiness in southern Lebanon, and Sanita, a manufacturer of paper products in the Byblos district and part of the INDEVCO group of companies, the move to RE took place earlier. In 2017, Balkis made a significant stride towards sustainability by installing a photovoltaic (PV) system of 600 solar panels. The initiative was funded by a loan from Banque Du Liban (BDL), the Lebanese central bank, which aimed to incentivize industrialists in Lebanon to embrace RE sources. With fuel costs on the rise, Balkis Company saw an opportunity to reduce its reliance on diesel-powered energy.

Balkis’ transition to RE served a dual purpose within its agricultural framework. A notable portion of their energy allocation is dedicated to irrigating extensive orchards to ensure the vitality of their produce, while the rest powers machinery and essential refrigeration units that are crucial for their industrial operations.

Ali Beydoun, the company’s commercial director, tells Executive that “Balkis utilizes an off-grid solar system that generates electricity directly from sunlight, primarily during daylight hours.” This system functions without batteries, harnessing solar power exclusively when the sun is shining. The solar system and the generators or the main power grid (EDL in this case) operate together, supplementing each other when needed. Consequently, when solar energy is not sufficient during periods of cloud cover or at night, the company relies on its generators for power. However, with the integration of the solar system, their dependence on the site’s larger generator has significantly decreased in the last six years. 

“There’s always juice in the making, and it needs to be stored between zero to four degrees Celsius, requiring continuous energy. Even the raw materials and the cartons used for packaging the juice must be stored in a controlled climate, in a cool place with substantial air conditioning,” explains Beydoun regarding the continued need for generators. 

For both Beesline and Balkis, generators moved from a primary energy source to a backup. Mouhaidly tells Executive that even if Beesline is utilizing solar energy, it cannot fully phase out its generators since they remain essential during cloudy days and when operating night shifts. However, he maintains that a full transition to renewable energy is “a dream we wish to see fulfilled.” 

Sanita’s pivot to RE also occurred in 2017, but in this case the financial loan was provided by Bank of Europe. Employing surplus space at its seaside manufacturing site, Sanita implemented a PV system that Wissam Abi Diwan, Sanita’s general manager, describes as “the largest privately owned renewable energy system in Lebanon.” 

A question of efficiency 

When asked about the system’s efficiency, Abi Diwan explains that “during our busy workdays, when all our machines are running, solar energy covers about 25 percent of our energy requirements.” He adds that “on less demanding days when not all machines are operational, solar power steps up and fulfills 50 percent of our needs.”  Emphasizing the versatility of solar energy, he explains that “during periods when our machines are completely idle, Sanita channels the unused solar energy from its system to support a sister company’s electrical needs. It’s a smart way to ensure that the surplus energy doesn’t go to waste and benefits another part of [the group’s] operations.”

In addition to increased energy efficiency, Sanita has achieved notable savings in electricity consumption over the last six years since adopting RE. At the time of this writing, the company is saving 3,500 kWh daily. Through managing to secure a rate of $0.36 per kWh, Sanita has had daily savings of $1,260 since 2017 compared to their previous expenses on conventional energy sources.

For Balkis, solar energy covers 30 to 35 percent of its needs, producing up to 300 MWh annually and saving 1,800 tonnes of CO2. As for the maintenance of their solar panels, they monitor their renewable energy system online. When the system’s output decreases or isn’t consistent, they investigate potential causes, primarily checking for any dust accumulation on the panels. “This occurrence isn’t frequent; it has happened two to three times since we switched to solar in 2017,” says Beydoun.

Marianne Itani, the sustainability manager at Beesline, tells Executive, “our company made it to 55 percent green energy with 15 percent for water heating and 40 percent for electricity.” 

Itani adds that they aim to reach 75 percent green energy by late 2024 or early 2025 by expanding their solar initiatives with another round of support from UNDP as they plan to participate in the Cedro 6 project.

Beesline began their renewable energy transition with solar water heating, which is crucial for their cooking, cleaning, and product-making processes. “We initially aimed to also start our solar PV project in 2022,” Mouhaidly explains. Yet due to some technical issues, they commenced at the beginning of 2023. Mouhaidly highlights that this delay was necessary for them to implement system updates to ensure maximum efficiency. 

Amortization of investments

“Switching to renewable energy has been the best decision for us and the environment. It’s a win-win situation,” says Itani. Considering that their annual savings range from $60,000 to $70,000, the company foresees recouping its investment in the renewable energy project within a three-year time frame. 

In the realm of energy management and environmental impact, the data given by Beesline reveals notable improvements in both energy efficiency and carbon emissions. From January to June, energy consumption per tonne of production decreased from 531 kilowatt hours (kWh) in 2022 to 369 kWh in 2023, indicating enhanced operational efficiency. Concurrently, carbon emissions per tonne of production saw a reduction from around 230 kg in 2022 to 160 kg in 2023. Despite a slight increase in total carbon emissions (92,400 kg in 2022 to 93,015 kg in 2023), the context is significant: this emission level is equivalent to the energy use of approximately 12 households for an entire year. These metrics collectively signify progress in resource optimization and environmental sustainability within the assessed timeframe.

According to data from Apave Group, a risk management firm in Beirut, Beesline saw zero percent green energy savings from January to June 2022. However, in August 2022, there was a notable transformation as the company adopted a more sustainable approach, with nearly 91 percent from fuel energy and nine percent from solar water. This positive momentum persisted, as by January 2023 there was only 49 percent reliance on fuel energy and substantial contributions from solar PV and solar water. The average green energy percentage for the first half of 2023 stands at 58 percent, surpassing the targeted 55 percent. 

Corporate environmental awareness and the limits of solar power 

Beesline’s Itani says that environmental consciousness extends beyond RE, asserting that “by next year, eco-friendly packaging will adorn the shelves of stores across Lebanon.” Itani tells Executive that they also plan to introduce refillable bottles, adding that strong marketing is needed as currently, “Lebanese people are not used to that.“ 

In regard to other environmental considerations for Balkis, Beydoun says, “The downside of our renewable energy project was that we had to cut a few trees to make space for the panels. However, we’ve positioned the panels on elevated bases, allowing for potential planting in the future, though not trees.” He emphasizes that the company’s environmental consideration doesn’t stop at RE. “The one-liter cartons we use for our juices originate from a sustainable forest in the US. For each tree harvested, many more are planted in its place.”

Most companies in Lebanon that have started the transition to RE, like the ones discussed in this analysis, still find themselves unable to phase out generators completely. Even so, Itani suggests that companies relying solely on generators need to reconsider. “Seek support, make the switch, save money, and help the planet,” she says. Abi Diwan echoes this sentiment. “Solar energy, especially for the business community, can be the solution to Lebanon’s electrical crisis, since many businesses in Lebanon operate during the daytime. They can actively participate in funding projects, or they can jumpstart their utilization by obtaining a loan, which they can return using the financial savings achieved from the project.” However, Beydoun, while acknowledging the increasingly critical need for an RE overhaul in businesses, maintains that while RE is essential, “it’s not a complete solution; even other countries don’t rely entirely on it.” He further comments, “Considering the status of state electricity in Lebanon, a solution seems distant. Companies might contemplate transitioning to renewable energy, yet the decision depends on their business type.”

Lebanese businesses are flipping the switch in unique ways when it comes to renewable energy, eschewing a one-size-fits-all scenario by adopting renewable energy through varied approaches based on their distinct needs, financial capabilities, and the support available to them. Whether through loans or self-funding initiatives, these businesses navigate varied paths to transition. Their utilization of RE ranges from systems dependent on batteries to those exclusively relying on direct sources. Yet, the underlying catalyst for this pivotal shift lies in Lebanon’s historical electricity crisis, a chronic issue predating the recent turmoil. Pervasive reliance on generators is giving way to a greater shift towards renewables, with companies reporting substantial financial and environmental gains, marking a turning point in sustainability and stability within an energy-stricken context.

Lebanese communications talent Carol Farah teamed up with Executive for an internship in business journalism after her successful completion of studies at the Lebanese University

0 comments
0 FacebookTwitterPinterestEmail
AnalysisEnergySpecial Report

Lebanon’s solar revolution

by Rouba Bou Khzam
written by Rouba Bou Khzam

Samar Monzer has connected her refrigerator and illuminated her house. As she stands in the kitchen, baking a cake for her three children, she savors the renewed sense of comfort in her Aley residence-nestled in Mount Lebanon, now completely powered with electricity.

In late 2021, Monzer, a Lebanese homemaker and mother, opted to allocate $4,000 from her family’s savings to acquire a photovoltaic (PV) electricity system of eight solar panels and six batteries. “Our aim is not to lead a lavish life; we merely aspire to live with dignity,” she tells Executive.

This financial commitment enabled her to discontinue her reliance on privately-owned diesel generators, which typically provide electricity to the majority of households in Mount Lebanon. She expresses, “I have now returned to a routine life—I can do laundry, cook, enjoy TV, and charge my phone at my convenience.”

The struggle for a stable and reliable national grid has been a saga spanning decades, tracing its roots back to the onset of the Lebanese civil war in 1975. At the center of this quagmire stands the state provider, Electricité du Liban (EDL), grappling with financial tribulations and political entanglements that hamper its ability to ensure an uninterrupted power supply. The consequence? Rolling power cuts, interspersed with irregular blackouts, became an exasperating norm, catapulting the nation into an even more pervasive reliance on private generators. Yet, this makeshift and not actually legal solution turned into an entrenched system, bringing its own host of challenges, including intransparent and sometimes extortional usage charges and grave costs for environment and air quality.

After the dual system — of nominal monopoly provider EDL and powerful generator operations with political tutelages — had been dominating the provision of electricity to Lebanese households for many years, October 2021 plunged the country into complete darkness in a stark manifestation of Lebanon’s economic crisis that had been raging already for more than 18 months.  The main government-controlled power stations, Deir Ammar and Zahrani, ran out of fuel. This catastrophic, EDL-wide blackout rendered private generators the sole lifeline for power. In the capital Beirut, the scenario of long daily blackouts lasted for over a year and a half, with EDL managing to provide a mere three to four hours of electricity per day, as confirmed by a policy statement published by the Lebanese Ministry of Energy and Water under the title “Setting Lebanon’s Electricity Sector on a Sustainable Growth Path.”

This energy predicament was just one facet of Lebanon’s crisis, which unfurled in 2019 with an economic and currency collapse labeled by World Bank Group researchers as “one of the top ten most severe economic collapses worldwide since the 1850s.” The repercussions reverberated with an inflation rate soaring to 171 percent in 2022, according to the Central Administration of Statistics in Lebanon. One curious outcome emerged, however: the collapse of public electricity has prompted an accelerated shift to solar energy.

Broad flight into private solar 

Prior to 2021, the installation of solar panels in Lebanese households was largely motivated by ecological concerns, akin to trends observed in European countries. However, beginning in 2021, the landscape shifted dramatically, transforming solar panels from an environmental statement to a pragmatic means of securing energy. “This shift is a direct response to the challenges stemming from the diminished output of both Electricité du Liban and private generators. This underscores the significant evolution in solar capacity, starting at a cumulative total of 100 megawatts (MW) in 2016 and experiencing a remarkable surge, reaching an unparalleled 1,000 MW in 2023 within just seven years,” says Walid El Baba, an engineer and the president of the Lebanese Solar Energy Society (LSES).

Starting in 2021, generators, often under private ownership, had functioned as a nearly constant replacement for electricity derived from the national grid, leading to exceptionally high electricity bills. Monzer reveals that prior to adopting solar energy, her monthly experience felt like an unending, increasingly painful negotiation with private generator providers. These providers consistently escalated the monthly bill to provide a mere five ampere, which proved sufficient only to power a single light in one room and the refrigerator. Any additional load would cause the generator to abruptly cut off.

In 2022, Lebanon witnessed a continued transformation favoring renewable energy sources, as solar energy projects, as reported by the Lebanese Center for Energy Conservation (LCEC), achieved a cumulative capacity of approximately 870 megawatts. Notably, 663 megawatts were added in that year alone, pushing Lebanon beyond the 1,000-megawatt mark. This milestone comes as the country struggles to function under a total electricity demand of 1,700 megawatts, as estimated by the LCEC in June 2023.

According to the International Renewable Energy Agency (IRENA), Lebanon has the potential to derive 30 percent of its electricity from renewable sources by 2030. The shift towards solar energy has had a profound impact, reducing dependence on generators—a significant revelation emphasized in the Human Rights Watch’s March 2023 report. The report reveals that, between November 2021 and January 2022, Lebanese households allocated 44 percent of their monthly income to meeting their electricity needs, mostly by paying generator charges. In contrast, investing in solar panels provides a long-term solution safeguarding against blackouts and escalating electricity prices.

Solar energy, though effective, has a substantial upfront cost with a broad range depending on quality and quantity that renders it inaccessible to some. Post-installation, continuous monitoring incurs ongoing expenses, extending the financial commitment.  “Investing in solar energy is not just about installation; it’s a commitment to consistent maintenance. The more care you put into it, the more sustainable and cost-effective it becomes,” Joseph Al Asmar, an energy expert and faculty member at the Antonine University (UA), tells Executive. This commitment includes regular inspections of PV panels, cleaning to remove dust or debris that may hinder efficiency, checking electrical connections, and ensuring the proper functioning of components like inverters.

“The cost of a solar energy system varies based on factors like panel quality, battery efficiency, and optional features,” says Al Asmar, adding that, “it’s a personalized calculation to meet specific customer needs and ensure a cost-effective and efficient solution.”

Safety in Lebanon’s Growing Solar Industry

The propulsive surge in Lebanon’s solar energy industry has led to an increase in haphazard and unskilled installations, resulting in frequent safety incidents across regions. Al Baba highlights challenges in installation processes, noting that “around 30 percent of energy installations face issues, posing potential dangers, including fires.” These problems stem from flawed connection methods, the use of unsuitable cables, the absence of the MC4 connection leading to panel ignition, and improper panel placement causing defects in energy production. Al Baba stresses the significance of PV training sessions offered by the LSES for workers to tackle challenges and guarantee the safety and efficiency of solar energy systems. Additionally, he stresses the LSES acknowledgment of Eco Truck since 2012. This mobile sustainability classroom, designed for students in both private and public schools, has hosted numerous visits. Al Baba notes, “The truck is equipped with PV panels, a wind turbine, solar heating, and various other features.”

To prevent accidents, strict adherence to precise technical conditions, use of high quality equipment, and enlistment of experts to assess loads, ensure proper cable connections and undertake appropriate installation is crucial. Al Asmar underscores the significance of experience and knowledge in this domain, emphasizing that “the installation is not akin to ordinary electrical devices; it involves an intricate energy production system that necessitates adherence to scientific and engineering conditions.” This entails coordinated efforts among dishes, cables, transformers, and batteries to align with the engineering carrying capacity of the house.

Highlighting the importance of protection and safety measures, Al Asmar sees a priority need of proper maintenance in future dealings with already installed solar PV systems. He further evisions for all systems, those yet to be installed as well as those installed during the demand surge of the past three years, the implementation of regulation to shield each system from lightning strikes, high currents, and excessive traction beyond the system’s capacity.

While Al Baba expressed optimism regarding the future of PV solar installations in Lebanon, he emphasizes a dual need for intelligent utilization and the importance of a well-planned network that caters to the needs of every user, from the smallest to the largest. His concerns about the RE sector’s development in the coming years originate in the unregulated infrastructure as well as the behavior factors, namely the perceived selfishness of the Lebanese population, expressed in what he views as a tendency to prioritize individual interests over the collective good. 

In regard to regulatory concerns, which are shared by many experts on RE in Lebanon, the current bottomline of Lebanon’s compulsive rush towards renewable energy in the past three years points to a strong legal foundation as the linchpin for future RE success. The failures of EDL and the parliamentary and ministerial failures to rapidly exert governance and order over the wild environment where the urgent need for affordable electricity could lead to reckless installation of solar PV, have resulted in a practical and moral imperative of a collective effort from government, private sector, and civil society to invest in and adopt sustainable energy practices. For Al Baba, what is most needed now is a focus on legislation to streamline the transition, warding off chaos. He emphasizes: “electricity isn’t just a commodity; it’s a fundamental human right.”

0 comments
0 FacebookTwitterPinterestEmail