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Energy reform, Lebanon's utopian goal

24 August 2010

Power cuts are a daily hassle for everyone in Lebanon, but they are big business opportunity for some. Every year according to the Energy and Water Ministry , Lebanese consumers pay approximately $1.3 billion for private electricity generators.

The woeful state of the energy sector in the country becomes clear when one realizes that this sum almost equals the entire investment in Lebanon’s energy sector during the period 1992-2009, equivalent to $1.6 billion. Sadly, despite a new and much-needed electricity plan and the finalization of an oil and gas law, Lebanon still doesn’t have a satisfactory legislative framework to solve this staggering problem. Additional financing will be needed to develop an energy sector that is lagging significantly behind that of Egypt, Jordan and Syria.

The challenges to sector reform are extensive. Lebanon still lacks a truly comprehensive vision for its energy sector. A global plan would examine the country’s overall energy demand and supply, technology, investment and legislation, and cover at least electricity, oil and gas, renewable energy, energy efficiency as well as energy-related transport issues. However, the plan issued by the Ministry of Energy and Water last June examines the electricity sector, while a new legislative framework for oil and gas is being discussed separately.

The issue of private electricity generation still remains outside any legislative framework. Clean energy use in transport, an important source of pollution in the country, has not been addressed properly. Renewable and energy efficiency laws, looking toward the future and outlining the appropriate support schemes, are also lacking.

Even the few legislative measures adopted over the past decade aiming to reform the electricity sector are encountering serious delays in implementation. The industry is still awaiting the announced creation of an electricity regulator and market restructuring to separate electricity production, transport and distribution. The planned reform of Electricité du Liban (EDL) has been postponed indefinitely. Hence the challenge for the most recent Electricity Plan to deliver results in a timely manner.

Private-sector confidence in Lebanon’s energy sector is weak. The lack of legislative and regulatory certainty remains an impediment to major investment projects. Access to energy, or the lack thereof, has become a major obstacle to doing business for 61 percent of Lebanese companies, according to the latest World Bank study.

The country is dangerously falling behind its neighbors in terms of foreign investments in its energy sector. International donors such as the European Investment Bank ( EIB ), for example, invested $4.74 billion in energy sectors in the Mediterranean region over the period 2002-2009. But none of it was directed at Lebanon. During the same period, Egypt received $2.14 billion for its energy sector from the EIB , Morocco almost $901 million and Jordan $142.25 million. The World Bank currently has an active portfolio of $269.7 million in Lebanon, but only $5 million is going into its energy sector.

More importantly, Lebanon has not been targeted by the initiatives aiming to develop renewable energy capacities, in particular solar and wind across the Mediterranean region. This could have strategic implications for the country’s participation in regional energy integration over the long term.

The need for additional investment in Lebanon’s failing energy sector is significant. Based on the Electricity Plan, this sector alone needs $4.87 billion in investment over the next five years in order to achieve the necessary generation capacity, out of which $2.37 billion should come from private investors and $1 billion from international donors.

To effectively attract such necessary volumes of investment, the government needs to make restoring investor confidence an immediate priority. It needs, first, to define a comprehensive energy strategy for Lebanon supported by a national consensus; second, to design a clear set of rules and regulations governing the energy sector; and third, to set laws for the development of renewable energy potential and energy efficiency measures, which currently constitute the key priorities for international donors as well as a number of energy companies active in the Mediterranean region.

The government’s failure to proceed with energy sector reform will result in more money being poured into the unregulated sector of private electricity generation. It will also divert foreign investments away from Lebanon toward other countries in the region that are more forward looking in their energy and economic planning.

Katarina Uherova Hasbani is an energy analyst based in Beirut who previously worked on energy issues in the Middle East with the European Commission. This article represents the personal view of the author, which does not necessarily reflect the position of the Delegation of the European Union to the Republic of Lebanon. She wrote this commentary for

THE DAILY STAR.

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