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Lebanon: Crisis of Power

Lebanon is suffering from a crisis of power, with the economy being increasingly hard hit and the general public being left in the dark. However, the crisis is not related to the continuing failure to form a new cabinet but the failings of the country's electricity supply.

In what is fast turning into a summer of discontent, regions outside of Beirut are experiencing power cuts of up to 20 hours a day, affecting both the public and industry.

With temperatures rising, consumer demand is on the increase, as more air conditioners are switched on and increased foreign tourist arrivals put a strain on an already overstretched grid.

According to state electricity monopoly Electricite du Liban (EDL) its production capacity is 1600 MW. This rate often falls due to technical failures or scheduled maintenance of plants. Even at optimum production, daily demand is more than 2100 MW.

Fadi Abboud, the president of Lebanon's Industrial Association, has warned that the country risks losing part of its industrial base, with a number of manufacturers having shifted their operations to countries such as Kuwait.

"The authorities and EDL provide Beirut with electricity 21 hours a day while the rest of the country gets less than four hours of power," Abboud reported to local media on June 11, adding, "We simply cannot continue."

To maintain supplies, many companies in energy intensive industries such as the plastic, ceramic, cement and chemical sectors use generators, more than tripling the cost of power, said Abboud.

"Nearly 20-30% of the total cost of energy-intensive factories goes to cover electricity bills and this is a huge amount by any standards," he said.

There is some hope that the chronic shortages will ease later this summer, with the first shipments of Egyptian natural gas due to be pumped through a pipeline running via Jordan and Syria by July at the latest.

While this will improve the supply situation to some degree, and cut an estimated $200m a year from Lebanon's energy import costs, it will take time for the full benefits of the increased supply to make itself felt in the electricity generation sector.

One of the greatest issues Lebanon's electricity supplier had to deal with is soaring international oil prices. Almost all of EDL 's generation capacity is oil-based, and with the country having no domestic fossil fuel resources, all fuel requirements have to be imported.

On June 10, Finance Minister Jihad Azour acknowledged that EDL did not have the capacity to meet the country's electricity requirements.

"We simply need more production units to meet the growing electricity consumption in Lebanon," he told the local media. "Buying fuel oil to keep our aging plants running will not solve the problems alone."

There have been delays in converting Lebanon's oil-fired power stations to operate on gas, meaning EDL 's generating capacity will still be linked to imports of more expensive oil for the immediate future. This in turn will result in continuing power cuts, pushing up the cost of industrial products and potentially hamstringing the economy.

Though the government of Prime Minister Fouad Siniora- now in a caretaker role as the premier tries to broker consensus on a national unity cabinet as part of the Doha agreement last month that ended the country's political standoff - has been in talks with the World Bank to obtain funding for more power stations, any increase in generation capacity is a long way off.

Though EDL has been slated for privatisation, the high cost of restructuring the loss-making enterprise has halted any progress towards a sell-off.

Some estimates put the cost of building new power stations and upgrading existing ones in order to meet current demand at $5bn, though more conservative figures put the total at $1bn. Either way, it is money that neither the cash strapped Lebanese state nor EDL have.

At the end of May, Azour said state support to EDL could total $1.2bn this year, most of which would go to paying for fuel imports. However, the minister's estimate was based on the then international oil price of $107 a barrel, meaning the state' utility's shortfall will probably be much higher by the end of the year.

Lebanon's gross public debt as of the end of April rose to $43.2bn, up 3.6% over the total at the close of last year, and a 5.5% increase on the April 2007 figure. With the government having to subsidise EDL 's operations to the tune of almost $1bn last year, and probably more this year, the electricity monopoly is one of the main contributors to Lebanon's growing deficit.

With no agreement on forming a national unity cabinet in place and general elections scheduled in little over nine months, it is unlikely any major decisions will be made to either commit to an expensive construction programme to boost long-term electricity production or overhaul EDL ahead of privatisation.

© Oxford Business Group 2008