AnalysisEnergySpecial Report

Righting a wrong turn

by Alexis Baghdadi
written by Alexis Baghdadi

Stranded near a busy intersection in Beirut, this writer waited thirty minutes to get a cab back to Executive’s offices, located only 3 kilometers away. In that time, traffic revealed a noticeable drop in the amount of single-occupant passenger cars and available taxis and “service” cabs, compared to pedestrians, cyclists, goods and passenger vans. Yes, walking would have been faster and cheaper, but I was not dressed for the heat and humidity.

Under the current circumstances, the increasing re-appropriation of roads by adepts of public, shared, and informal commuting can only be expected to last or become further accentuated, and it will hopefully translate into a number of benefits on the long-term. Looking beyond the traditional promises of reduced emissions, economies of time and money, improved health, etc., a supported informal mobility system could lay the foundation for reevaluating the transport sector along more sustainable lines and even reinforce the fabric of society. These paradigms are still very largely absent from the discourse of mainstream media and pundits.

To regurgitate the latest problems plaguing the transport sector as a result of the economic and fuel crises would be overkill at this point. Media outlets have done a fantastic job of gratuitously covering the issue through a thick lens of yellow journalism. They have made sure to heavily season their “reports” with commentaries from the most colorful, most photogenic, and most exasperated car owners. They also sped to share any footage of altercations at gas stations in obsequious attempts at luring in viewers to increase advertising revenues.

The elusive great deal

Lebanese car dealers are reeling from the effects of drastically reduced sales over the past two years. [inlinetweet prefix=”” tweeter=”” suffix=””]Car sales in Lebanon dropped by 37.2 percent during the first nine months of 2021, compared to the corresponding period in 2020, and by 83.7 percent compared to the same period in 2019[/inlinetweet], according to a statement released by the Association of Automobile Importers (AIA). In recent interviews, Salim Saad, advisor to the AIA, mentioned that Lebanese car dealers had only sold 6,152 vehicles in 2020, compared to 21,991 in 2019 and 33,012 in 2018.

In light of the current fuel crisis, the knee-jerk reaction of some car owners and would-be owners, has been to consider less fuel-hungry vehicles like hybrid and electric cars. At first reading, this could present attractive advantages in terms of both reduced emissions and national fuel imports bill (see Marc Ayoub’s article). But is it likely that enough car owners can make this transition to ensure a positive impact? A recent Economic Digest by Blominvest Bank sees a rebound in car sales as highly unlikely since Lebanese consumers are seeing their purchasing power continue to shrink and are prioritizing spending on essential goods.

 

[inlinetweet prefix=”” tweeter=”” suffix=””]The relatively high cost of new hybrid or electric cars, together with the limited availability of hard currencies, constitute the main barriers to acquisition.[/inlinetweet] Banks have stopped issuing car loans to customers, leaving hopeful buyers with only the options of cash payments or trade-ins. Assuming car owners wish to sell their fuel-hungry vehicle to secure the coveted US dollars necessary to purchase a more economic car, they would be hard-pressed to find local buyers. Any potential buyers would be equally wary of the high prices of gasoline, and would also be reluctant to part with their cash US dollar banknotes.

Finding a sustainable source of electricity (ergo, one that does not rely on fossil fuels) to power electric vehicles would require setting up a new generation and supply infrastructure, probably relying on solar energy. Achieving this would require major reforms in the power sector, as-of-yet a very distant eventuality. Lebanon’s goal to generate 12 percent of its electricity from renewable sources by 2020 has fallen abysmally below expectations, casting further (justified) doubts on a revised goal of 30 percent by 2030 (see Christina Abi Haidar’s article). At the time of writing this article, the supply of power from the national grid, mainly generated from fossil fuels, is limited to 1 or 2 hours per day, with private generators rationing out electricity to households – those that can still afford the rising monthly fees, naturally.

On this note, in April this year the first “Made in Lebanon” electric car was unveiled by EV Electra, a division of Jihad Mohammad Investment owned by Lebanese-born Palestinian businessman Jihad Mohammad. Locally manufactured – or assembled? The issue is not clear and EV Electra did not respond to Executive’s request for comments – the Quds Rise sports car is the first in a range of 10,000 electric vehicles the company announced it hoped to manufacture by 2022. The car’s supposed green impact is somehow insignificant in a country reliant on fossil fuels for electricity. In previous statements to the media, Mohammad had mentioned setting up solar- and wind-powered recharging stations for the company’s cars in Lebanon. Given the rapid developments in the country over the past six months, time will tell if these vehicles find a ready local market (with payment facilities for local buyers promised by the company owner) or if they will be limited to export markets only, provided it is still viable to maintain manufacturing operations in Lebanon.

Can we run on green?

While waiting for fuel shipments or any other solutions – temporary, of course – to the mobility crisis, the transportation scene is steadily changing around us. Of course [inlinetweet prefix=”” tweeter=”” suffix=””]pedestrian numbers are on the rise everywhere, but so are bicycles and scooters (including electric ones), skateboards, tuk-tuks (three-wheeled rickshaws), in addition to carpooling[/inlinetweet]. These modes of transportation and the growing networks around them, born (or re-born) out of economic necessity, are rapidly enhancing the informal mobility sector and erasing old prejudices and stigmas associated with them.

 Bicycles are the first thing that comes to mind when talking about green mobility and, yes, they are now increasingly out there, but there is only so much ground they can cover, so to speak. First, they require physical effort, which excludes several segments of the population, notably the elderly and physically challenged, but also people residing far from their place of work. Lack of proper urbanization standards in large cities, the dearth of green and public spaces, and the poor condition of the road network make it near-impossible to establish safe bike lanes. With the current economic crisis and devaluation of the Lebanese pound, purchasing a bicycle is also no longer within reach of some.

The local bicycle market is not a huge one, due to the abovementioned reasons, but Zeina Hawa, co-founder of The Chain Effect non-governmental organization, and a fixture in Lebanon’s cycling scene, says demand for bicycles had been on the rise even before 2019. During the COVID-19 lockdown, mobility restrictions contributed to increasing demand. To make bicycles more affordable, The Chain Effect organized a fundraiser to purchase bicycles from local second hand shops and provided them to people who could not afford to buy one and lost their means of mobility (via referrals from other organizations and an online survey).

Hawa tells Executive The Chain Effect is constantly working on removing some of the barriers for bicycle adoption in Lebanon by being solutions-oriented and looking for practical interventions, now being the right time to do this. Awareness is a big part of what The Chain Effect does. For over 5 years now, the community-based organization has been working on promoting the bicycle as a sustainable and convenient form of transportation. Over the years, their awareness efforts have materialized campaigns like “Bike to Work.” They have also worked on promoting bicycle-friendly routes and enhancing the urban appeal and functions of areas used by cyclists, notably through brightly-colored graffiti across the cityscape, proclaiming positive messages such as this one on a traffic-heavy road: “If you rode a bike, you’d be there by now.”

“Wave” electric bicycles are a very recent addition to the cycling landscape. These rechargeable vehicles are equipped with a battery that provides pedaling support to cyclists, reducing the amount of effort they need to ride to work or run errands. Incubated by Berytech through the European-funded Green Impact MED (GIMED) project, Wave is the brain child of Dutch entrepreneur Jan Willem de Coo, who originally thought of the model as a way to reduce commuting time by avoiding traffic and parking hassles in Beirut. Wave financed its first fleet of bicycles through donations from the team’s family and friends, supplemented by small-scale Lebanese investors. With the project gaining momentum, Wave received a significant grant from the Dutch government, which propelled the company towards finally opening for business in March 2021.

The startup’s entire first batch of 70-odd vehicles has been rented out since the first month; meanwhile the waiting list of eager customers continues to grow. By 2022, Wave hopes to grow its fleet with an additional 250 electronic bicycles.

Unlike “Loop,” a popular electric scooter rental service that specializes in rentals for one-off trips, Wave is a long-term subscription service, renting its bicycles for at least one month. Eva Lattouf, customer success manager at Wave, explains that their focus was different from the outset. “The majority of our customers are long-term subscribers that have really opted adopted the bicycle as a daily mode of transportation,” she says. As at October 2021, the subscription fee amounts to LBP 620,000, which Lattouf says is still affordable compared, for example, with the price of paying for two “service” cab rides every day. “The crisis didn’t prompt our subscribers’ choices; the demand was already there. Awareness of the benefits of bicycle riding had grown organically in Lebanon thanks to the work of other associations and groups, like the Riders’ Rights association and The Chain Effect, so we were addressing an already converted audience.” This collaboration is ongoing and focuses on plotting bicycle-friendly routes and tips, as well as publishing awareness and safety videos.

A series of wrong turns

One key element is still missing from the above to paint a comprehensive picture of transportation in Lebanon: shared transport.

[inlinetweet prefix=”” tweeter=”” suffix=””]While more people reeling from the high prices of gasoline (when available) and car parts are resorting to shared transport, this subsector is suffering from poor policymaking and the social stigmas associated with it.[/inlinetweet]

 In March 2020, buses, vans and other modes of shared transport in Lebanon were virtually grounded and had to abide by a limited number of passengers in early efforts to prevent the spread of COVID-19. Hamad Hassan, then-Minister of Public Health, defended this measure in a TV interview, saying that it only affected poor people who, in his view, were the only ones using shared transport. This was an unnecessary decision, according to Chadi Faraj, co-founder of the Riders’ Rights civil society organization, and further hurt the reputation of the system. Unlike Lebanon, many European countries, and even the Wuhan province in the People’s Republic of China, kept their public transport systems running at the time. “Studies in Germany and France showed that aeration and mask-wearing drastically reduce the chances of contagion in shared vehicles,” Faraj tells Executive. Riders’ Rights sought to reduce the fallout from the policy in Lebanon by training drivers and raising awareness among passengers, as well as distributing masks.

 For Faraj, such an attitude to shared transport is unsurprising. He draws a picture of how successive government policies since the 70’s have consistently promoted vehicle ownership and individual mobility, at the expense of shared transport. The media has also given little to no attention to the issue, further contributing to the systemic (and willful?) disintegration of the shared transport system and its branding as a means of transportation “only for the poor or second class citizens, run by mafia-like gangs.”

 To be blunt, there are simply too many cars in circulation – a problem often cited when discussing road infrastructure problems. In a recent blog post, Faraj cites the Council for Development and Reconstruction that estimated car ownership in Lebanon at 80 percent in 2013. In parallel, other means of transportation, including walking, shared transport, and informal systems, accounted for less than 30 percent of all commutes. According to Lebanese Customs, car imports between 2016 and 2018 averaged $1.2 billion annually, before plummeting to $210 million in 2020. Furthermore, between 2000 and 2020, banks issued a total of 73,000 car loans.

 The state used to derive direct benefits from this state of affairs through customs and mechanic fees, as well as traffic fines, but most importantly through the allocation of road infrastructure and maintenance contracts to politically-backed companies, explains Faraj. Things have gotten to a point where the Ministry of Public Works and Transport is derogatorily referred to as the “Ministry of Public Works” only, he shares. Former Minister of Public Works and Transport, Youssef Fenianos, seemed well aware of that when he inaugurated a joint transport project in Byblos in 2019 and declared: “Lebanon needs a Ministry of Transport, not a Ministry of Works.”

MIGRATING TO INFORMAL TRANSPORTATION

Too many car owners now suffer from too many and too well-known problems in the sector, and are therefore turning to other solutions they can still afford. “[inlinetweet prefix=”” tweeter=”” suffix=””]We now see a better representation of Lebanese society in the shared transport system, the shame associated with it has dissolved. People are seeing cars as a burden, not an asset[/inlinetweet],” says Faraj.

 It derives that shared transport, including more informal alternatives, is rapidly gaining adoption. Unlike hybrid cars, bicycles and tuk-tuks are witnessing a noticeable increase in demand thanks to their comparative affordability for larger segments of the population. Once the brand of poor or rural neighborhoods, tuk-tuks running on rechargeable batteries are now more widespread. Originally used to transport goods or for short commutes in tourist areas, they are taking on more versatile roles, from street food stalls to shared passenger vehicles, and are even being used instead of cars. Because these vehicles do not consume fuel, the price of a fare remains low compared to other more conventional means of shared transport, constituting an attractive option for many.

 There is also some buzz around reviving Lebanon’s railroad network and tramway service, abandoned since 1975. On the ground, the Train-Train association has been lobbying for this cause since the withdrawal of Syrian troops from Lebanon in 2005, and has presented studies to the State Railway Authority. The president and general manager of the State Railway Authority, Ziad Nasr, met with newly appointed Minister of Public Works and Transport, Michel Najjar, to ask to prioritize the railroad network and tramway lines. In a visit to Paris, Prime Minister Najib Mikati even discussed the issue with French President Emmanuel Macron.

 Resolving the many crisis Lebanon faces will require time, and the shift to shared and informal transport will likely continue to grow. A more durable long-term solution would be to encourage these sub-sectors so they can increase their coverage and satisfy demand. After his tirade against transport policies, Faraj laments the resurgence of car ads on billboards. Following his thread of logic, even advertising hybrid cars would be compounding to the problem of excessive vehicle ownership and the negligence of shared transport. When the crisis hopefully ends, it is important not to relapse into old habits, and this requires building and improving on the alternatives that have started to take root today.

 Rather than wait for a sensible and achievable plan from the government to address the problem of transport, decentralized solutions are leading change. Individual enterprises and, more importantly, the support and engagement of municipalities, are key to ensuring the success of the shared transport trend. Eighteen months after its announcement and delays attributed to the COVID-19 pandemic, the joint transport project in Byblos mentioned above finally kicked off on October 3, 2021. The project aims at providing bus routes throughout the Byblos district. Similar localized systems can help shape a new vision of transportation, one that is affordable, convenient, environment-friendly, and light on the national fuel bill.

[inlinetweet prefix=”” tweeter=”” suffix=””]The migration of commuters to shared and informal transport needs to be managed. There are still many people unfamiliar with the dynamics of this system.[/inlinetweet] To complement their “Bus Map Project” ongoing awareness campaign, Riders’ Rights established a community-run social media hotline where neophytes can ask for advice and guidance on shared transport options. This initiative aligns with other awareness campaigns run by The Chain Effect, Train-Train, and similar organizations.

 Perhaps one day the new transport system will act as the cornerstone for sensible urban planning in Lebanon. 

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EnergyOverviewSpecial Report

The race to solar

by Thomas Schellen
written by Thomas Schellen

The supply of growth figures is so poor in Lebanon these days that any economic increase – one that is not a horrid leap in poverty, hunger, unemployment, and inflation – is more than newsworthy. Real, positive growth today is simply sensational. Even if there are hidden ambiguities and foreseeable near-term risks.

 In this regard of sheer growth, one fresh green shoot in the economy that promises to be spectacular in the current year, is the number of new solar photovoltaic (PV) projects – albeit with the caveat that it is too early to assess the solar PV sector’s growth rate for 2021. However, the signs of a major increase are unmistakable and supported by the fact that already the 2020 annus horribilis of pandemic lockdowns and economic meltdown saw a significant increase in aggregate solar electricity capacity, which contributed positively to the country’s needed transition to renewable energy (RE). “Despite everything, in 2020 the Lebanese market [for photovoltaic power] witnessed an increase of 14 MW. At the end of 2020, we had overall 89.84 MW of distributed solar PV,” says Rani Achkar, the executive director at the Lebanese Center for Energy Conservation (LCEC).

 To sharpen this picture, the current growth is taking place on the level of systems that are being installed by Lebanese households. Noting this specificity, the increase in the number of installed small off-grid PV systems since the outbreak of Lebanon’s multi-tiered crises in 2019, and the expansion of the supplier base offering such systems, make for two rare numbers of, possibly exponential, year-on-year growth by end of December.

 And although similarly strong growth figures do not apply to the sector of renewable energy at large and although there has been a weakening of the market for industry or utility-scale solar PV projects, the growth in the residential PV sector could fuel economic optimism renewably over the expected tough years from now to the end of the 2020s. Domestically, it could significantly contribute to the RE resolution of the crippling national electricity problem. In terms of signals to external stakeholders – meaning potential donors, investors and financiers – Lebanon’s positive solar impulses moreover come at an opportune time when the whole world is caught up in the need to speed up its RE transition.

 This is to note that, with climate action getting more urgent by each month of insufficient mitigation of fossil fuel risks, the RE theme this year tops the global agenda two times: once in form of a High Level Dialog on Energy (HLEDE) at the UN General Assembly in September and then – in the main climate event of 2021 – at the COP 26 summit in Glasgow. As far as global scenarios go, climate risk and the underachievement of the Paris climate goals presently appear on course to supplant the pandemic fears and COVID-19 infodemic as the chief worries. 

Assessing the lure and the risk

All in all, the theme of renewable energy is hotter than the sun on a Lebanese beach in August, and this makes the new local vigor in adoption of RE and specifically solar PV, all the more enticing. Irrespective of its national drivers. Of course, from the in-country perspective, the reason for the local solar demand boom is as self-evident as the human need for electricity: since this spring’s epochal and near universal collapse of national supplies by the electricity utility Electricité du Liban (EDL) and the simultaneous onset of serial diesel price shocks and subscription fee hikes in the country’s informal secondary electricity supply scene of private diesel generators, households have been scrambling to find power and energy safety, notably not heeding the sustainability and climate importance of the solutions they acquired.  

 

But how large, how economically durable, and how sustainable then is this hunger for RE? [inlinetweet prefix=”” tweeter=”” suffix=””]From a first proxy assessment of the size of consumer demand on a proxy number of weekly phone inquiries and requests for advice to the LCEC, the popular will to be solar looks strong, but so does the uncertainty.[/inlinetweet] When comparing people’s PV inquiries to LCEC in 2021 to 2018, which multiplied from one phone call a week back then to an average five phone calls a day this year, Achkar alludes to a 25-fold jump in customer interest seen by the country’s public sector RE institution, before clarifying that the leap up “will be in number of projects. Most of the new installations will be small residential installations. In terms of installed capacity, the [2021 numbers] may not reflect the huge increase in project numbers.”

 Judging from the number of new market entrants on the supply side, the increase also is “huge,” says Walid Baba, president of non-profit association Lebanese Solar Energy Society (LSES). According to surveys, the first of which he had undertaken in 2001, company numbers that entailed importers and all sorts of services providers in solar technologies, grew from 26 companies in 2001 to over 100 at the end of the 2010s. “In the crisis, another 100 can be added. So in one year, more companies came to market than in the previous 20,” Baba tells Executive. 

Further anecdotal evidence to corroborate this boom on both the retail demand and supply side of solar PV systems is easy to find from private sector companies. Leaders of the small solar industry tell the story. For Rabih Osta, vice president of Phoenix Group (member of INDEVCO Group), the LCEC can call itself lucky to receive a mere 25 calls per week. “We receive 500 calls a day,” he tells Executive about the demand storm experienced by staff at group unit Phoenix Energy. 

Renewable energy company Ecosys, an ITG Group unit and another of the industry majors, signed contracts for about 100 residential solar solutions over approximately two months in the third quarter of 2021, discloses George Geha, chairman and general manager of Ecosys. By contrast, between the company’s incorporation in 2008 and end of last year (notably a period in which the company was focused on supplying larger systems to the Lebanese corporate markets) the total count of its residential market contracts was in the single digits – between five and ten.

At independent solar PV solutions provider Novaenergia, managing director Joe Hawi confirms that [inlinetweet prefix=”” tweeter=”” suffix=””]“there is a lot of noise” about demand and supply of residential solutions. “The market went from low activity to hyper activity in a matter of days, after the generator cuts in this spring,”[/inlinetweet] he says, qualifying the overall demand picture by adding, “The market evolved into [three] segments, those who can afford something good and those who cannot, plus those who could [buy quality] but would not.”

 The list of testimonials and anecdotal evidences goes on, to the point that the solar PV fever seeps from corner shops. Noticing, on an unrelated business visit to my neighborhood OMT agent, a fairly large box sitting on the floor besides his display case of his usual product range, smartphones, I ask Mohammad, the shop’s operator, “Oh, you have got yourself an inverter now?” He proudly responds, “Not just an inverter; I just got a container shipment in that is full of all components, inverters, batteries and photovoltaic panels. They are next door and I have started a new business selling solar PV systems.”

 He adds that he is advertising on Facebook and has immense interest from electricity-starved people, but concedes, “People are asking many questions about price and when hearing about the cost of getting solar, most are no longer interested.”

 From an economic perspective, this entire scenario of course fits the definition of a positive demand shock in a textbook way. The implication is that short-term distortions and mid-term repercussions – vulgo, supply shortages and price increases that are followed by unsustainable investment moves and creation of oversupply – are highly probable or, in the case of price distortions, already in full swing.

 As example for the latter, Hawi says he has seen offers in the market where importers were upping the wholesale prices of deep cycle batteries at the lower end of the quality range in the neighborhood of 30 percent, and installers added another markup – for batteries that the East Asian manufacturers would sell internationally at unchanged dollar prices. In Hawi’s view, the upward price distortions are highest in the lower quality segments where incidental demand is currently at peak and supply tight because of the unexpectedness of the demand surge.

 There are expectations that the local supply squeeze will relax in the first quarter of next year, but compounding the impact of the local demand shock in the near term also could be factors such as increased international shipping costs and global supply chain bottlenecks.

 For another contributing element, Ecosys’ Geha points to the fact that the residential market’s structure of many small individual projects puts quality suppliers in a bind because they need to achieve higher margins per system due to their long-term warranty obligations and maintenance commitments. Like his industrialist peers that have developed the sector, Geha expects a negative impact on the reputation of solar PV markets from the current madness but does not believe it will damage Ecosys itself. “I am not afraid of that because the Lebanese market is small and there is a differentiation between one [supplier of solar systems] and the other. People will pinpoint that one is good and other bad, and there will be a filtering,” he says.

 Repercussions from the current market chaos will still be felt after years, exclaims Phoenix Group’s Osta. “There are a lot of leads and deals, but it is chaos that is going on. And people who install under-capacious system today will, after nine months or one year, experience many problems with their systems either in terms of performance and lifetime, or safety and security. Consequently, people who are not knowledgeable in renewable energy will start seeing it as something that is not recommended. I cannot comprehend how [some vendors] are promoting systems only based on amps, without [explaining] autonomy, and other factors,” he says.

THE URGENT NEED FOR STANDARDS

That the newcomers in the industry represent a factor of new uncertainty is also not a fact lost on LCEC Executive Director Achkar, although he paints a differentiated picture of the incoming suppliers. “We are seeing a lot of new companies with good ethics and good sizing of the systems,” he says. Those companies’ offers, as far as examined by LCEC experts upon client request, explain in a clear way what clients will be purchasing, Achkar adds, but acknowledges that LCEC also has seen offers that were “very ambiguous.” Other offers were clear in technical data “but with misdirection in the phrasing of the offers,” he says. According to him, such phrasing might make people rely on ampere-based solar PV system descriptions which include no information on storage. Such systems subsequently will not meet people’s unrealistic expectations. “There is some misdirection of the users,” he concedes.

 Conversations on standard setting and technical supervision of solar PV vendors have, according to Achkar, been initiated with the Order of Engineers in Lebanon but it does not sound as if a quality check process of provider qualifications would be forthcoming soon. In the opinion of the old-established industry players, higher standards would in any case arrive too late to inform the current demand.

 Baba and Hawi say that the problems of missing standards and unsound operators have existed for a long time. According to Hawi, the latter has actually been present since he entered the sphere of RE in 2010 but it was subdued because most consumers were not ready for solar and financing by local lenders was discriminatory on the technical prerequisites and quality of financing deals in the sense that the banks preferred to award subsidized solar PV loans to well-off clients who did not really need such loans. “We saw the number of solar companies increase with time. There being no real regulatory authorities in Lebanon to mandate any technical or quality control, there were moments when we felt that some people cut corners but in general, it was a small and competitive market,” he describes the sector’s growth throughout the 2010s.

 He further opines that the factors driving the market in the early years were far from the current despairs. In the early to mid-2010s, the strongest pro-PV impulses could be attributed to green lending subsidized by the Lebanese central bank, Banque du Liban (BDL), and offered under the name National Energy Efficiency and Renewable Energy (NEEREA) loans; were furthermore correlated with fluctuating oil markets; but were helped the most by international development actors. “Market catalysts were UNDP, government tenders, NEEREA loans and in very rare cases, cash upfront clients. One interesting thing was that fuel prices were very high in 2013 and 14, and this was reflected in the market,” he recalls. 

In terms of the effects of the current boom, he foresees more positive than negative outcomes. “The current situation is positive in general, because as dark as it looks when it comes to quality and design, people are purchasing their education on the topic.”

 Accounting for the wide variety of views and current experiences, however, it seems at this point that not only did the more than two decades long experiment in anarchic capitalism in Lebanon’s conventional power sector failed most painfully but also that the conversion of the anarchic capitalist failure into an alternative and orderly development path did not take place. In too many ways, the people’s scramble for electricity solutions from either new and untested solar PV vendors and the continued and necessary – for many Lebanese inescapable – existence of a systemically corrupt private power generation sector that in popular perceptions has the markings of a “generator mafia,” looks today like a renewable anarchy.

Not the most efficient route

The upsides of the growing solar awareness and household demand in recent months notwithstanding, RE stakeholders interviewed by Executive for this story from the public, private, and third sector question or deny outright that the boom in the sub-sector of residential PV will either last beyond the coming few years or suffice to build the RE industry up to its full potential and the national needs.

 Geha says the sudden growth of the residential market was expected by the company but happened without plan. Nonetheless, he expects the addressable residential market to have grown to about 100,000 households over the coming five years, or encompassing 10,000 to 20,000 potential installations annually. On the downside of the current situation, Geha sees bargain-seeking users of as misserved and possibly endangered by suppliers who cut corners, perhaps even in such basic infrastructure issues like the mounting of the support beams needed for rooftop PV panels, and says he imagines with horror what would happen if a panel were to be ripped from a Beirut residential high rise rooftop in the upcoming rain and wind season and were to crash in the street below.

 Viewed from the system efficiency angle, the emerging sphere composed of small, off-grid systems and de-facto tiny and private solar islands is by Osta’s analysis the most unsuited for satisfying national RE interests in the longer term. “The most expensive way how solar power can be generated is to get solar with storage battery at a very small scale,” he laments.

 

Pointing out that this observation applies only to the rush of small-scale projects, he explains that [inlinetweet prefix=”” tweeter=”” suffix=””]a prudent path of migration to efficient RE would firstly be through utility-scale projects up to the gigawatt level, and a second-best path could be taken by way of motivating commercial and industrial entities to install solar PV at their scale.[/inlinetweet] The latter would be a strong option on basis of laws and regulations that open the national electricity market for wheeling (transporting electricity via the grid to agreed destinations for a fee) and for feeding the electricity into the grid and selling it to the state utility (see Christina Abi Haidar’s article).

 Following these two prime options of realizing utility-scale mega projects and incentivizing industry-scale PV projects, “the third best way would have been by working towards the replacement of heavy fuel oil with gas in the power plants, and the least optimized one is on the individual level with one, two, or three kW on the top of the house in combination with a storage battery, especially given the fact that in most of the cases, the storage battery is not up to level and quality that is required,” he elaborates.

 The industrial stakeholders and two United Nations Development Programme (UNDP) affiliated experts are in agreement that the root of the renewable anarchy of 2021 is the fact that installing PV was not a financial, economic, ecological, or climate choice but forced by the people’s emergency need to find any sort of electricity. 

UNDP Cedro’s Harajli notes that the overall RE development (during more than a decade where Lebanon was faced with one problem aft the other) has not been as cyclical and circular as desirable and that the disequitable process of the RE transition was not at all made smoother by the fact that people’s latest electricity choices have been dictated by necessity. “People and government have no choice, they cannot continue as usual,” Harajli tells Executive.

 His UNDP colleague Vahakn Kabakian, climate change advisor attached to the Ministry of Environment, adds that 15 years of Lebanon’s government trying to make people buy into solar somehow did not result in a significant shift into PV on the residential level.  “The investments in small solar that we are seeing today are not the result of government policy but a result of government collapse,” he puts the discrepancy between the government’s success in advocating solar acceptance and the people’s decisions for solar to the point.

 No one who graciously conversed with Executive in some seven hours of recorded interviews for this Energy Special Report and no expert contributor to the report ever suggested that the forward path to RE can best be trodden without concerted strategy and with a government in collapse.   

Dangling on the government cliff

Here then comes the habitual and thus anticlimactic cliffhanger in Lebanese government-related stories. The cliffhanger of great promises and intricate strategy plans.

 The plans exist (delve into the next act of Solarius for more) and are centered on Lebanon’s commitment to climate goals and Nationally Determined Contributions (NDCs) to achieve 30 percent RE capacity by 2030. “In the updated NDC, there is an official environmental commitment of Lebanon to pursue renewable electricity, renewable heat, and energy efficiency,” Achkar confirms.

 To say it directly and remove the suspense over the expected responses from interviewed RE stakeholders, the commitments to installation of 30 percent RE capacity over the coming nine years, including 4,000 MW in large RE projects in the latter part of the period, were described as music to their ears by members of the solar industry but also received with shrugs of uncertainty. 

“The will alone will not make the projects happen. The will is a first step. You have a will, then a plan, then the financing of the plan, and then the right methodology to execute such utility scale projects,” Osta says while Geha comments, “To be really able to grow and talk about targets and plans, there is a resolution to the Lebanese status [needed], signed with the IMF. Then things will move quickly.”

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CommentEnergySpecial Report

Lights on

by Carol Ayat
written by Carol Ayat

Today, the electricity sector is in full collapse and Lebanese people are plunged in darkness, with only 1-3 hours of state electricity per day. They have to rely on expensive and highly polluting private generators to provide their needs in electricity at exorbitant costs averaging $0.40/kWh. In addition, imports of diesel and heavy fuel oil (HFO) necessary to generate this electricity are estimated to average $3 billion per annum, which are being funded through the dwindling reserves of the central bank of Lebanon, Banque du Liban (BDL). [inlinetweet prefix=”” tweeter=”” suffix=””]Since the start of the crisis, $18 billion are estimated to have been spent from BDL reserves on imports, out of which, $6 billion on electricity related imports. [/inlinetweet]Today, the remaining reserves are estimated at $13 billion.

The status quo is no longer viable. Breaking the vicious cycle requires the implementation of a comprehensive solution that is consistent with the political economic reality. One of the main impediments to implement the needed solution is the availability of funding. The state has limited ability to obtain new financing without multiple pre-requisite laws, programs, and reforms, which would certainly involve long delays. Meanwhile there is currently no appetite for private investment.

 A ROADMAP FOR ELECTRICITY

In October 2021, in coordination with the Issam Fares Institute at the American university of Beirut (AUB) and multiple experts in energy and finance, I proposed a comprehensive solution to the electricity crisis across the generation, transmission, and distribution of electricity with 100 percent local funding, by bridging the banking crisis for an electricity solution. This would result in 24/7 electricity supply, allow scaling up renewables, reduce losses and theft of electricity, save $2 billion of direct costs on the annual electricity bill, relaunch economic growth and reduce the budget and balance of payment deficits.

The proposal provides the necessary prerequisites for the transition towards renewable energy. The goal of any electricity reform should be maximizing renewable energy, as it offers the cheapest, cleanest and most secure electricity source. However, the scale-up of renewables faces major obstacles in Lebanon. The technical ones being the status of the grid and the lack of base load power. Base load power is the minimum amount of electricity that should be constantly provided to the grid to manage the intermittency of renewable energy. One of the most efficient and cleanest types of base load power are gas-fired combined cycle power plants. Natural gas is considered an integral part of the energy transition and complementary to renewable energy, as it is the greenest of the fossil fuels with significant reduction in emissions when compared to HFO or Diesel, it is also cheaper.

 Therefore, the proposal includes the construction of new gas-powered plants in Zahrani and Deir Ammar with a capacity of up to 2,000 megawatts, and a natural gas import facility in Zahrani (taking into effect the procurement of natural gas to Deir Ammar from Egypt), the upgrade of the grid infrastructure including the roll-out of smart meters, tariff reform with prepaid cards and a new distribution model based on decentralized distribution companies who manage the billing, collection, and sale of prepaid cards. The total needed financing is estimated at $2 billion: $1.6 billion for the generation and gas infrastructure, and $400 million for the grid infrastructure.

 The funding for the generation is proposed to be sourced via crowdfunding from depositors in local commercial banks, who are offered to subscribe on a voluntary basis to the equity capital of two new Lebanese generation companies, Zahrani II SAL and Deir Ammar II SAL, with local dollars. Investment restrictions apply such as a cap on the investment amount, subscription needs to be pro rata between the two companies and no politically exposed persons “PEP”, banks shareholders or executive management are allowed to subscribe.

 The management of the company will be contracted to a tier one international developer, who will manage the procurement of the Engineering Procurement and Construction (EPC) contract, while the operation and management contract of the plants will be with a globally renowned equipment manufacturer like Ansaldo, GE, Mitsubishi or Siemens.

Over the project life,[inlinetweet prefix=”” tweeter=”” suffix=””] depositors are expected to recoup $7 billion in fresh dollars with quarterly cash flow via the sale of electricity to the electricity utility Electricité du Liban (EDL)[/inlinetweet] according to a 20-year power purchase agreement guaranteed by the Lebanese government and with political risk guarantee from a multilateral agency. [inlinetweet prefix=”” tweeter=”” suffix=””]The cost of electricity to EDL is estimated to drop to around $0.09/kwh (compared to current cost of generation that approximates $0.15/kwh)[/inlinetweet]. All the project agreements will be structured to be bankable as per international standards to allow for the leveraging or sale of the companies to international developers once macro-economic stabilization is achieved. The newly raised funds could be used to invest in renewable energy projects or as an early exit to depositors.

 The electricity distribution model to consumers is proposed to be handled by localized distribution companies who take on the role of selling electricity to consumers with pre-paid cards to reduce losses linked to theft and uncollected bills. Those companies could hire some of the workforce of EDL and private generators. All revenues are deposited in an account pledged in favor of the generation companies to ensure funds are directly channeled to service the companies owned by depositors, The consumer would benefit from a significant reduction in their electricity bill from the current unsubsidized private generators rates (that are fully indexed to fuel and LBP/USD rate) currently between $0.4/kwh and $0.15/kwh. 

The project should be coupled with an International Monetary Fund program to achieve macroeconomic stabilization and eliminate multiple currencies, however it can be launched imminently following the passing of a project-specific law, complementary with Law No. 462/2002.

 The proposal has been designed to force the required sector reforms at the project level. It is a bridge towards the decarbonization of the Lebanese electricity sector and is resilient to external shocks. It aims at resolving multiple problems at once (including resolving the electricity crisis, enabling the scale-up of renewables, allowing economic recovery by reducing the cost of electricity, reducing the balance of payments and budget deficits) and presents a growth-story partial and voluntary solution to local depositors.

 Every single day delayed in implementation has direct financial costs to the Lebanese economy estimated at $5.5 million, not to mention the environmental and opportunity costs on the economy. If successful, the funding model can also be applied to renewable energy projects and to various sectors such as transport, waste, water, ports etc. With political leadership and popular willpower, Lebanon can emerge from this crisis stronger, more resilient, and with a healthier economic model.

To know more about this project, which was published by the Issam Fares institute for Public Policy and International Affairs at the American University of Beirut, you can download it from the following link: https://www.aub.edu.lb/ifi/news/Pages/20211020-comprehensive-solution-to-the-lebanese-electricity-sector-report-launch.aspx

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Power seizures

by Jessica Obeid
written by Jessica Obeid

Lebanon is witnessing a rapid deployment of decentralized renewable energy. However, this movement is driven by fear of a total black-out and is happening in the absence of policy, regulatory and financial incentives. This leaves the booming market in total chaos and requires several measures to attenuate its effects, starting with better awareness.

The world is increasingly moving towards decentralized energy generation. This was bound to pick up in Lebanon for different drivers than the global movement. These drivers could be summarized by: 1) a total policy failure leading to more power outages, and 2) an eventual hike in electricity tariffs leading consumers to seek alternatives. The first is being witnessed across the country and the word on the street is that the second is on its way. In all cases, the decentralized energy movement has taken off.

Lebanon’s economic, financial, and political crises are taking a toll on the power sector.[inlinetweet prefix=”” tweeter=”” suffix=””] The foreign currency reserves necessary for fuel imports are shrinking amid complete inaction from the succeeding governments.[/inlinetweet] Protesters are demanding power stations transmit the limited power supply into their regions, thus negatively impacting the grid and power quality.  This results in drastic power outages from both the national utility side and the informal private diesel generators that have proliferated across the country since the early 1990s.

The political class has chronically used the electricity sector for vested interests, including corruption and power. Electricity provision has historically been unequitable, characterized by regional disparities in terms of length and quality of power supply. Some political parties are currently using their influence on the sector to win constituents ahead of the 2022 elections by providing higher electricity supply hours to their areas of dominance. Before the crisis, the farther a consumer had been located from the administrative part of the capital Beirut, the longer the outages and the weaker the voltage. This had led to a bigger reliance on diesel generators outside Beirut. As power outages increased earlier this year, the capital found itself with a power supply nearing only 2-3 hours a day at some periods, similar to the case in other regions.

Democratizing decentralization

Whereas in the past a neighborhood diesel generator would “fix” this national utility outage problem at a significant cost, shrinking foreign currency reserves mean that even the private generator owners have limited access to diesel to power those generators. In addition, generators are designed to provide back-up power supply and are not intended for continuous operation. Therefore, the growing hours of outages from the utility side result in growing outages from the generators’ side as well, along with higher replacement, operation, and maintenance costs of the generators. This cost would also be passed from the operator to the consumer. In most cities and villages, the consumer is now paying a tremendous bill without receiving a continuous, reliable power supply in return, and is therefore seeking refuge in alternatives, mostly rooftop solar photovoltaic systems.

As a result, [inlinetweet prefix=”” tweeter=”” suffix=””]Lebanon is witnessing a rapid deployment of decentralized renewable energy. However, this rapid movement is driven by fears of repeated total blackouts and insecurity, both on the energy and political fronts, and is happening in the absence of policy, regulatory, and financial incentives.[/inlinetweet]

The global drivers for decentralized renewable energy have included the existence of policy interventions and enacted legislation, and the availability of feed-in tariffs, price guarantees, and financing mechanisms. By contrast, Lebanese residents, who have lost access to their savings and bank accounts, are having to pay an elevated cost in hard currency due to the mostly imported renewable energy system components, amid a continuing devaluation of the local currency.

Consumer unawareness

But that’s not the biggest problem. Consumers paying a hefty cost for a system and being completely oblivious to the specifications and quality of their system, is a major concern, and is driven by the lack of awareness and regulation. The critical factor for most consumers in purchasing a system is of course the capital expenditure. But the capital expenditure depends on system size, technology type, components quality, standards, certifications, lifespan, and prospects for operation and replacement of components.

There are different technology types and specifications per system component, and their impact on the system lifespan and the interconnection with the grid, or lack thereof, is significant. Add to that, a booming market attracts plenty of new players. Dozens of companies are now operating in the field, many with poor or no track record. In these conditions, assuming the consumer would do the homework and learn complex technical details to make a sound purchase decision is unrealistic.

The result is a chaotic market with a wide range of technology types and grid implications, and product quality ranging from mediocre to high-end, in addition to the dissemination of under-sized systems and overpromised outputs. This creates a risk for the grid and the systems’ performance and a hazard for the safety of the consumers, especially when dealing with electrochemical materials such as batteries.

1 tbsp. education, 1 tbsp. regulation, 1 cup financing

Where do we go from here? Ideally, there should be an awareness campaign, a regulatory body, a comprehensive law, and a financing facility.

The awareness campaign should be straightforward and should include details on system sizing and operation and components technologies, types, and specifications, documentation, standards, and maintenance and operation requirements, what to look up for and what to consider in pricing (see UNDP checklist).

A comprehensive decentralized renewable energy law is more complex. Yet, a corresponding draft law has already been prepared and the relevant parliamentarian committee should be discussing it as soon as the Ministry of Energy and Water approves it (see Christina Abi Haidar’s story). There are two major risks in legislations in Lebanon however; the first is that laws often get diluted, enacted as a couple of articles which would be open to future interpretation, and the second is that many laws do not get implemented. Thus, ensuring there is a full-fledged comprehensive law that details different models and incentives for distributed energy generation is needed, and advocating for its implementation is a must.

More complex in terms of implementation is the regulatory body for decentralized power distribution. The power sector lacks a regulator and the country is beset with patronage and bureaucracy. [inlinetweet prefix=”” tweeter=”” suffix=””]Any attempt to govern and regulate decentralized renewable energy systems without a credible, independent, and strong regulator backed by strong institutions with clear mandates will end up swept under the rug of bureaucratic maneuvering and favoritism.[/inlinetweet]

Financing mechanisms at this stage are obviously dependent on a sound financial solution and package for the country. But 19-months since the default on eurobonds, the prospects of this are decreasing with each passing day of inaction. However, establishing a Green Investment Facility is within the Lebanese Government Financial Recovery Plan. The facility could be designed as a revolving fund or blended finance and capitalized through the Special Drawing Rights allocation from the International Monetary Fund, aid for energy projects through international donors, and private sector.

[inlinetweet prefix=”” tweeter=”” suffix=””]The biggest opportunity for Lebanon presented by decentralized renewable energy in its various forms from mini-grids and hybrid systems to rooftop solar is that these systems bypass the political bottlenecks that have inhibited reforms in the power sector for decades.[/inlinetweet] Yet, ensuring the rights of consumers are protected, while safeguarding the grid operation and offering just opportunities for the private sector are major requirements for building a healthy market and overall sector.

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Black gold

by Wael Yammine & Rita Khawand
written by Wael Yammine & Rita Khawand

Although it is a productive sector, agriculture in Lebanon relies heavily on imports of primary resources and materials. Most commercial agricultural production requires imported basic materials such as seeds, potting mixes, chemical fertilizers and pesticides, many of which are not produced locally or in sufficient quantities. The devaluation of the Lebanese pound poses a serious challenge to both the flow of these imports and the purchase of fuel to power the machinery necessary to manage large fields. The increased costs of agricultural production are raising the cost of produce and threatening food security.

According to a recent paper authored by Kanj Hamade, assistant professor of agricultural economics and rural development at the Lebanese University, and published by Carnegie Middle East Center, sales of agricultural inputs and services contracted by 40 percent on average in 2020. [inlinetweet prefix=”” tweeter=”” suffix=””]In response to the economic crisis, farmers have been increasingly adopting cost-reduction strategies involving mainly reducing the use of fertilizers and other inputs, relying on local seeds and nurseries, and overall decreasing agricultural activities and spaces.[/inlinetweet]

 In response, growers are being forced to adapt by resorting to local alternatives or switching from conventional systems to new and more sustainable ways of producing food. The most logical, and most exciting place to start this is the soil itself and what makes it fertile. One key agricultural component in this shift to self-reliance remains undersupplied and undervalued: a trusted local supply of good quality compost, the best type of organic fertilizer.

Deadly economics

Some technical talk is necessary to emphasize the importance of fertilizers here, but we’ll try to keep it simple. Fertilizers are either chemical-based (synthesized in labs) or organic-based, i.e. made from organic materials only, although not necessarily carrying an organic certification. Organic fertilizers usually consist of pure raw or cured manure, or naturally decomposed agricultural byproducts and food waste (compost), or mixes of both.

 Basically, conventional growers who rely on chemical fertilizers usually focus on single cash crops such as tobacco or tomatoes. Repeating the growth cycle of these uniform crops eventually drains the soil of nutrients, hence the need for imported fertilizers to maintain or increase yield. Such fertilizers contain Nitrogen, Phosphorous, and Potassium (NPK) in the form of salts that increase soil salinity.

 Common chemical fertilizers contain compounds that are technically safe to use but can create devastating reactions if not stored properly. One of these compounds is the infamous ammonium nitrate that caused the August 4 Beirut Port explosion. This compound had previously caused similar explosions in other countries, and had even been used in terrorist acts, leading many countries to ban it or ban the sale of fertilizers containing it in high concentrations.

 Also, ensuring that only the desired crops grow and benefit from fertilizers requires eliminating the competition from weeds, which requires more imported chemicals in the form of herbicides. These herbicides do more than eliminate unwanted growth, they also contribute to barren soils by depopulating microbial life in soils. The crops that grow on such impoverished plots face a higher risk of disease, and their uniformity and concentration attracts pests that thrive on them. As a result, they require more inputs in the form of more water or more fertilizers, as well as additional chemical inputs through the use of imported pesticides. And with the next crop, the cycle is repeated and intensified.

 This sadly literal self-sabotage brings to mind a fitting quote from Franklin D. Roosevelt often used among practitioners of chemical-free agriculture: “The nation that destroys its soil destroys itself.”

 

[inlinetweet prefix=”” tweeter=”” suffix=””]In 2020, imports of fertilizers dropped to $27 million, half their value from previous years.[/inlinetweet] While importers and producers of chemical products may still turn profits, growers’ pains endure and worsen; even prior to the economic crisis, they complained about smaller yields year-on-year and the spread of diseases, despite using the same quantities of inputs, or sometimes increasing them. When everything fails, these growers go back to the chorus of blaming climate change or the “original infertility” of the land.

Transitioning to organic solutions

[inlinetweet prefix=”” tweeter=”” suffix=””]A chemical-free agricultural production carries with it a number of advantages in terms of budget, quality, profitability, and more importantly, sustainability.[/inlinetweet]

 From a fertilizer standpoint only, there are important savings to be made from establishing local production facilities. A search for quotations among local suppliers of fertilizers reveals telling figures. The price of a 25 kg bag of imported chemical fertilizer is $17. This type of fertilizer requires lab equipment and a supply of raw materials not available locally. The price of a same-quantity bag of organic fertilizer comes out at $9 or $10 on the cheaper side (imported from Belgium and The Netherlands, respectively) and $14 on the higher side (imported from Turkey). By comparison, a similar bag of locally-made compost ranges between $3.5 for lower-grade products and $8.75 for high-end ones. The cost-benefit ratio is crystal clear.

Most importantly, chemical fertilizers contribute to the degradation of soils, something many conventional growers are still unaware of or unwilling to do anything about, and this raises the bill of additional inputs required.

 

[inlinetweet prefix=”” tweeter=”” suffix=””]Organic fertilizers, on the other hand, play a huge role in contributing to food security through the preservation of soil health and fertility, thereby ensuring stable yields and sustainable agricultural production. [/inlinetweet]By that measure, good quality compost is best type of organic fertilizer. Compost is the result of aerobic decomposition by microbes of different types of organic material (food scraps, tree leaves, manure, seeds, etc.). A good quality compost is supposed to feed the soil not the plants, meaning it inoculates the depleted or struggling soil with the needed micro-organisms which in turn will harvest the essential nutrients from underground and offer them to the plants. The plants in return give back sugar to the microorganisms, establishing a synergistic relationship that helps them become more resilient. In addition to bringing back life to degraded soils, compost helps build soil structure, retain moisture, and prevent erosion.  It can also serve as an alternative disease-free potting medium for nurseries, replacing the imported peat moss that depletes wetlands in many parts of Europe (and also costs a bundle for local importers).

 Of the different compost production systems, thermal composting is the most widespread worldwide. Without getting too technical, this process combines regular aeration and moisture control to heat careful proportions of materials to above 55° C over a period of 10-15 days, eliminating most pathogens and weed seeds. This curing process makes the resulting compost ideally suited for use as a potting mix for plant nurseries or as a soil amendment.

Other systems necessitate more time and deliver end-products with different properties intended for different applications. Static composting, for example, takes up to six months and requires different conditions under which insects and microorganisms slowly decompose matter into “humus” mainly intended for environmental applications. Cold composting relies on the action of certain insects only to produce a rich soil-amending compost (vermicompost) that is, however, unsuitable as a potting mix. This process is more sensitive and requires more efforts to guarantee ideal conditions, making it effort-intensive.

Wasting waste

[inlinetweet prefix=”” tweeter=”” suffix=””]Successive destructive policies since the 90’s have been biased in favor of importers of chemical fertilizers. [/inlinetweet]As a result, many large-scale growers and investors are convinced that feeding the population and reclaiming food security on a national level are impossible without chemical fertilizers. Sadly, many growers are not fully aware of, or do not care about the damage that chemical fertilizers cause.

 With the onset of the crisis, however, reliance on chemical fertilizers is diminishing. Small-scale farmers especially are turning towards animal manure as an organic fertilizer after it had been gradually phased out by the overabundance of chemical fertilizers and their marketing as “odor-free.”

 On the other hand, a large number of growers are unaware of the importance and benefits of using compost as an organic fertilizer. This is partly because compost has been primarily associated with solutions to the waste crisis. Over the past few years, specifically after the waste crisis hit critical levels in 2015, several local entrepreneurs and non-governmental NGOs have begun focusing on developing compost value chains (collection, sorting, production) in Lebanon as a means to divert household organic waste from landfills, bearing in mind that this constitutes over 50 percent of total municipal solid waste in Lebanon, according to the German development agency GIZ. For example, Green Site Composting, located near the Beirut slaughterhouse, uses static composting, whereas Cedar Environmental applies enzymes to organic waste to speed up its decomposition. Even the former waste management company Sukleen used to operate a composting facility at its Medawar headquarters, although it was reluctant to share details about its operation.

 These initiatives do not address the agriculture sector’s needs; they are primarily environmental and focus on waste reduction, even if before 2015 less than 10 percent of total organic waste was composted. Due to the absence of adequate regulations, the compost produced may contain different contaminants, from weed seeds to pathogens and heavy metals. Some of it may be packed active and dried, which makes it seemingly odorless, but once it is exposed to moisture, it releases bad odors. Or it may be stored too long or in too dry conditions, rendering it sterile. It is not surprising then that its desirability in the agriculture sector is low, and it often ends up dumped erratically or distributed for free to growers insufficiently aware of its poor quality. For this reason, many growers find it easier to buy manure instead, since it is cheaper, more readily available, and offers the same results: bad odors and a high risk of pathogens.

Rethinking agriculture

This “waste” of what should otherwise constitute a boon to agriculture can easily be prevented. First, [inlinetweet prefix=”” tweeter=”” suffix=””]there is an urgent need for local regulation of compost production processes, especially in terms of quality control. [/inlinetweet]Compost standards and guidelines exist in the US and EU countries and are either enforced by laws or through regulatory bodies. Lebanon’s National Agriculture Strategy (NAS) 2020-2025, drafted in June 2020 by the Ministry of Agriculture and the Food and Agriculture Organization (FAO), actually calls for establishing a regulatory framework for the sector notably to encourage the use of renewable energy in the sector to mitigate the effects of climate change, including the production of compost from animal farms and agricultural products. This step is to be complemented by more effective awareness and communication campaigns on responsible food consumption.

 When it comes to implementing this strategy, however, it is a different matter. This will require the willingness of international donors, which is conditional upon long-term and structural reforms. Some small-scale Lebanese farmers have already benefited from initiatives under the NAS, namely through the $10 million reallocated by the World Bank in May 2021 to support them with agricultural inputs and animal feed, and through an inputs voucher scheme implemented by the International Labor Organization and FAO in September and funded by the Netherlands.

 Major reforms in the agricultural sector entail formalizing farming and animal husbandry–related businesses, as well as agricultural labor, in order to protect the rights of actors involved. Amending land tenure and heritage laws would also enforce clear and fair land-use regulations, including sustainable land management practices. Also, facilitating the creation of cooperatives and improving their independence and capacity to grow would favor the growth of socially enterprises and solidary businesses in the sector.

Composting from grass roots

On a more pragmatic note, a key element of successful reforms and policies is the availability and transmission of the necessary skills and knowledge in agriculture, specifically in composting which is still not given enough attention. The SOILS Permaculture Association – Lebanon, has focused on composting since the beginning of the crisis in Lebanon. Educating and training growers on shifting away from chemicals to rely on more natural inputs proved to be incomplete when considering the difficulty of sourcing good quality compost locally. The community-based association then began integrating composting in all its agro-ecology training programs.

 In the summer of 2021, the association partnered with the French organization Terre et Humanisme to support two trainees in starting up small-scale pilot composting units in the regions of Jezzine and Tyr, with the aim of creating and marketing a trusted local product for the agriculture sector. The trainees showed interest in the project as a way of diversifying their agricultural operations and creating a new and sustainable source of income that does not rely on imports. They were provided with the necessary knowledge, basic equipment, and mentoring in all steps of the process. Organic materials were sourced from within the trainees’ home villages or neighboring areas, encouraging villagers to drop off or “donate” their agricultural waste to the compost producers rather than burning it. After the end-product is tested in demonstration plots, the compost will be sold at a competitive rate to growers.

 As the pilot phase of the project nears its end, it is clear that education and dedication are the key requirements to its success, together with a healthy dose of passion. The initial investment can be as low as $500 (covering equipment and material costs, as well as land fees) and can produce around 4-7 tons of compost every two months. Based on current market prices, 1 ton of this compost could sell for around $300. Production can be increased at little additional cost and create jobs to satisfy the growing labor needs. The sheer exhilaration of the trainees at learning about soil microbiology and unlocking its secrets through a better understanding of the relationship between healthy soils and healthy crops is a reward in itself. Already both trainees are sharing their newfound knowledge with their communities, lending much-valued support to awareness efforts by agro-ecology activists.

While waiting for much-needed reforms, such systems could start improving food security through soil health. They have proven to be effective at reinforcing solidarity and cooperation within communities when it comes to organizing the sourcing of organic raw materials. They could also play an important role in the production of certified organic produce that fetches higher prices in local and export markets. And, of course, it is good for the environment as it contributes to reducing waste and the risk of fires from burning such waste.

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Global obligations, big goals, and missing parts

by Thomas Schellen
written by Thomas Schellen

The Lebanese government at time of this writing has at its disposal several tools, albeit non-financial, that are ready for deployment in the migration to renewable energy (RE). Two are national law projects: the yet-to-be-applied electricity law No. 462 dated 2002 and a new draft for a distributed renewable energy law (DRE law, see story by Christina Abi Haidar). According to independently made remarks by Hassan Harajli, head of the United Nations Development Programme (UNDP) Cedro project, and Rani Achkar, executive director of the Lebanese Center for Energy Conservation (LCEC), Law No. 462 is in need of, however rapidly doable, updating and activation; the DRE law is in Harajli’s words “extremely important” for solar photovoltaics (PV) on the industry scale. 

The top two other relevant tools in the official Lebanese kit are the updated National Renewable Energy Action Plan (NREAP), which according to Achkar was last month in the final stage of being readied for circulation among stakeholders in RE strategizing, and the updated Nationally Determined Contributions (NDCs), the climate commitments which Lebanon has taken at the end of October to the United Nations’ COP 26 summit in Glasgow. 

At the heart of these plans and commitments is the target of boosting sustainable electricity generation and achieving 30 percent RE capacity by 2030, meaning capacity that would satisfy the, under pre-crisis calculations for 2030 expected, demand to almost one third. Details on the shares of different technologies for reaching this overall target are laid out in the related 2020 Renewable Energy Outlook for Lebanon that was prepared in a collaboration of the Ministry of Energy and Water (MoEW), the LCEC, and the International Renewable Energy Agency (IRENA), Achkar tells Executive. 

The major technology-specific target data stated in the IRENA publication reflect the sunny disposition of Lebanon in proposing about two thirds of renewable power to come from solar sources in form of 2,500 MW of centralized (utility-scale) and 500 MW of decentralized solar PV, a small share of concentrated solar power (CSP, a solar thermal technology not to be confused with centralized solar PV), 1,000 MW of wind, and 601 MW of hydro.

The new edition of the NDCs has already earlier this year been submitted to the United Nations Framework Convention on Climate Change (UNFCCC), and reportedly Lebanon was the first country in the region to fulfill this step. “This paper includes a conditional element of 30 percent renewable electricity by 2030, in addition to objectives for renewable thermal energy, heating and a target for energy efficiency,” Achkar elaborates. He explains that the term “conditional” in this context means that the targets are contingent on obtaining international support. “Without international support, targets are lower,” he adds.

Details, seriously 

According to Achkar, the near push in this quest for RE shall be realized in the form of more than 500 MW in installed decentralized solar PV, and the leap to more than 4,000 additional MW in RE will come, on the utility scale, between 2025 and 2030. With these lofty targets also having been officially stated at the recent HLDE event by brand new MoEW, Walid Fayyad, and perhaps a little emboldened by the flabbergasting growth in the number of domestic new solar PV installations this year (see Energy Special Report Overview), the eyes of the LCEC appear committed to looking in one direction, which is straight ahead. 

Achkar appears undeterred by failures of recent years to realize either a long-envisioned wind farm project in North Lebanon’s wind-kissed Akkar region, the lengthy technical and administrative preparation of which he describes as a practically inevitable learning process, or to launch a utility-scale set of solar PV projects across different districts that were designed to provide a total of 180 MW from 12 solar PV farms. 

According to George Geha, general manager of RE enterprise Ecosys, the company was among the winners of the tender because it offered the best bid for a project in the Bekaa thanks to intense bid preparations and a design that used a tracking system for the solar panels. Despite all the effort, the win was incomplete. “The tender outcome was announced with us as winning bidder but we did not sign any contract because we were in the last phase of negotiations when the [financial] crisis came. This type of project needs international financing but there is no more banking sector and no international financial institutions that are willing to lend money to this country and to Lebanese organizations,” he says. 

This alludes to the first of three serious hurdles that have to be overcome if the Lebanese RE aspiration is to be achieved in full or large parts. These three hurdles are access to finance, resistance to change, and the need for new behaviors. Note, none of these hurdles is exclusively political. 

Resistance to change has a massive political component. At the bottom line, however, resistance to change and the need for new behaviors apply to all who constitute Lebanon, homemakers, housekeepers, business leaders, garbage tycoons, publishers, journalists, activists, academics, farmers, cooks, clerks, clerics, military personnel, security guards, bakers, brewers and butchers, athletes, artists, dancers, sports promoters, official tour guides, taxi drivers, delivery heroes or villains, peddlers in the most informal economy sectors, investors, lawyers and politicians all included. 

Finance, finance, and finance

Access to finance and investments is the most obvious need and most evident barrier in the path of anything requiring capital expenditure in Lebanon today. 

Due to the high initial capital expenditure for solar PV systems, the first significant tools of incentivization anywhere have been subsidies of the generated electricity and attractive loans. This was especially true before the 2010s, at a time when costs of photovoltaic panels were above $0.5 per installed kilowatt hour. 

The cost has come down radically and is below 10 cents and might be scratching $0.05 in utility-scale installations, which also for households means amortization periods that are cut to a fraction of their previous duration. 

Nonetheless, self-finance of a small solar PV unit out of savings is rare for households and upfront payment for an industry-scale or utility-scale project either impossible or financially nonsensical for these installations where professional finance and long-term power-purchase agreements (PPA) are the norm. Thus the disproportionate importance of loan finance. 

In Lebanon’s conservative financial environment of the 2000’s with its predominance of collateralized bank lending, central-bank supported loan instruments known as NEEREA (National Energy Efficiency and Renewable Energy Action) loans played an important role in widening the solar market from a narrow focus on solar water heaters and invigorated the nascent market for solar PV. Consequently, as these lending channels started to dry up from 2018 and then became defunct, the following period actually saw a gradual demise of demand reflected in lower PV capacity increase rates already in 2019. 

The importance of subsidized lending of a productive and green variety appears to be reflected in the latest Solar PV Status Report for Lebanon which, irrespective of other externalities and the subsequent severe economic disruptions, shows annual rates of increase in installed capacity varying from 139 and 151 percent in 2013 and 2014 to 43 and 38 percent in 2011 and 2019, respectively the years when the loans were new and vanishing. Seeing a fluctuation of more than 110 percentage points between the highest and lowest annual growth rates in a single decade might be read as the mark of an industry that is extremely sensitive to extraneous factors.

At solar PV company Novaenergia, the business growth of the mid to late 2010s, as at other sector companies, was indeed fluctuating. However, as managing director Joe Hawi recalls, there was overall strong business up to 2017 which in 2018 was shaken by indirect signals – but not clear messages – from the financial sector. “In 2018 we had signed a few contracts but received word that there was no financing for them. There was no clear signal, just calls asking for more time. Then the NEEREA loans were stalling. That was a bit of a shock, because as a company with an operating overhead it is not nice to hear that your projected revenue is disappearing for no reason,” Hawi tells Executive. 

RE players Ecosys and Phoenix Energy confirm that the liquidity crisis of 2019 brought numerous financing mechanisms to a painful halt, from NEEREA loans to private funding. “Due to the crisis, all these financing incentives stopped. This meant a major drop of solar business in the short term and it is no secret that the number of new [industrial and commercial] projects dropped tremendously between the third quarter of 2019 and the end of last year,” explains George Geha, chairman and general manager of Ecosys. 

According to him the demise of business in 2020 must also be partly attributed to the coronavirus crisis but the absence of financing was a key factor why expected demand for commercial projects in the past two years did not materialize, given the high capital expenditure required. While Ecosys could cover its overheads because of its earnings from projects outside of Lebanon, Geha adds he has seen too many local solar companies close down in the past two years. He is hardly cheerful about the access to finance getting better in the short term. “The biggest barrier is the Lebanese bankruptcy. No one is willing to give loans to a single bank in Lebanon until then,” he says.  

At the Phoenix Energy enterprise about 25 kilometers north of Beirut, general manager Simon Gerges likewise says that the company has in the past two years sustained itself mainly from its income generated in projects outside of Lebanon. He also sees no viability today in negotiating for foreign funding except possibly with the global community and International Financial Institutions (IFIs) on the strategic macro level. “Even for investors who are very interested in financing renewable energy, Lebanon is a high risk country that I don’t think they can approach. We actually had very nice projects that foreign investors wanted to invest in. Because private PPAs are not allowed in Lebanon, we were preparing for leasing options in PPA. These approaches are stopped for the time being,” Gerges tells Executive.   

After he was confronted with troubling signals on the availability of loans in Lebanon in 2018, Novaenergia’s Hawi has actually ventured into innovative financing of solar PV together with Looop, a partner company from the solar industry in Japan. Looop is a young company with a wide range of manufacturing and operational activities in Japan and overseas, a RE venture that has five funding rounds under its belt and according to its website has a capital in the range of $20 million. Discussions with the Japanese corporation were according to Hawi aided by the fact that Looop wanted to diversify further and saw Lebanon as a country that has no choice but to develop RE. 

The outcome was a joint venture named Looop Nova which Hawi, its managing director, describes as a “Japanese-Lebanese entity with the sole purpose of developing and financing business-to-business solar power purchase agreements in the Lebanese market.” To comply with the stipulations of the Lebanese law that do not allow peer-to-peer power purchase agreements, Looop Nova engineered leasing agreements with corporate Lebanese clients, thereunder installing solar PV at the client sites of business. 

This joint venture was immediately successful, which was reflected in 2019 revenue for Hawi’s enterprise that was better than the revenue Novaenergia is achieving in 2021, despite the residential demand boom this year. The lesson of the venture into a new financing dimension for Hawi was unmistakable. “We really made a paradigm shift and I can tell you that once there is financing for the Lebanese market, all the noise that is happening today will be dwarfed by the market’s appetite,” he tells Executive. 

Notwithstanding that the financial base of Looop Nova, deposited at a Lebanese bank, was massively impacted by the banking sector’s infamous shutdown of access to deposits, Hawi remains upbeat about the financing road and says he is in communication with IFIs, discussing the potential for foreign RE funding.    

Besides restrictions on access to finance, financial viability questions finally also stand in the way of new PV investment decisions by Lebanese industrialists, Gerges says, pointing to the price of solar versus the still low price of grid electricity. Even as diesel generator power is getting more and more expensive, tariffs for grid electricity are not yet on a clear path of adjustment and this is a barrier for an industrialist who has to decide whether to invest in renewable energy right at this difficult time. 

“The uncertainty about future costs of electricity is enormous. If in one year there were to be again 12 or 14 hours of electricity [from the grid], all the calculations [about viability of investing in PV] will be ruined,” Gerges says. This, however, to him does not change the Lebanese RE industry’s prospects in the long run. “We all agree that renewable energy will continue to grow on the long term,” he emphasizes.  

In the perspective of LCEC’s Achkar, there were some factors that helped in the stimulation of solar PV demand in 2020, a time when conventional power supply was still significant but growing concerns for future energy safety were on people’s minds. “People had the fears of higher electricity prices and at the same time their Lebanese lira savings were losing value, so they had to invest in something that they were sure of,” he lays out what he sees as the explanation why still some sizable new solar PV projects were emerging between the end of 2018, the time when support from financing mechanisms at the central bank become elusive, and the end of 2020. 

Achkar acknowledges, however, that there is no real access to finance that inquirers can be directed to this year. He reveals that not only has LCEC recently been in continual contacts with IFIs but that also banks have been reaching out to LCEC in search of support: they were looking around the world for programs offering liquidity that would allow these banks to finance solar PV projects. 

[inlinetweet prefix=”” tweeter=”” suffix=””]“Even banks are prioritizing investments in solar PV but they currently don’t have the means to,”[/inlinetweet] Achkar tells Executive while indicating, similar to the vast majority of stakeholders in Lebanon’s RE sector (and stakeholders in anything in this country), that his hope for recovery of access to finance for RE and the implementation of the RE transition as top item on the national agenda, rests on the new government and reforms.  

Whereas the urgently needed agreement with the International Monetary Fund (IMF) thus is generally regarded as the sine qua non condition for stability-enhancing development of Lebanon that liberates access to finance and will claw back investors’ trust, the urgency of making progress in the RE transition recently also appears to be expressed in outside-the-box thinking. This calls for fast-tracking finance tools of crowdfunding, use of IMF Special Drawing Rights (SDRs) and green bonds designed in collaboration with the Lebanese diaspora. 

Climate proofing of development plans in Lebanon was another but less daring tool for attracting RE-focused investment into the country. At a UNDP webinar exploring climate issues and Lebanon’s NDCs in October just ahead of the COP 26 summit, Jihan Seoud, manager of the UNDP Lebanon office’s program on energy and environment proposed that adding climate risk mitigation measures to a broad range of projects in the development agenda such as the Lebanon Economic Vision of McKinsey could attract greater investments overall and eventually unlock billions of additional private sector investor dollars. 

“No lender will now give any loan to any [RE] project. So perhaps the government can be the first lender. If it uses SDR money to lend to [RE project] developers, the government can return this money to itself two years after a wind farm or PV farm starts generating, [provided that] it has done tariff adjustments and all that. This is the only way I see. Otherwise, we have to wait for a IMF program,” Harajli opined.

However, even when disregarding questions over the present value of old consulting plans, or of size and time needed for development of crowd finance channels, and legal frameworks for crowd investing, or of the conditionality of conversion of SDRs and using this debt tool (not to mention competition with other urgent social needs for using those scarce SDRs), the Godzilla issue of restoring international investor confidence cannot be assumed to solve itself in just a few months or years. 

In this sense, World Bank Group regional director Saroj Kumar Jha, a participant in the UNDP webinar, threw cold water on dreams of soon mobilizing new green finance for Lebanon: “Trust me, no investor is coming to this country until you take a large number of macro fiscal stabilization measures. The country is not conducive to any investor. Why would they come here?” 

As part of what he called his reality check on the situation, he emphasized that integration of climate change action in people’s agendas cannot be achieved by NDC updates, airy climate goals, policy notes, academic papers (or, unmentioned by Jha, economic magazine stories). In a country characterized by divergence of people and state, where there is no trust in the government or institutions, a national dialog with the people on climate issues and internalization of climate action into the people’s economic aspirations are more pertinent, he suggested, adding: “Our thinking has to be absolutely unconventional and very uniquely tailored to the Lebanese situation.” 

Stating a view that it will be very painful and take many years to stabilize the financial sector and move to growth, Jha nevertheless pointed to opportunities for Lebanon such as working with partner sovereigns who team up with investors for creation of exclaves where green investments would be completely ring-fenced and fully de-risked. Another idea would be to tap into diaspora expertise and means by setting up a diaspora green bond in a tripartite compact between the government, the diaspora, and a qualified financial advisor as facilitator.  But as first order of importance for a viable climate agenda in Lennon, Jha opined that the agenda must become the people’s agenda, that the people make climate their aspiration, and change their behaviors. 

Resistance to change 

Resistance to change is known to business organizations as risk and often experienced as highly detrimental by any entrepreneur and any team leader in any industry and third sector endeavor. It is a fact of life and its impacts on economic activities are feared by executives, ironically even by those decision makers that work in corporations and industries which themselves are very strongly resisting change, for example by shifting away from relying on coal for electricity generation. 

It can’t surprise that resistance to change is a feature of politics. News from any government in Lebanon – whether active, tired and about to resign, caretaker, or brand new – contains elements of a lesson on resistance to change and that behavior’s detriments and opportunity costs. 

Not accepting evident need for reform and insisting on “business as usual” has during at least the last ten, formed or even attempted, cabinets in Beirut meant that no effort was spared in not shaking the status quo and seeking change. Privileges, self-interests, and clienteles, none of which is appearing to be an endangered species in Lebanon, were defended with the same ardor as the most aggressive environmentalist might guard the habitat of the last living sea turtle. 

Knowledge of this past political trajectory, which meant that many important law drafts have fallen by the wayside, is not supportive of trust that the key laws for RE enablement will pass smoothly. Nor can it be assumed that the urgency, of the people’s increasingly desperate needs for safe, affordable, and sustainable energy from renewable sources such as wind, solar, and water, will ever be strong enough to overcome the resistance to change in the Lebanese political establishment. 

It is by the way no comfort but a highly worrying fact that Lebanese political actors are no outliers when it comes to long-standing resistance to necessary change. This global truth is at time of this writing being cemented as a further brick in the wall of climate degradation, with the COP 26 summit in Glasgow witnessing a continuation of resistance to change that was similarly observed in the contexts of the Kyoto Protocol’s adoption in 1997, the Copenhagen Climate Summit of 2009, and the 2015 COP 21 Summit that led to the Paris Agenda. One can further dig into the past to the UN’s 1992 Rio Earth Summit with its signing of the Framework Convention on Climate Change (UNFCC) and the 1972 “Club of Rome” shock message on the Limits of Growth and the perils of humanity’s “business as usual” path of industrial economic behavior. If one is so inclined, one might even find resistance to change evidence in every age tracing back through the industrial and pre-industrial past. 

Back in the present, even as it has become clearer and more compelling with every decade over the last 50 years that it is in the long-term best interest of large and small corporations and large and small nations alike to mitigate and remove climate risks, self-interests and irrational resistance to change, what the world has so far gleaned from climate summits has been hot air and perhaps a location list for a better James Bond movie. 

Behavior change

Behavior change born out of increased climate awareness and acceptance of responsibility for our world has two RE dimensions, one of energy preservation and one of building up renewable energy sources. And it seems to begin not just with awareness but with shocked awareness. “You cannot believe with what inefficiencies we Lebanese people across all sectors have been living. We have been living fat lives where each house has two or three cars and people keep three air-conditioners turned on at night. The crisis today is shaking the roots out of this system,” exclaims the usually stoic Harajli almost emotionally at one point in his conversation with Executive. 

And there is immense room for improving both production of RE from solar and wind (see above) and also room for better energy efficiency in Lebanon – and apparently some increasing awareness and budding new behaviors (see stories on mobility, composting, and waste avoidance). 

However, efficiency moves and behavior change are in order not only on the level of the too many Lebanese households that run AC units on wasteful and unhealthy settings and own upward of three cars, at least one of them a gas-guzzling SUV or muscle car. These private fancies are symbols of wasteful practices in industry and economic activities that exists in all political sects and among adherents to the various communities in Lebanon. 

Bassem Taki, a veteran engineer with 21 years of concentration on RE and energy efficiency tells Executive of commercial and industrial projects, including major retail sites, where reductions of up to 50 percent of electricity consumption were achieved by his team. It is a very important question how far electricity consumption could be lowered by better energy management but there is no standard answer because of power systems’ many components from generation to end users, he says. 

However, the most important component to the entire electricity net at this moment in the 21st century is the human mind. It is the mindset. As Taki tells the energy story, energy conservation gains are perfectly feasible in technical and economic terms but for the improvement of the energy safety it is necessary to increase awareness and knowledge on photovoltaic and other RE alongside with instruction on efficiency. Even to reduce a small load in electricity systems, changing user mentalities is needed through education and lectures, plus concrete incentives. 

“I find that around 20 to 25 percent of persons who attend my lectures [on methods for improving energy efficiency] will say, ‘yes, you are right’. But how many people will apply the lectures? Less than 20 percent of those who say yes. My opinion is that if you set a rule [of incentives] that give people a concrete benefit and then tell them, ‘do this and stop doing that’, you can convince people to do it,” Taki explains.

Taki maintains that a mentality change towards energy savings in Lebanon has to be induced from many points. “Energy saving starts with the knowledge and mentality of the people. Starting from the university, from the church, the mosque, all people should talk about this,” he advocates.  

But changes can start with small responses to large threats such as the collapse of livelihoods and energy safety in the entire nation. There are grassroots efforts going on in Lebanon as the global leaders speak in Glasgow (and before and after). Studies on energy efficiency enhancement potentials in small businesses and enterprises have shown that half of 86 sampled SMEs are in urgent need of improving their energy efficiency, says Walid Baba, president of the Lebanese Solar Energy Society (LSES). In an ongoing pilot project for the development of Energy Services Companies (ESCOs) as contributors to clean energy transition, LSES is collaborating with a European non-profit on the creation of a net of ESCOs that will endeavor to implement energy audits and efficiency projects with client SMEs, ESCOs thus acting as multipliers of energy awareness, RE usage, and energy efficiency at SME level. “The [energy] crisis exists and is very dangerous. But let’s think positively. We have to build the pyramid from down to up. Today LSES is trying to participate in the building of this slab [at the bottom of the pyramid],” Baba says. 

Where does this litany of depressing and inspiring signals leave the country? Macro-financial stability and easy access to finance is a long way off, even as Lebanon hopefully is about to undertake the first negotiation step on a long journey of rebuilding its international financial credibility. Resistance to change we will not ever get rid of, not in ourselves, not in our economic entities, in our activist community, or in any global or local political context. 

In historic lessons of behavior change, it has been catastrophes, fires, pestilence, wars, and earthquakes that have at least sometimes led to behavior changes of a measurable duration and intensity. The best news then, ironically: [inlinetweet prefix=”” tweeter=”” suffix=””]Energy behavior change is now a survival issue in Lebanon. A global target or a policy paper or even the best designed public sector campaign will not suddenly translate into energy safety. [/inlinetweet]A plethora of small practical improvements, mentality checks and individuated mindset changes are the solutions on tab. They can be used and expanded. 


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AnalysisFinanceSpecial Report

What Special Drawing Rights can do and what they cannot deliver

by Mounir Rached
written by Mounir Rached

This article is the first in a series of articles in Executive Magazine’s upcoming “Financial Economy Special Report” prepared in collaboration with handpicked experts to cover key aspects of the current Lebanese economic, currency, and banking crisis. The report aims at achieving a common understanding of the policies and solutions that need to be implemented, while also allocating responsibility for past damages.

On August 2, 2021, the International Monetary Fund (IMF) approved the distribution of a new package of Special Drawing Rights (SDRs) amounting to SDR 458 billion to all its member countries. Each country willing to participate has been allocated approximately its relative share in the quota system. The local media published the good news, and how the amount allocated to Lebanon, (estimated at SDR 605 million, which are equivalent to approximately USD 860 million), would be spent. Initial media reports neglected to mention previous cumulative distributions in favor of Lebanon, which amounted to SDR 196 million, to bring the total to SDR 801 million (USD 1.137 billion).

[inlinetweet prefix=”” tweeter=”” suffix=””]Describing the SDRs as “a shot in the arm for the world” in a time of many crises, IMF managing director Kristalina Georgieva presented the 2021 allocation with a message that countries could reduce their reliance on more costly debt. [/inlinetweet] It must be noted, however, that SDR use is a form of debt like any other debt when used but at the SDR rate rather than market rate. “Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis,” she said. Additionally, the IMF has been deliberating on possibilities of channeling more of these precious resources from its stronger members to countries in need with the tools of its Poverty Reduction and Growth Trust and a new Resilience and Sustainability Trust. 

The worldwide SDR allocation includes Lebanon at a time or renewed urgency to realize an agreement with the IMF. However, there is no connection between SDR allocations and IMF negotiations. The SDR department is a separate and independent department and has nothing to do with negotiations with the IMF through its General Resources Department. It has a complex structure that may or may not be conveyed clearly in IMF statements. Whereas any SDR inflow to our country can be good news, it is premature to speculate how the aforementioned sums of the Lebanese allocation or any eventually mobilized flows through above trusts will be spent. At this point, it rather is necessary to explain the modus operandi of the IMF and the role of Lebanon as an IMF member, in order to clarify the picture and the impact of this distribution.

The IMF was established in 1944 by 44 countries. Lebanon joined in 1947. It currently includes 190 member countries. The main objective of its establishment was to create an institution that fosters international economic cooperation, develops international trade and growth, and maintains the stability of the global financial system. According to the IMF’s bylaws, “The key functions of the IMF are the surveillance of the international monetary system and the monitoring of members’ economic and financial policies, the provision of Fund resources to member countries in need, and the delivery of technical assistance and financial services.” To achieve this, the fund has been monitoring from its early days the economic and financial developments and the balance of payments of member countries. It provides the necessary advice to member countries facing economic troubles and shortage of hard currency reserves. It also provides foreign currency reserve financing to central banks that face protracted balance of payments deficits and a severe and critical decline in their reserves that could hamper its trade in goods and services.

The two main departments of the IMF

The IMF consists of two main departments: the General Resources Department and the Special Drawing Rights Department. The fund is managed by a Board of Governors comprising two representatives from each member state. The Executive Board, consisting of 24 elected executive directors, oversees the management of day-to-day operations. Moreover, all the IMF’s financial capacities are calculated on the SDR (the IMF’s unit of account). One SDR is composed of a basket of five major currencies. At time of writing this article, the value of one SDR equates the sum of USD 0.58, €0.387, £0.0859, ¥11.9 and 1.017 Chinese renminbi. The currency shares reflect the quota of each of these countries and the European Union.

The currency amounts of the SDR are allocated once every five years, or earlier if needed, while ensuring that the basket mirrors the relative importance of the five currencies in the world’s financial system. Cross-exchange rates however determine the actual weights of the currencies. The value on the other hand is a daily determination according to the market exchange rates.

[inlinetweet prefix=”” tweeter=”” suffix=””]The Special Drawing Rights Department is responsible for distributing SDRs as needed, free of charge, to stimulate international trade, and it is entitled to cancel these rights.[/inlinetweet] The department is independent of the General Resources Department. It was established in 1969 with the aim of providing additional voluntary reserves for member states. Each country receives a share of each distribution as a percentage of its quota in the fund. The total distributions of SDRs carried out in several stages amounted to SDR 662 billion, including the last distribution of SDR 458 billion. The distribution is recorded in each country’s account at the IMF as both credit and debit entries. So on a net basis, the distribution does not provide additional reserves.

Each Friday, the IMF dictates the SDR interest rate. It is based on the weighted average of a 3-month debt interest rate in the five countries’ money markets. Each member must pay interest on the quantities of SDRs it uses, and abide by Article 19 of the IMF Agreement, which clarifies the terms and conditions of swapping the SDRs with reserve currencies. The most important clause in Article 19 is the third clause, which requires the country to show the need to use the SDRs to finance the balance of payments, and not for the subsidization of goods, which falls within the scope of the Ministry of Finance.

Holding SDRs is considered as a potential reserve and not as an actual foreign currency reserve, as the SDRs are not used in external financing until they are exchanged for reserve currencies in accordance with the country’s ability to comply with all the terms of the Voluntary Exchange Arrangement, set up by the IMF as a platform to facilitate exchange of SDRs with other currencies. Whereas all members are entitled to participate in the Special Drawing Rights Department, they are not obligated to respond to any transaction related to the use of SDRs.

Most SDR transactions in the Special Drawing Rights Department are currently conducted under the supervision of the IMF’s platform of Voluntary Exchange Arrangement.

Since the Lebanese central bank Banque du Liban (BDL) had not previously resorted to using the Special Drawing Rights Department, it seems prudent if the central bank were to investigate the details of its modus operandi to determine its ability to replace SDRs with currency reserves. [inlinetweet prefix=”” tweeter=”” suffix=””]We must be aware that resorting to this department depletes the country’s holdings of special drawing rights and requires its service according to the prevailing interest rate on SDRs.[/inlinetweet] Using SDRs comes at a cost, and in no way should they be perceived as a grant.

Urgent negotiations with the General Resources Department

The IMF obtains its resources in the General Resources Department, which was established at its inception to help countries facing shortages in their reserves, from subscriptions of member countries to the IMF capital, which is based on a quota system that reflects the size of each member country such as the size of its GDP, foreign trade, and reserves. The quota is managed by the General Resources Department. Lebanon’s share in the General Resources Department is only SDR 633.5 million (0.1 percent) out of the total quota of SDR 477 billion.

25 percent of the quotas of each member are paid in hard reserve currency (reserve quota) while the remaining 75 percent are paid in a country’s local currency. Therefore, [inlinetweet prefix=”” tweeter=”” suffix=””]Lebanon’s share of unconditional ready-to-use reserves in the IMF is only SDR 158 million (USD 224 million), but if it expresses the need to finance its balance of payments, it may have access to more IMF lending.[/inlinetweet] The country can use other IMF facilities as needed and during a specified period within a maximum withdrawal limit ranging between 50 percent and 145 percent of the quota annually, taking into account the country’s ability to serve its debt obligation resulting from such borrowing and ability to adhere to a reform program. As a maximum, a country could access about 400 percent of the quota if it undertakes a serious reform, while continually meeting the performance indicators of the reform programs agreed upon with the IMF. The repayment of these facilities would usually start within a few years. The crucial issue is to determine the need for these funds and the capacity of the country to service such debt which will become due within a short period of time.

Resorting to the General Resources Department in excess of the reserve quota requires an agreement between the IMF and the Lebanese state. It has been firmly established that the reaching of such an agreement is contingent on stringent reforms, the most important of which, in the case of Lebanon, is seeking to achieve sustainable fiscal and balance of payments balance. I will discuss the objectives and requirements of IMF negotiations in the next comment pieces in the current series. Borrowing from abroad without reform may once again lead to a potential default on its foreign currency debt service, which has been the main cause of the current crisis.

Mounir Rached, PhD, is the president of the Lebanese Economic Association (LEA) and a former IMF Senior Economist (1983-2007). Executive editors contributed to the updating of this comment piece originally published in Arabic on August 26, 2021 in Al Joumhouria.

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EnvironmentLast WordOpinion

The less we buy, the less we waste

by Alexandre Boustany
written by Alexandre Boustany

Although waste has started to pile up again on the streets due to the fuel crisis and the ensuing logistic difficulties in collection, recycling companies, environmental and activist organizations, including the community-based platform Froz, are noticing a reduced amount of the overall waste generated by citizens and businesses.

The reason behind that? The current socio-economic crisis.

Shifting consumption habits

There is a direct link between consumption rates and waste generation. The higher our income per capita is, the more we consume, and the more we generate waste. One of the most devastating consequences of the current socio-economic crisis is the reduced purchasing power of the Lebanese people.

Instead of throwing huge amounts of food (which, according to the Waste Management Coalition, constitutes over 50 percent of Lebanon’s waste) like they did in times of “plenty,” people at restaurants are making sure not to over-order and to ask for the leftovers to go. In turn, the restaurants themselves are reducing costs by reducing waste. For example, they are reducing the availability of paper napkins and replacing paper menus with digital ones, although that is mostly in order to avoid the prohibitive cost of printing new menus every week due to the ongoing currency fluctuations. Rather than buying bottled water, a number of people are now shifting to water coolers and reusable bottles, saving around LBP 112,000 and 112 single-use plastic bottles per individual every month!

Other examples of reducing waste abound. [inlinetweet prefix=”” tweeter=”” suffix=””]Instead of showering their customers with plastic bags, many supermarkets are now making sure each bag is fully loaded, while some markets even charge a small fee for the bag[/inlinetweet], reducing the amount of single-use plastic bags being thrown away.

Rather than using virgin materials, a number of small local manufacturers are opting to source their materials from recyclable waste. Instead of sending their waste to landfills, a number of companies and organizations are opting to sell their recyclables to manufacturers as raw materials for new products – a win for both their pockets and the environment.

[inlinetweet prefix=”” tweeter=”” suffix=””]We are buying less: we have started to think about what to buy, how to reuse what we have, and what to give away.[/inlinetweet] In short, our consumption habits are changing, which has reduced the amount of waste we generate. According to Froz’s e-commerce metrics, for example, sales of reusable menstrual cups have recently increased. Due to the increase in price of single-use pads, many women are now shifting to reusable alternatives, saving both money and the environment. Today, Froz’s platform promotes a large variety of products made mostly by local independent artists and small businesses from different recycled materials such as Dhalu’s recycled glassware, terrazzo plant pots incorporating shredded plastic by JP Recycle, BTDT’s recycled paper notebooks, and others. Such products not only make reducing waste convenient and engaging, but also create income for small businesses.

Furthermore, the “Shop Local” movement has soared. Due to the high prices of imported goods, people are opting for local more affordable brands. This not only encourages local brands to improve the quality of their products, but also helps reduce large amounts of CO2 emissions from international transportation of imported goods.

A crisis to solve another

[inlinetweet prefix=”” tweeter=”” suffix=””]The current socio-economic situation is by no account a good thing, but we can’t ignore the fact that we can use it as an opportunity to build better consumption habits – habits that help us solve the waste crisis.[/inlinetweet]

Reducing waste seems promising, but what happens when the socio-economic crisis is over? Shall we go back to overconsumption and generating high amounts of waste? We are creatures of habits, so it depends a lot on the habits we build today.

We can use this crisis to our benefit and take the small steps required to build these new positive habits:

1.     Purchasing local and eco-friendly products

2.     Recycling household waste through Cedar Environmental, Recycle Beirut, and others.

3.     Following social media awareness pages like “gogreensavegreen” for tips and hacks.

4.     Reducing food waste by saving leftovers or donating excess food close to its expiry date to people in need through the FoodBlessed NGO.

5.     Buying spices, grains, and other groceries in bulk from local stores.

6.     Buying fresh produce and preserves from local producers directly or through markets like Souk El Tayeb or the Arcenciel NGO’s Beit el Mouzareh.

What new habits are you willing to build?

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policy

Building up to harassment-free workspaces

by Ceem Haidar
written by Ceem Haidar

On December 21, 2020, Lebanon passed the landmark Anti-Sexual Harassment Law No. 205, which finally brought the disconcerting matter to light, providing a starting point to criminalize sexual harassment and offering protections for victims of gender-based violence. Law No. 205 comes after years of lobbying and activism from various groups within the country, such as efforts led by the Center for Inclusive Business and Leadership (CIBL) for Women, along with its partner network and in coordination with activist groups. They consider the implementation of the law as a solid starting point to work toward decreasing the levels of gender-based violence, particularly in the workplace.

“It has been years since feminist activists, gender machineries, individual politicians and human rights organizations have been pushing for protections, drafting legislative suggestions, and mobilizing for change,” shares Charlotte Karam, PhD, adjunct professor and director of international partnerships at CIBL for Women. [inlinetweet prefix=”” tweeter=”” suffix=””]“Although the new Law No. 205 is far from perfect, it is an important milestone in the trajectory of efforts to ensure safer workplaces for women and other vulnerable groups,”[/inlinetweet] she comments.

The key challenges tied to the law concern the proposed fund by the Ministry of Social Affairs, intended to offer support to the victims of sexual harassment and to rehabilitate the perpetrators. The Ministry’s ability to establish the fund, given the current economic crisis and the limited financial capabilities of the Lebanese government are being questioned. In addition, the lack of mechanisms to safely report gender-based violence is still not covered under the law.

A rising number of gender-based violence cases, many go unreported

As is the case in most contexts around the world, when the level of external stresses increases, a rise in violence against women is seen. Lebanon is no different. [inlinetweet prefix=”” tweeter=”” suffix=””]The escalation of gender-based violence in Lebanon is alarming, with a recent surge in the number of cases reported formally and informally over the last few years.[/inlinetweet] According to the Gender Based Violence Annual Report – 2020 issued by UNFPA Lebanon, women and girls are heavily impacted by harassment, on the streets, at work and online, with cases significantly on the rise, especially after the COVID-19 outbreak.

At present, the economic crisis, the COVID-19 pandemic and the repercussions of the Beirut Port blast, are contributing to increasing vulnerability and therefore exposure to risk. Those most at risk in Lebanon, according to the UNFPA report, are elderly women, women and adolescent girls, individuals with disabilities, migrant workers and the LGBTQ+ community. Concerned stakeholders, including public sector offices, legal bodies, civil society organizations, and employers are not properly equipped to deal with the growing number of gender-based violence cases in the country. Indeed, even before the crises hit, little legal recourse existed to provide legislative protections. At work, for example, very limited legal recourse was available to protect employees against sexual harassment. The persistent lack of anti-sexual harassment policies and associated reporting mechanisms to ensure the required victim and witness protections is hindering progress towards safe and equitable workplaces.

While official data pertaining to sexual harassment and gender-based violence in the workplace collected in Lebanon and across the region is still scarce, findings from the regional KIP Index by CIBL for Women at the Olayan School of Business (OSB), American University of Beirut (AUB), show that the absence of formal sexual harassment and discrimination policies force women to leave the workplace when subjected to such incidents, a prevalent finding across the Arab MENA region.

What does the law offer victims, employers and the general public?

[inlinetweet prefix=”” tweeter=”” suffix=””]The Anti-Sexual Harassment Law No. 205, does not limit the protections against sexual harassment to just the workplace, but also covers harassment in “any place.”[/inlinetweet] The law also takes into consideration the dynamics of power and authority in social relations, and provides varying degrees of punishment based on the crime and the perpetrator’s status. For example, should the perpetrator have a position of dominance or authority over the victim, a heftier punishment applies, the penalty increases and incidents do not have to be recurrent. Moreover, heavier penalties have been imposed, as per the law, related to cases where the perpetrator is a supervisor or a public officer, if the perpetrator abused of their right or if the victim is a minor or has special needs. In the last case, the offence becomes a felony and is no longer considered as a misdemeanor.

With the passing of the law, perpetrators of sexual harassment could spend up to four years in prison and pay hefty fines (up to 50 times the minimum wage). Furthermore, the law does not exclude the possibility of disciplinary sanctions that the perpetrator may face at work, and guarantees the victim’s right to claim compensation for the moral damages incurred. Protections from potential retaliation in the workplace is also included in the law for both the victim and any witnesses.

The main concerns with Law No. 205

[inlinetweet prefix=”” tweeter=”” suffix=””]Seemingly absent from the law, are formal and safe channels of reporting sexual harassment, as well as recommended legal actions for victims. [/inlinetweet]In addition, the wording of the law leaves much room for interpretation, and can be taken out of context. CIBL for Women, along with its partner network including UN Women, the Government of Canada, UNDP, the Government of Sweden, The Lebanese League for Women in Business (LLWB), ABAAD and Seeds for Legal Initiatives, have been working to raise awareness on what constitutes sexual harassment and gender-based violence, interpreting the law for the general public for it to be effectively applied. They have also been actively working with Lebanese employers to support them in applying the law through supporting the drafting of internal policies, hosting workshops to equip them with the tools needed to effectively implement and enforce the law in the workplace.

Mitra Tauk, equity/title IX coordinator at AUB believes that[inlinetweet prefix=”” tweeter=”” suffix=””] Law No. 205 should provide clearer definitions, to avoid room for misinterpretation of the law, which may be affected by “unconscious biases of people, and more seriously, of the decision maker.”  [/inlinetweet]

The new anti-sexual harassment law also fails to provide support or further information for employers in the implementation of the law in Lebanese workplaces – which is deemed indispensable in the fight against sexual harassment. So what can employers do to better cultivate safer workplaces and to ensure that the law is enforced? 

With anti-sexual harassment policies in place, how should employer cultures shift?

Employers need to have clear policies in place that are customized for their work environment, acknowledging the specifics of the workplace and industry context.

[inlinetweet prefix=”” tweeter=”” suffix=””]The policy should start with a commitment to a safe work environment and provide a clear and comprehensive definition of what constitutes sexual harassment, including verbal and non-verbal advances.[/inlinetweet] The International Labor Organization (ILO) defines sexual harassment as “a sex-based behavior that is unwelcome and offensive to its recipient.” Sexual harassment exists in two main forms, the first is related to job benefits, whereby promotions, pay increases or job security are linked to different forms of forced or suggested engagement in sexual behavior. And the second form is through intimidation or humiliation of the victim, creating an uncomfortable workplace setting. Employers also need to affirm that sexual harassment is a form of gender based violence that can happen between the same and opposite sex / gender parties. In doing so, employers can begin to ensure a safer working environment, free from sexual harassment, with zero tolerance policies in place. Including specific examples is very important as it assists in leaving little room for misinterpretation.

In addition, internal policies should also include zero tolerance clauses, clear reporting systems, investigation options and outcomes, internal dispute resolution methods/options, disciplinary measures and sanctions, as well as consequences for intentionally false accusations or void complaints.

Employers must also take all necessary measures to ensure the victim/survivor’s protection and the protection of the witnesses, at all stages of the initial and preliminary investigation and during formal and legal procedures. [inlinetweet prefix=”” tweeter=”” suffix=””]The law clearly states that no discrimination or infringement of the legally established rights may be directed at the victim/survivor who refused to submit to acts of harassment. [/inlinetweet]In other words, employers cannot, whether directly or indirectly, punish or infringe on the victim/survivor’s terms of pay, career development, transfer, or renewal of work contract, nor impose any disciplinary penalties against them.

[inlinetweet prefix=”” tweeter=”” suffix=””]“An integral and effective anti-sexual harassment policy must ensure a safe working environment free from sexual harassment through a zero-tolerance policy,” [/inlinetweet]shares Layal Sakr, attorney at law at SEEDS For Legal Initiatives. She states that workplace protections can be improved by putting in place “clear reporting, investigation and sanctioning mechanisms, along with ensuring equality, confidentiality and protection of victims and witnesses,”

She adds that in the case of a sexual harassment claim, “the employers’ role is integral, to try and engage and educate the victim about the investigation process and outcome, to make well informed decisions. Employers when met with cases of sexual harassment, need to take it upon themselves to commit to a thorough, prompt and confidential investigation (where possible) of the reported incident/complaint. And, in cases where it is proven that the incident did occur, the employer should punish the harasser in a manner proportionate to the enormity of the act.“

Another key element is for employers to ensure that they devise a strategy for implementation for clear communication of the policy and training for staff and managers alike. Having a carefully worded anti-sexual harassment policy does not suffice, for internal workplace cultures to shift. The purpose of the policy needs to be central to its implementation, and ongoing awareness sessions and workshops are needed to ensure employees understand it, and are not afraid to “use” it. These sessions can be used to encourage employees to “speak up” and in doing so, break taboos and stereotypes. According to Joelle Bou Abboud, HOLDAL Group’s general legal counsel & SDG 5 ambassador, 360 degree awareness sessions are an integral part of the company’s change management journey and overall social promise.

“Alongside releasing an internal sexual harassment policy, continuous awareness sessions have been fundamental – for the “victim” to know that she or he has been through qualifies as sexual harassment and she or he has all the tools to do something about it,” says Bou Abboud. HOLDAL is also working to raise awareness on sexual harassment (and any other form of harassment) in the workplace at every stage, to break the stereotypes, starting with onboarding sessions, then implementing daily monitoring and instant reporting mechanisms. 

“The policy and the process are of utmost importance, but beyond this, the ownership and engagement of all internal and external stakeholders is required for safer workplaces,” Bou Abboud opines.

Finally, internal anti-sexual harassment policies also need to be improved and tailored over time based on the size of the organization, the unique experiences of employees and any challenges that may impact the business or its employees.

Can Lebanon be free from sexual harassment?

Sexual harassment and gender-based violence are prevalent across the globe, even in countries with zero tolerance policies and harsh punishments for the perpetrators. CIBL for Women believes the passing Law No. 205 is an encouraging first step to protect the Lebanese community and in specific, employees, from being subject to sexual harassment and gender-based violence. However, without the enforcement of the law within public and private institutions, as well as clear and safe reporting mechanisms, perpetrators will continue to subject innocent victims to abuse, and victims may continue to suffer in silence.

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