Lebanon's Cabinet set to act on ailing electricity sector next week

The appointment of an electricity regulatory authority, also a key demand of international donors, would not be on the Cabinet agenda: minister

Image used for illustrative purpose. Smoke rises from an electricity power station in Jayeh area, south of Beirut September 22, 2011.

Image used for illustrative purpose. Smoke rises from an electricity power station in Jayeh area, south of Beirut September 22, 2011.

REUTERS/Sharif Karim

BEIRUT: Acting under mounting internal and external pressure to implement reforms, the Cabinet is set to take the first step next week toward overhauling the ailing electricity sector, a key demand of international donors, which is costing the cash-strapped state Treasury around $2 billion in annual subsidies.

The Cabinet will meet at 11 a.m. Tuesday at Baabda Palace with the electricity issue, including the appointment of a new board of directors for the state-run Electricite du Liban, topping the agenda, Information Minister Manal Abdel-Samad told The Daily Star Sunday.

However, Abdel-Samad said the appointment of an electricity regulatory authority, also a key demand of international donors, would not be on the Cabinet agenda, a clear signal that no consensus has yet been reached among the main parties making up the government on names of potential candidates for this body.

Abdel-Samad said the resignation of Alain Bifani, who quit last Monday as director-general the Finance Ministry in protest at the government’s stalling to implement long-delayed reforms and its handling of the deepening economic and financial crisis, is also on the agenda. Ministers are expected to decide on whether to accept or reject Bifani’s resignation.

Bifani, who was one of the top Lebanese government negotiators with the International Monetary Fund and one of the drafters of the Cabinet’s economic reform blueprint, had hinted at a news conference that his resignation was irreversible.

The Cabinet agenda also includes forensic and accounting audits of the Central Bank’s books, Abdel-Samad said, a pivotal issue as the government is negotiating with the IMF on a $10 billion bailout package to help the crisis-hit country out of its economic malaise, the worst since the 1975-90 Civil War.

Speaking at Tuesday’s Cabinet session, President Michel Aoun challenged the Cabinet on the lack of progress in conducting a forensic audit of the Central Bank’s books. He noted that the government ordered the audit to go ahead three months ago, and questioned why no contract has yet been signed with an international auditing firm.

Two firms are being considered to lead the audit – KPMG and Oliver Wyman. New York-based firm Kroll was being considered, but has been ruled out because it has an office in Tel Aviv.

Aoun told the Cabinet that both a focused audit and an audit of Banque du Liban’s accounts must take place concurrently. The president explained that a focused audit would reveal the “actual reasons that led to the current financial and monetary situation” and that it would show the “exact figures in the Central Bank’s budget, profit and loss accounts and level of foreign currency reserves.”

But Finance Minister Ghazi Wazni was quoted as objecting to the forensic audit during the Cabinet session on the grounds that it would lead to information being leaked to "hostile parties,” a reference to Israel. Aoun was reportedly insistent that a two-part forensic audit be carried out and postponed a decision on the matter until next week.

The Cabinet session on the long-running electricity problem comes as Lebanon has been suffering over the past two weeks from severe power rationing due to a fuel shortage to operate the electricity plants. Residents of various areas across Lebanon have been experiencing increased power cuts, and with a fuel shortage in the market, generators have been unable to fully compensate during the blackouts.

Last year, the government of former Prime Minister Saad Hariri approved a plan to restructure the dysfunctional electricity sector, boost power supply and slash subsidies to EDL. For years, reform of the electricity sector has been a major demand of Lebanon’s population of over 5 million. But frequent political stalemates, rampant corruption and infighting among rival politicians, often derailed reforms.

The Cabinet session comes against the backdrop of stalled talks with the IMF over disagreements between different interests groups representing Lebanese banks and Cabinet over the size of BDL’s losses. The government and the IMF in their negotiations put these losses in the region of LL241 trillion, while Parliament’s Budget and Finance Committee places them closer to LL115 trillion.

Wazni said the talks with the IMF have been put on hold, saying in a newspaper interview that the talks would not resume before Lebanon begins implementing “reforms as soon as possible” and agreement is reached on a unified figure of the losses. However he noted that he will be in communication with the fund until talks resume.

Lebanon’s talks with the IMF are based on the government’s economic rescue plan, which calls for broad financial and structural reforms to cut the budget deficit, trim expenses, reduce waste, combat corruption, stimulate the sluggish economy and retrieve stolen public funds. The blueprint also calls for a restructuring of the soaring public debt, the shaken banking sector and the Central Bank.

In addition to reforming the electricity sector, international donors have called on Lebanon to fight corruption, put an end to the waste of public funds, and close illegal border crossings between Lebanon and Syria as conditions for unlocking $11 billion in soft loans and grants pledged at the CEDRE conference hosted in France in 2018 to finance investment and infrastructure projects in Lebanon.

Lebanon is in desperate need of US dollar inflow as it is facing an economic meltdown and has seen its national currency lose 80 percent of its value on the parallel market since last October. The rapid devaluation of the pound has dramatically reduced the purchasing power of most Lebanese, and has put more than half the population under the poverty line.

In a positive development, the US dollar, which surged to LL10,000 last Thursday on the black market, retreated Saturday, trading at an average of LL7,600 after the reopening of Rafik Hariri International Airport permitted travelers to bring large amount of dollar banknotes into the country.

Meanwhile, as calls for a Cabinet change gained momentum after Prime Minister Hassan Diab’s government has failed to ease the economic and financial crisis, more politicians called Sunday for the formation on of a new government.

“Freedom of expression is sacred and the Progressive Socialist Party is at the forefront of those demanding the toppling of this government. Therefore, adjust the path,” PSP leader Walid Joumblatt tweeted.

Kataeb Party leader MP Sami Gemayel, a harsh critic of the government, said in a local radio interview: “We did not expect this government to carry out any reform. What makes this government doomed to collapse is that it did not do anything at all.”

Renewing his demand for early parliamentary elections, Gemayel called for popular and political pressure for the formation of a new government.

Deputy Parliament Speaker Elie Ferzli said after a meeting with Hariri Thursday that Lebanon must work to find an alternative government. He even called on Diab to help facilitate the formation of a new government in an implicit call to the prime minister to step aside.

Minister for the Displaced Ghada Shreim disagreed with the public works, industry and information ministers who have ruled out the possibility of a Cabinet change.

“A Cabinet change is possible at any time. If the departure of the government will solve problems, there is no objection because what is important is to reach solutions,” Shreim said in a radio interview. “We are open to all possibilities. Eventually, we want the country’s interest.”

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