Nada Maucourant Atallah
The National / August 23, 2024
Citizens almost exclusively rely on generators as state power supply cannot be guaranteed.
Lebanon left much of its population without state electricity last weekend after shutting down its power plants due to a lack of fuel.
The resulting power cut affected crucial infrastructure including ports, the airport, prisons, sewerage systems and water pumps.
The National revealed on Tuesday that the delay in fuel deliveries was due to Lebanon’s attempt to renegotiate its mounting debt to Iraq – which stands at about $1.6 billion over three years, according to calculations based on official figures.
Lebanon, which has been suffering from a severe economic crisis since 2019 and has few natural resources, cannot afford to pay Iraq for its fuel delivery. It “doesn’t have the money to pay even a dollar”, an Iraqi senior official told The National.
For now, the issue seems to have been temporarily resolved. Iraq is said to have agreed to a discount and resumed its fuel deliveries, with the next shipment due to be loaded from Iraq on 26 August.
On Thursday, Algeria stepped in to help Lebanon, shipping 30,000 tons of fuel as a gesture of solidarity. The delivery is due to arrive next week to help restart the country’s power stations.
Although the stations were restarted on Sunday at a reduced capacity, the power cuts continued to affect water pumps, which were still without electricity on Wednesday, Jean Gebran, general manager of the Beirut and Mount Lebanon Water Corporation, told The National.
Brotherly countries pay the bills
Lebanon’s Minister of Energy, Walid Fayad thanked Algeria on Sunday for “contributing to [Lebanon’s] rescue and assistance in its crises, just like brotherly Iraq”.
Marc Ayoub, associate fellow at the American University of Beirut’s Issam Fares Institute said: “It’s not just a fuel issue; it’s a symptom of a deeper crisis – political deadlock and a paralyzed economy.”
“In the meantime, we turn to Iraq and Algeria, but these actions don’t resolve the underlying issues. We need a comprehensive approach, beginning with financial reforms and transparency in contracts.”
For about three decades, the electricity sector has been crumbling amid a lack of investment. It has been kept afloat by costly and short-term fixes that have failed to provide round-the-clock electricity, despite repeated promises by politicians.
While Lebanon’s current economic woes have exacerbated the power crisis, as the country can no longer afford to operate most of its power plants, it also failed to invest in the sector when it had the opportunity.
For about 30 years, unsustainable policies and neglect have resulted in power cuts that are “violating the right of Lebanon’s population to electricity,” Human Rights Watch said in a report last year.
A neglected sector
In 2010, the minister of energy at the time, Gebran Bassil, promised that Lebanon would have 24-hour electricity by 2014.
Citizens have increasingly turned to private generators to fill the gap left by the state electricity company Electricité du Liban (EDL). These generators have doubled the level of carcinogenic pollutants in Beirut since 2017, according to a study.
A health hazard for some has proved to be a fruitful endeavour for others. A 2020 World Bank report estimated that the generator market size was about $1.1 billion in 2018.
“The private sector has progressively taken over, benefiting vested interests – this was a political decision,” Ayoub said.
How did we get here?
The country has been suffering from chronic underinvestment. It has not built a single power plant since the end of the 1990s.
“I calculated that all in all, the Lebanese government has invested only $5 billion in the electricity sector over 30 years,” Ayoub said.
“That’s nothing. It was part of Lebanon’s political decision after the civil war to shift the economy towards services and stop investing in productive sectors,” he said.
While the country’s current electricity demand is estimated at between 2,000 and 2,500 megawatts, Ayoub estimates that national production capacity, which relies mainly on heavy fuel oil and diesel power plants, does not exceed 1,800 megawatts. This is if EDL has fuel to run them – which is currently not the case.
Most power plant projects – at least three plants proposed in recent years – have stalled due to a lack of transparency and concerns over tendering processes.
“Political bickering over rent distribution has thwarted any new projects,” Ayoub said.
The only project introduced was a 2013 contract with a subsidiary of the Turkish energy company Karadeniz Holding.
Instead of investing in its national energy production, Lebanon opted to rent two floating power plants docked on its coast, costing over $1.5 billion – enough to build about three power plants and ensure energy security.
Originally meant as a temporary solution, the contract was renewed twice amid corruption allegations and a lack of transparency.
In 2021, as Lebanon faced a severe economic crisis, it could no longer afford to keep the floating plants running. Karadeniz Holdings shut down supplies over unpaid arrears, cutting off about 25 per cent of the country’s energy production.
Financial abyss
Chronic underinvestment has led to high electricity production costs and poor cost recovery. This year, EDL estimated that 38 per cent of its electricity production generates no revenue due to both technical losses from an outdated and poorly maintained grid and non-technical losses such as billing and collection failures.
Lebanon’s power plants rely on heavy fuel and diesel rather than natural gas, which is cheaper and cleaner.
EDL now produces electricity at about $0.20 per kilowatt-hour, while natural gas could produce it for a third of the price, at $0.07–0.08, according to Ayoub.
“There have been several plans to transition to natural gas, but they failed due to conflicts of interest and political resistance from those benefiting from fossil fuels,” Ayoub said.
Fossil fuel is a lucrative market. Fuel imports for EDL totaled $24 billion between 1992 and 2020, according to figures from Lebanon’s Ministry of Finance.
As a result, despite failing to provide continuous electricity, EDL has become a financial burden on public finances.
Between 1992 and 2018, government transfers to EDL contributed over $40 billion to the country’s public debt. Last year, the World Bank estimated that annual budgetary transfers to EDL averaged 3.8 per cent of GDP over the last decade, amounting to about half of the overall fiscal deficit.
Corruption
Endemic corruption has also crippled the sector. One of the most documented examples is the adulterated fuel scandal. In 2020, the Lebanese judiciary uncovered an alleged corruption scheme that accused officials at the Lebanese Ministry of Energy and laboratories of having been bribed to falsify fuel tests.
As a result, Lebanon paid a steep price for poor-quality fuel supplied under a 2005 deal with a subsidiary of Algeria’s Sonatrach for EDL’s power plants.
ZR Energy DMCC, which was subcontracted in secret “passed off their dangerously compromised fuel product by blending it with other fuels”, according to the US treasury which sanctioned their owners, Lebanese brothers Teddy and Raymond Rahme last year.
After the revelations, Sonatrach ended its contract with Lebanon in late 2020. After years of overpaying its fuel, the country struggled to find a replacement.
That is when Iraq stepped in to sell fuel with payment proposals. Under the terms of the contract, Lebanon pays Iraq for its fuel in an account in dollars at the Lebanon central bank, which Iraq can use to buy “goods and services” for its ministries within Lebanon.
About three years later, unpaid bills to Iraq have caused recurring power cuts.
“All the examples of corruption in recent years show the power of the cartel. We only see transitional reforms, but to undertake a complete reform that includes the economy, you need the political will to do so.” Ayoub said.
“It’s not there,” he said.
Nada Maucourant Atallah is a correspondent at The National‘s Beirut bureau
