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Electricity crisis in Lebanon: “A disaster in the making” | Business and Economy News

Beirut, Lebanon – The electricity sector in Lebanon is once again on the verge of total failure, and the government has once again continued to spend money on it instead of fixing it.

The state-owned Electricité du Liban (EDL) ran out of funds to purchase fuel, so the government sent a letter to the central bank for an advance on its depleted reserves.

A source from the Energy Ministry told Al Jazeera that the advance was $ 200 million. Central bank subsidies, estimated at over $ 15 million, are running out quickly, and Lebanon’s expensive and inefficient electricity sector is partly to blame.

In a May 2020 presentation to international donors, Energy Minister Raymond Ghajar said losses in the power sector cost around $ 1.6 billion in public funds each year, although some reports indicate that it can bleed up to $ 2 billion. This represents about 3% of the country’s entire economy, and experts told Al Jazeera that it represents almost half of the country’s cash-strapped public debt.

“In the absence of political solutions, we are just kicking the box,” Marc Ayoub, energy researcher at the Issam Fares Institute at the American University of Beirut, told Al Jazeera. “If we pay $ 200 million [pounds], we continue for two or three months, and then what? We can’t go on like this. “

Ailing economy

Other interim measures have failed or have failed, including a fuel for medical services deal with Iraq, where, it seems, for security reasons, interim Prime Minister Hassan Diab has failed to attend. not traveled to the country to conclude the agreement at the end of April. On Tuesday, Hezbollah Secretary General Hassan Nasrallah suggested that the Tehran-backed group was ready to negotiate and buy fuel from Iran.

For nearly three decades, Lebanese households have suffered daily intermittent power outages that last three hours in Beirut, although power outages elsewhere typically last longer.

Those who can afford it pay private generator suppliers for an additional power boost. And despite sheer ineffectiveness, the government has continued to support the system: subsidizing fuel and maintaining its bloated workforce, which activists and experts say is part of the “patronage networks” of political parties.

As citizens and political experts condemned the country’s inefficient electricity sector, Lebanon’s struggling economy renewed concerns that it could not keep the lights on. Lebanon is reeling from a crushing economic crisis, with a local currency losing around 85 percent of its value and some of the highest food prices in the world.

Today, power cuts have become more frequent, even in some of the capital’s wealthier neighborhoods. Power plants stop, after running out of fuel to operate. In some cases, the EDL cannot pay for fuel from tankers already in the country. More recently, the Turkish company Karpower shut down two floating electric barges – which supplied a quarter of the country’s electricity – due to payment arrears.

Generator suppliers are now saying they are struggling to break even due to rising demand and soaring costs. A distributor, Kassem, told Al Jazeera that he resorted to buying fuel at extraordinary prices on the black market during times of scarcity.

“The power cuts in Beirut lasted three hours, but sometimes reach 12 hours,” he said anxiously, explaining that most generators would overheat after about six hours. “The weather is fine right now, but once it gets warmer demand will increase. “

And, as elsewhere in Lebanon’s struggling markets, Kassem said price hikes are imminent to cover costly fuel and generator maintenance. “We cannot fill in the gaps left by the state. It is nonsense to think that we can replace state electricity almost entirely with generators. “

Lebanon asked the international community to contribute nearly 5.6 billion dollars for the development of its electricity sector [Aziz Taher/Reuters]

Empty promises and vested interests

For more than a decade, Lebanese officials have promised sweeping structural reforms that would ensure uninterrupted electricity while stopping the drain on public finances. Whether it’s increasing the number of power plants, diversifying fuel sources for greater efficiency, or investing in solar panels, wind farms and hydroelectric power, authorities have said they have a vision to reduce the deficit and develop this archaic sector.

Much of these promises are based on an “ambitious but realistic” 2010 policy document by then Energy Minister Gebran Bassil, which he said would reduce losses in the sector to zero by now. 2014. Bassil also stated in his document that this reform plan could make the sector potentially profitable by 2015.

Bassil’s successors often belonged to the same political party he now heads, the Free Patriotic Movement, and have since lobbied for the plan both within the government and with the international community. Its last reiteration dates back to April 2019.

Few plans have come into effect other than the arrival of two Turkish floating electric barges. Initially a temporary measure, the barges are still docked in Lebanon to this day. Despite the worsening economic situation and the repeated failure to implement the plan, the Lebanese authorities continue to press for it, with virtually no adjustment.

“The ministry generally felt that it had its policy document and did not need to look elsewhere,” independent energy policy consultant Jessica Obeid told Al Jazeera. “This is problematic because at one point the main concern of the ministry became the implementation of this policy rather than finding another way to provide electricity.”

The implementation of the political plan is quite expensive from start to finish; The then Energy Minister Bassil said the government would contribute up to $ 1.55 billion, the private sector $ 2.32 billion and a total of $ 2.65 billion from the International community.

With the country’s financial situation deteriorating rapidly since then, in 2018 Lebanon asked the international community to contribute nearly $ 5.6 billion for its electricity sector development projects at an international donor conference. in Paris. The international community has since urged Lebanon to adopt economic reforms and accountability mechanisms to unlock billions of dollars in development assistance.

That said, a source at the Energy Ministry told Al Jazeera that the current government, operating only on an interim basis, has its hands tied.

“[The caretaker government] can’t make any financial decisions, ”the source said. “The main obstacle is [the lack] full government.

“Don’t reinvent the wheel”

Lebanon has been without a government for 10 months and the lingering feuds between President Michel Aoun and Prime Minister-elect Saad Hariri have caused a crippling stalemate. Even French President Emmanuel Macron, who promised to secure development aid, was unable to break the deadlock.

But Obeid and other experts say the country’s sectarian power-sharing system is based on “vested interests.”

Even building power plants or outsourcing companies for development projects is tied to the political class of the country. One notable case was the proposed power plant in the northern coastal town of Selaata in late 2019. The town is not on the grid, and activists and politicians have accused the FPM-backed Energy Ministry of proposing the site for its own political reasons, given its location in a Christian town.

Although the power plant faced major opposition even within the country’s ruling political parties, it continued to be a heavily promoted component of Lebanon’s electricity reform proposals as recently as May. 2020. In September, even French President Emmanuel Macron reportedly demanded to drop plans for the controversial power plant.

Electricity of Lebanon is itself a politicized entity. A year ago, the government appointed its new board of directors through an opaque process based on sectarian quotas.

Marc Ayoub, the energy researcher, said there are many achievable steps that could be taken to address this crisis. “We are not reinventing the wheel here,” he said, explaining that any solution to solving Lebanon’s electricity problems also lies in broader economic restructuring. But will the country’s leadership abandon its endemic nepotism and political interests?

“Whatever we propose is against the interests of the political elite,” Ayoub added. “We tell them to stop enjoying something that they have enjoyed for 20 years.

At the same time, both officials and experts do not expect any investment in Lebanon to restructure its fragile power sector without an economic bailout approved by the International Monetary Fund, although talks have not resumed for nearly. one year since their breakup in July 2020..

So how long can Lebanon continue to keep the lights on when its current configuration drains the little that remains of public finances? One year, says Obeid.

“In the current situation we are heading, I guess they are going to continue to deplete whatever is left of depositors’ money,” she said. “It is a disaster in the making.”

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