Key fact

Total losses from the state electricity sector in Lebanon will touch an estimated $4.4bn in 2010

Source: Energy & Water Ministry

Wherever you go in the world, the weather is a popular topic of conversation. Whether it be too hot, too cold, too wet or too dry, it offers a common subject about which everyone can share in complaining. Lebanon is no exception. Speak to anyone in Beirut and they will tell you that 2010 is the hottest summer in years. Even tourists visiting from the Gulf, hoping to escape the more severe heat of their home countries, are finding the combination of high temperatures and extreme humidity oppressive.

Some have taken matters into their own hands by illegally tapping into power lines to divert supply

But in Lebanon this summer, the weather has gone from a topic of idle conversation to a potentially dangerous element in an already highly charged political environment.

The summer heat wave is putting a creaking electricity system under unbearable strain, and as the provision of electricity becomes ever more unreliable, people are taking to the streets in protest.

Electricity rationing in Lebanon

In early August, locals used rocks and burning tyres to block a major highway in the north of the country in protest at government electricity rationing that has restricted supply in the Akkar district to just six hours a day. On 22 August, the Lebanese army was forced to intervene to re-open roads blocked by protestors in the Bachoura neighbourhood of Bechara al-Khoury in Beirut. It is a pattern that is being repeated across the country, and it threatens to exacerbate existing political tensions.

The private sector … is sceptical because it has heard so much about reforms and hasn’t seen anything concrete

Nasser Ghobril, Byblos Bank

Since Hassan Nasrallah, the leader of Shia political party Hezbollah, announced in early August that he believed that his organisation was about to be indicted by the international tribunal set up to investigate the death of former prime minister Rafik Hariri, everybody has been holding their breath in anticipation of civil unrest. Now power shortages are becoming another volatile element in the mix.

Hezbollah is strong in parts of the north and south where many of the protests have been taking place. At a local level, the party and its political allies in the 8 March movement are increasingly critical of a government – albeit one in which Hezbollah is represented – that is failing to meet the basic needs of the Lebanese people. The shortage of power “has exceeded all limits, threatening the economic, social and living dimensions of people”, said Ali Ammar, a Hezbollah official in a statement in late August.

The problem with …  the energy sector in Lebanon is that there is no framework and no regulation

Katarina Hasbani, Beirut-based energy analyst

The government provides Beirut with 21 hours of power a day, but elsewhere in the country its target is 15-16 hours a day, and in reality it can be as little as four of five. With not enough power to go round, the question of who gets the electricity supply is a sensitive one. Some have taken matters into their own hands by illegally tapping into power lines and transformer stations to divert supply. Others have chosen to withhold payment of their electricity bills. “Those that are not paying for electricity are the ones who are protesting the most,” says Energy & Water Minister Gebran Bassil in comments reported by the state-run National News Agency in late August.

No quick fix to electricity shortages in Lebanon

The power shortages cannot easily be resolved. According to Kamal Hayek, director-general of state power company Electricité du Liban (EDL), Lebanon’s power supply deficit is between 700-900MW, equivalent to about 50 per cent of the country’s 1,650MW generation capacity. On 4 August, EDL issued a statement in which it baldly admitted that it could not meet electricity demand and asked that people “understand the situation without resorting to negative reactions that only make things worse”.

According to Hayek, there are plans to provide 200-220MW of additional power from a ship that is due to arrive in Lebanon in the first two weeks of September, and electricity supplies from Syria and Egypt are also due to resume in September. But while these measures will alleviate immediate pressure on the system, they are no more than a temporary fix to a sector that is in crisis.

According to the Energy & Water Ministry, total economic losses from the state electricity sector will amount to an estimated $4.4bn in 2010, and if no action is taken this will rise to $9.5bn in 2015. Subsidies to EDL are the third-largest item of government expenditure, after civil service wages and debt servicing, and are draining an estimated $1.5bn a year from the treasury. “EDL accounts for 50 per cent of Lebanon’s overall deficit, in a country where the fiscal deficit is the economy’s greatest vulnerability,” says Marwan Barakat, chief economist at Bank Audi in Beirut. “It’s a major drag on public spending,” says Nassib Ghobril, chief economist at Byblos Bank.

Not only is generating capacity insufficient to meet demand, but losses from the system means that the government is not benefiting from the supply it does provide. According to government figures, total losses amount to about 40 per cent of supply, comprising 15 per cent technical losses and 25 per cent non-technical losses. About 80 per cent of the non-technical losses are due to illegal connections to the system, with the balance coming from unpaid bills. “If the government can get half of those not paying for their electricity to start paying their bills, the problems of EDL become minor,” says Barakat.

But the shortfall in generation means that the only legal way for locals to enjoy 24-hour electricity is to buy additional supply from private generators, and this comes at a high cost. Many Beirut residents pay as much to private generating companies to provide three hours of electricity as they do to the government for the other 21 hours. “Everything you buy in Lebanon, you have to pay for twice,” says a resident. “The private power generators are making billions.”

Mounting losses for businesses in Lebanon in need of electricity

Businesses too are counting the cost of the generation deficit. One hotel owner in central Beirut pays $600 a month to a private generating company, taking his total electricity payments to almost $2,000 a month, says an employee at the hotel. “How can you do business when you can’t rely on electricity?” says Katarina Hasbani, an independent energy analyst in Beirut.

The government recognises that urgent action is required. In late June, the energy ministry published a plan to overhaul the sector, including the addition of generating capacity from gas-powered and renewable sources, upgrades to transmission and distribution lines, the reduction of subsidies and the construction of new gas supply infrastructure. Under the plan, the government plans to add more than 4,000MW of generation capacity by 2014, enabling 24-hour electricity supply and reducing economic losses in the power sector to zero.

But there is great scepticism over the government plans among residents and businessmen in Beirut, who fear that the latest in a long series of strategy papers will suffer the same fate as its predecessors and fall short of implementation.

“There have been four energy ministers since 2005 and each one has had a plan,” says Ghobril. “None of them has been implemented. The private sector has a right to be sceptical because it has heard so much about reforms and hasn’t seen anything concrete.”

Others are critical that the strategy document is not broad enough, and does not offer any details of the regulatory reforms on which its success would depend.

“This is not an adequate energy strategy,” says Hasbani. “An energy strategy is where you look at the whole picture at the same time – the electricity sector, the supply and demand of oil and gas, transportation, renewables, energy efficiency. This is an outline of what should be done, not a series of implementable regulatory documents.”

The plan relies heavily on private sector investment, which the government hopes will contribute $2.3bn of the $4.9bn budget, with the government providing up to $1.6bn and international donors a further $1bn. But attracting private investment requires substantial institutional reform.

Regulatory reforms for power sector in Lebanon

Much will depend on the successful introduction of a framework to facilitate the development of power projects through public-private partnerships (PPPs). The government has drafted a PPP law, but the details are yet to be fleshed out, says industry sources. “The law has to be very transparent, implementable and convincing for the private sector to be involved,” says Ghobril. “The banking sector would be ready to finance infrastructure projects, but there would need to be laws that reassure investors.”

The success of the plan will rely on regulatory reform in other areas too. “The problem with anything you try to do in the energy sector in Lebanon is that there is almost no framework and no regulation,” says Hasbani. “There is no electricity regulator, no renewables authority, no national oil and gas company.”

At root, the problem remains a political one. In order for the government’s energy strategy to have any chance of success, it is reliant on parliament agreeing to the necessary institutional reforms. But the augurs are not good. Lebanon has not had a budget for five years, and while the cabinet has agreed on one for 2010, it is yet to be approved in parliament despite eight months of the year having already passed.

There are concerns too that the interests of private power generators, who make billions of dollars from the country’s generation deficit, will be another obstacle in the successful implementation of the new strategy.

The government paper calls for the end to reliance on private generation by 2014, threatening to put these providers out of business.

The obstacles to the energy minister’s new strategy remain great. But the risks of doing nothing are even greater.

“Day by day, people can cope,” says a senior diplomat in Beirut. “But the risk is that if the government doesn’t start doing something, there will come a point when they will say enough is enough.”