Burden of Delay: Review of the Electricity Crisis

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Burden of Delay: Review of the Electricity Crisis

“The fault, dear Brutus, is not in our stars, but in ourselves” - Shakespeare. I am not an expert on electricity or its technicalities, nor am I an expert in power or its state of affairs, but I am one of many citizens who dutifully settle their taxes and repeatedly contribute, knowingly or unknowingly, to financing the staggering deficits in the electricity sector. I am one of many citizens who have unwillingly become so accepting and accustomed to the state of darkness, as if we as citizens are not entitled to a permanent state of light. I am one of the same citizens who may have surrendered to a wretched state of governance, the same state of governance that seems to be unscathed by its own incompetence. It is not right to generalize, but it is also not right to fail to recognize the state of affairs that has led us to the bottom end of the bottom. This bottom end that we find ourselves in is not due to lack of merit or skill, but it is due to a persisting failure on behalf of those in government to make binding political decisions and reach final verdicts. All we’ve seen is that some theorize, some criticize, some benefit, while others try in vain.

The penalty we pay is high; a burden borne solely by Lebanon’s hardworking citizens who have been abandoned by a government that has failed to procure them with the basic human right of access to electricity. Despite this fact, the citizens have maintained their hope to cross the reform barrier into a miracle solution to reform a vital sector that harbors a large and significant positive impact on economic growth and human welfare.

The purpose of this reading is twofold: the dissipation of information to the general public, which is their right, on one hand, and to hold responsible those who dare delay or block the solution on the other hand. The aim is to do this while supporting all those who strive to reform the electricity sector, end its funding reliance on the Lebanese Treasury, and on the taxpayers’ hard-earned income by extrapolation.

In a 2014 study, years before taking office, current Economy Minister Mansour Bteich wrote: “If the electricity problem was resolved in the mid-1990s, the size of the public debt would have fallen from about $68 billion to $41 billion by the end of 2014.” Bteich stressed its negative impact on the economy and growth.

Indeed, between 1992 and 2018, Electricite du Liban’s “EDL” remittances reached $23 billion. When we add the cost of financing, remittances amount to $40 billion, which equals 46 percent of the total public debt. Moreover, when we aggregate the electricity’s cost of generation, its cost of transmission, its cost of distribution and the inexplicable losses due to lack of bill collection and electricity theft, with every sunrise, the government needs to allocate $5 million to support EDL’s operations. And still, it barely covers 50 percent, i.e. 1.5 gigawatts, of Lebanon’s electricity demand (after netting technical losses in transmission and distribution).

EDL LOSSES: THE REASONSExperts point out that the direct cost of production is currently around 16 cents per kilowatt hour (a cost that fluctuates with the global oil prices). The cost is further exacerbated with up to 38 percent of wasted production due to technical losses on the grid, as well as theft of electricity and uncollected bills. And when the remaining EDL operating costs are added (including salaries, maintenance and other expenses), the cost of the kilowatt hour exceeds 22 cents, compared to an average EDL tariff of 9.53 cents!

In 2018, EDL managed to cover about 1.5 gigawatts of the demand requirement of twice that figure. The difference was secured by generators at an average cost of 28 cents (being applied since October 2018). This situation results in a total electricity cost ultimately borne by the Lebanese consumer of $6.4 billion, distributed as follows: $0.9 billion (EDL collections) + $1.8 billion (EDL deficit) + $3.7 billion (private generators’ cost of securing 1.5 gigawatts); equivalent to 24.3 cents per kilowatt hour. Of course, the humanitarian Syrian refugee crisis has exacerbated Lebanon’s electricity crisis, with the United Nations Development Program estimating an increase in local demand of about 480 megawatts due to the presence of Syrian refugees in Lebanon.

As for the terrible health risk factor, experts consider Lebanon’s usage of heavy fuel oil as one of its primary fuels for electricity generation (such as in Zouk, Jiyyeh, and the power barges) has very heavy repercussions on public health that go beyond numbers and financial costs. Most recently, Lebanon ranked as the fifth most polluted country in the Arab world, and the city of Jounieh as the 23rd most polluted city in the world! Moreover, a recent research report conducted by the American University of Beirut concluded that Lebanese citizens’ average age, has been shortened by 25 percent due to air quality!

THE SOLUTION: PAST AND PRESENTThe phrase “electricity plan” is one we’ve grown far too accustomed to over the years; the same goes for the empty promises of “24/7 electricity” that have been continuously and shamelessly transmitted without any “interruption” since 1992! Many officials have proposed plans and reforms that were blocked by political bickering, and sometimes by funding constraints. The latest electricity reform policy was published in 2010. It has since been reviewed, amended and optimized by multiple financial, technical and environmental experts, with most recently the World Bank weighing in within the framework of the CEDRE conference.

Indeed, it is widely considered that reforming the broken electricity sector is a key transit to reversing the outlook on the Lebanese economy due to its staggering weight on the fiscal budget and economic growth. In this context, it was reported in the Standard & Poor’s rating report released on 1/3/2019: “We could revise the outlook to stable if the Lebanese government is able to advance substantial economic and fiscal reforms that would boost economic growth and reduce government debt levels over the medium term, including addressing the gaps and inefficiencies in the electricity sector.”

Within the framework of the CEDRE conference, the Lebanese government has committed itself to undertake fundamental reforms in the sector, including:

1. Power generation: construction of new power plants, in both thermal power plants and renewable energy in partnership with the private sector. The newly enacted PPP law should open opportunities of collaboration and access to large pools of financing, conditioned by transparency and governance.

2. Transmission: implementation of the national transmission master plan (already approved by the Cabinet), with upgrades to the network and a quick resolution to the Mansourieh missing section of our grid, which is causing instability and large losses in the grid and leading to low quality in electricity distribution.

3. Distribution: investing in smart meters and a smart grid to control collection, ensure a better management of demand and supply and limit the theft of electricity

4. Switch to natural gas as a primary fuel of the power plants, which would reduce EDL’s fuel bill by an estimated 20-30 percent, in addition to a substantial reduction in carbon dioxide, nitrogen oxides and fine particles emission.

5. Tariff reform: review EDL’s electricity tariff, which is currently well below the global average (9.53 cents compared to 19 cents per kilowatt hour). However, the increase cannot be implemented until residents, who are already burdened by the heavy cost of private generators (costing 28 cents/kWh), first witness an improvement in EDL’s power supply, reducing their reliance on the private generators. Then, and only then, the subject of the tariff reform can be approached. In the meantime, all efforts should be channeled toward implementing the necessary reforms and projects for EDL to procure the deficit in power, and limiting technical and nontechnical losses.

In addition, it has become a necessity to establish the Electricity Regulatory Authority as stipulated in Law 462, and to modernize EDL’s operations and systems with a functional board to manage EDL in a commercial way (with a view of rendering EDL a profitable organization) after an in-depth review of its cost structure.

If the total cost of the first reform phase is between $3.5 billion and $4 billion (according to the Capital Investment Program presented at CEDRE), the public sector has only to secure one-sixth (or $500 million). On the other hand, the cost of waiting and engaging in continuous assessments, revisions and reassessments of the plan is exponentially greater. Time is no longer available for any reconsideration or optimization of the plans, gaps and reforms in a well-elaborated strategy.

Time has become a luxury that the Lebanese citizens and the state cannot afford anymore, with every day carrying heavy financial burdens that our children and grandchildren will have to bear!

When assessing the numbers, it is objectively clear and unequivocal that a fast implementation of the solution will bear positive impacts on EDL’s dire financial situation. For example, plants such as the one envisaged in Zahrani, Selaata, and Deir Ammar, which generate 35 percent of their production using steam, could result in yearly savings to EDL estimated at $300 million per 570 megawatts plant compared to its existing cost of production.



RENEWABLE ENERGYAs a signatory to the Paris Agreement on climate change, Lebanon has committed to a renewable energy target of 30 percent by 2030. There is no doubt that the target is ambitious and its success is linked to decisions and reforms that must be further elaborated and implemented. There are uncontested environmental and economic benefits to using renewable energy as a source of electricity. From an environmental aspect, renewable energy produces electricity with no greenhouse gas emissions and other air pollutants from fossil fuels, reducing air pollution. From an economic perspective, it diversifies energy supply and reduces our dependence on imported fuels hence improving our balance of payments. Even if we end up with large oil and gas discoveries, these could be exported to further enhance our government revenues.

In November 2017, three wind farm licenses with a total capacity of 227 megawatts were awarded at a fixed price of 10.45 cents for the first three years and 9.6 cents for subsequent years (compared with a current production cost of 16 cents for the kilowatt hour) - making Lebanon’s first wind farms the cheapest source of electricity generation in the country. For every 100 megawatts of electricity purchased from the wind farms, EDL will save around $55 million per annum compared to its current cost of production.

Besides their notable environmental benefits, the execution of these projects will require a $350 million investment, creating job opportunities, income to the local communities and large upgrades in the roads and infrastructure, especially in the province of Akkar.

Sources also indicate that the Energy and Water Ministry is in the process of awarding licenses for 12 solar farms spread across Lebanon with a total capacity of 180 megawatts, whereby the cost of electricity is expected to be around 8 cents per kilowatt hour.

The ministry is also preparing to launch tenders for more than 1,000 megawatts in solar, wind and hydro projects.

TIME IS NONRENEWABLEA good plan executed today is better than a perfect plan tomorrow. Without execution, strategy is worthless. As time passes so does our opportunity for a brighter future with a curbing of our government debt and budget deficit. Immediate execution shouldn’t entail compromises in terms of tenders, transparency and proper governance as this is a key condition imposed by the international financing community and the banking sector, on which we rely for the large part of the financing that is required to execute the plan. The time frames needed to implement these projects require that they be commenced immediately to address the burden on the country’s broader economic and fiscal performance. Even so, the government will still have a deficit of about 1.5 gigawatts for the next three to four years due to the required delays for financing and construction. Therefore, and only when the long-term solution is put in place and the reduction in losses are achieved (both technical and nontechnical), he government should then seek a proposal for a short-term solution to bridge the gap until the power plants come online, instead of the costly and highly polluting private generators that have mushroomed in our cities and villages. This would allow the gradual increase in tariffs to restore financial health to EDL, which could become profitable in a five-year time frame - and more importantly, it will be able to supply Lebanese citizens with 24/7 electricity.

In parallel, why doesn’t the government impose on the private developers a listing of at least 20 percent of the project companies on the Beirut stock exchange in the tender documents? This would allow a promotion of transparency and good governance.

STOP THE BLEEDINGDarkness falls uniformly upon us all. We have all been victims of the prolonged delay. We wish to believe the promises made by the government in its ministerial statement, but our sparks of hope are conquered by our fears of yet another lost opportunity. Alas, we have even become cautious with how to hope, and with how much to hope for!

The government’s plan may not be the ideal plan and some of us may be critical of it, but this plan has taken years of drafting and scrutiny, both domestically and internationally. Whatever its gaps, whatever its weaknesses, a confirmed decision to implement it is its only vital shield, and that decision will be the necessary trigger for its elaboration and development. The wait is too expensive; as the clock ticks, it drains along with it millions of dollars a day; as the clock ticks, the deficit widens, the loss is aggravated, and the opportunities are lost ... and isn’t this the epitome of corruption?

NO EXCUSES, NO EXPLANATION ... EXECUTION WINSIn conclusion, whichever plan is the plan, its value and bearing remain in its execution, in its transparency, as well as in the time it needs to be accomplished.

While overdue, these will be the bases for the sound judgment of a plan, its foundations and its accountability. Let us temporarily uproot ourselves from our presumptions, and let us condemn the perpetrators if they falter, and let us commend the victors if they succeed.

We will then honor them with 24/7!

Ziyad Baroud is a former interior minister of Lebanon.

Source: The Daily Star

Author: Ziad Baroud