Iraq to supply Lebanon with 1mln tons of fuel oil soon

The crude will be refined in the Iraqi refineries before being shipped to Lebanon

Lebanese Energy Minister Raymond Ghajar poses for a picture during an interview with Reuters in Beirut, Lebanon May 20, 2020.

Lebanese Energy Minister Raymond Ghajar poses for a picture during an interview with Reuters in Beirut, Lebanon May 20, 2020.

REUTERS/Mohamed Azakir

BEIRUT: Lebanon is expected to sign a landmark agreement with Iraq shortly to supply the fuel-strapped country with 1 million tons of Iraqi fuel to operate the power plants, a source at the Energy Ministry said Friday.

“Caretaker Energy and Water Minister Raymond Ghajar and General Directorate of General Security Abbas Ibrahim travelled today (Friday) to Baghdad to sign an agreement with the Iraqi government to buy 1 million tons of fuel and diesel that will operate the country’s power plants,” the source told The Daily Star.

The Iraqi Parliament has voted in favor of supplying Lebanon with 1 million tons of crude in a bid to alleviate the deep shortages of fuel in the country.

The crude will be refined in the Iraqi refineries before being shipped to Lebanon.

“We will receive refined fuel from Iraq that matches the standards and technical specifications of the power plants in Lebanon. We should receive this refined fuel in a few days, or maximum a few weeks,” the source explained.

The aging power plants have been supplying Lebanon with less than four hours of electricity each day because the Central Bank declined to open new lines of credit to buy fuel and diesel from suppliers.

BDL argues that it will not touch the remaining $14 billion or $15 billion foreign currency reserves under any circumstances, urging the Lebanese authorities to devise a new plan to acquire fuel oil for the power plants.

“Ghajar has been negotiating with the Iraqi side for quite some time in a bid solve all the technical details. He prefers to work silently instead of talking to the press,” the source explained.

She added that people should understand that the problem of electricity also rests on the shoulders of EDL since this company handles production and distribution of electricity all over the country.

“EDL is the one that decides on hours of electricity rationing and is the one that orders fuel oil from the importing companies,” the source added.

The source said Iraq would not be paid in fresh dollars for the fuel oil and diesel as in the case of the importing companies.

“In return for fuel oil and diesel, Iraq will receive consultancy service as well as agricultural and medical services from Lebanon. You can say we are getting this fuel as a form of free assistance,” she added.

The Iraqi Central Bank will open an account at Lebanon’s Central Bank once the agreement is signed and this money will stay at BDL and will not be transferred to any other country. This account at BDL is a form of guarantee.

Iraq’s SOMO Company will refine the crude before it is shipped them to Lebanon.

“EDL is the one who decides how to benefit from the Iraqi oil and will also decide on the electricity supply to the consumers once this shipment is unloaded,” the source said.

Some experts say that the Iraqi oil can supply Lebanon with six to seven months of electricity and will probably reduce power rationing from 20 hours a day to 10 or 12 hours a day.

A senior official at EDL told The Daily Star that the company was forced to apply strict power rationing after BDL declined to open a new line of credit to purchase fuel oil and diesel.

“Our power plants are now producing 800 MW of power due to the fuel shortage. We can increase output up to 2,000 MW if we received more money to buy fuel oil. BDL has opened a $200 million line of credit only and this is not sufficient to supply a lot of electricity to the consumers,” the official added.

He stressed that the oil importing companies insist on being paid in fresh dollars only to supply Lebanon with fuel oil and diesel.

“We don’t have fresh dollars and neither does the government. For these reasons, we are forced to continue with these severe power cuts across all the country,” the official said.

He added that the Iraqi oil will boost production of the power plants, noting that this step is only a temporary measure.

“What we need is a long-term strategy and plan to overhaul the electricity production. We also need to accept that the electricity subsidies will come to an end in the future,” the official said.

The government, World Bank and International Monetary Fund all say electricity reform is vital to cutting debt, now equivalent to about 150 percent of gross domestic product.

The government says net transfers to state power firm Electricite du Liban now amount to $1 billion-$1.5 billion a year, most of it spent on fuel oil. This is equivalent to about a quarter of last year’s budget deficit of $4.8 billion.

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