The norm since the end of the civil war in Lebanon in 1990 has been for the population to pay two bills for a day’s worth of electricity: one to Électricité du Liban (EDL) — a public utility provider — and the other to the private generator of each neighborhood. Master plans were drafted yet never executed, much like the promised reforms of the electricity sector, which never materialized. Today, Lebanon faces multiple crises and is in free fall. Amidst the meltdown, the energy sector has been the most affected, with hour-long blackouts. At some point, EDL was providing one hour of electricity to the population, while the private generators were having difficulties covering the gap due to several reasons, including a shortage of diesel supply, the increase of diesel prices, the generator owners’ inadequate maintenance of the generators, and the difficulties people faced with paying their bills given the severe economic crisis that has beset the country since October 2019.
Lebanon faces not only an electricity problem but a lack of vision for the energy sector, too. A common trait among the political class, which has ruled since 1990, has been the failure to attain the political will necessary to tackle the country’s energy issue.
Technical and financial crises
Over the past decade, a string of ministers of energy have been accused of bad governance, mismanagement, and corruption. For years, EDL has been unable to build new power plants to increase electricity generation to cater to consumers’ needs. It has also failed to upgrade its electrical grids; increase the price per kWh — which has been fixed and subsidized since 1994 —; adequately and effectively manage the collection of bills; and enforce EDL’s governance, which has long been under staffed, with its board of directors leaving without new appointments for years. Overall, EDL is a failing state-owned enterprise, unable to pay the government back for the price of fuel and with a yearly deficit, which now amounts to 40 billion dollars. This is without taking into account the health and environmental bills caused by the use of heavy fuel oil and gasoil for the power plants or the use of diesel for private generators. Today, the Lebanese state is unable to attract new funds and investments for new infrastructure projects without an International Monetary Fund (IMF) programme, which is currently under negotiation.
Political unwillingness
EDL’s failure is a result of failed politics of the governments. There are different visions for the energy sector, between those who want to keep EDL’s monopoly of generation, transmission, and distribution, those who want to privatize it, and those who want to apply an electricity law which was ratified in 2002 yet never implemented. Past coalition governments have made it difficult to implement any such plans. The ministry has been in the hands of one political party since 2009, with a clear plan that has been approved and objected by many in the different governments that were then formed. In addition, several investigations in the country have found that a number of political figures and parties benefit from the “business of generators”, which accounts for around 3 billion dollars. Investigations have also uncovered that the temporary solution of using barges benefited some political parties.
In addition, it is worth noting that Hezbollah has made some popular gains with its constituency last summer when the diesel crisis was at its peak and Iran sent the group tankers full of sanctioned products through Syria to help alleviate the problem. Though it did not solve the energy crisis, it was a successful political stunt which scored political points in favor of Iran vis-à-vis the US, which was accused by Lebanon’s anti-US faction of economic embargo against the population.
Going forward
The hour-long blackouts have forced both former and current governments to take action to try to solve the problem.
The solutions currently on the table are quick fixes, and they all face challenges that could lead to no solutions and to no electricity. While it is important to fix the blackouts, it is more important to work on the long-term solutions to the energy problems.
- Iraqi fuel at the rescue: In July 2021, Lebanon and Iraq signed a fuel deal whereby Iraq would send 1 million tons of heavy fuel oil to Beirut, which, in return, would have to pay back in goods and services. This deal presented two main challenges: 1) the Iraqi fuel oil was not compatible with the power plants and the amounts sent to Beirut had to be swapped with adequate fuel oil; 2) it was never clear how Lebanon would pay in goods and service, especially considering Lebanon reportedly suggested to offer medical services at a time when its hospitals were struggling to provide services to the population. Eventually, the first swap took place in August 2021, when ENOC won the swap bid under watchful eyes, as everybody in the country was interested in the process. However, after that, the amounts that were received were not clear, and neither was the winner of the following swaps. Lately, the government has declared that there were delays in receiving Iraqi fuel because of Beirut, though no additional details emerged. The deal is supposed to expire in July 2022: it is not clear whether it will be renewed and if Lebanon has indeed paid for the heavy fuel oil it has received thus far. To be sure, this temporary solution did not improve the situation, though it did raise hopes that a few Arab countries are still willing to help Lebanon. More than anything, it was seen as an act of solidarity and seen by some as strengthening a political alliance forged by Iran that includes Iraq, Syria, and Lebanon in addition to Yemen and Gaza.
- Egyptian gas via the Arab Gas Pipeline (AGP): In August 2021, the US ambassador to Lebanon, Dorothy Shea announced the US was working with the Egyptians to provide gas to Lebanon via the Arab Gas Pipeline. Egypt is to provide 60 to 65 million cubic feet of gas per day for around 300 million USD, which will be paid by the World Bank directly to the Egyptian government. However, the World Bank has asked the Lebanese government to implement reforms to the electricity sector, including increasing tariffs, establishing an electricity regulatory authority (ERA), and auditing the EDL. At the same time, it was clear that the Egyptian government wanted to see clear commitment and guarantees from the US regarding the Caesar Act imposed on the Syrian regime. The Egyptians want to be sure the deal with Damascus to transfer gas to Lebanon from Syria will not cause problems or put them at risk of US sanctions. Paperwork and technical checkups on AGP and pipes in Lebanon have been carried out: now, for the deal to come into effect there ought to be reforms from the Lebanese side and the US’ political guarantee. This deal — which will indebt Lebanon by around 300 million USD — will provide the population with 4 to 6 hours of electricity per day.
- Jordanian electricity via Syria: Jordan has also signed an agreement to provide Lebanon with two hours’ worth of electricity per day via Syria’s grid. This deal is said to cost around 200 million USD, once again as a loan from the World Bank. Reportedly, Syria’s technical problems with the grid and Lebanon’s issues with the substation in Bekaa valley have been fixed: as such, electricity seems ready for transfer. However, the World Bank is yet again allowing the payment only on the condition of reforms, which need to be executed by Lebanese authorities. Moreover, it is alleged that the money for this project has not secured for 2022. This project does not face political challenges related to the Ceasar Act, if anything, it does not look like Jordanian authorities are particularly concerned about US guarantees: they have taken Washington’s public statements as enough of a guarantee to send electricity to Lebanon. Jordan wants to restore its collaboration with the Syrian regime and leverage Syrian territories for its own economic benefit. At the same time, however, Jordan wishes to position itself as the region’s electricity hub and sell its excess electricity to other regional actors, too. As such, Amman sees a lot of benefit in this project’s execution and is supported by the current US administration.
- Offshore gas explorations: Another one of Lebanon’s major projects is the re-launching of gas explorations off the Lebanese coast. It took the authorities five years to finalize the first licensing bid, which was launched in 2013 and closed in 2018 with the signing of two contracts with a consortium of companies including Total as the main operator and Eni and Novatek as non-operators. This consortium was granted two blocks offshore Lebanon. The first exploratory drilling in block 4, north of Beirut, happened between March and April 2020 but ended with a dry well. The plan consisted of another exploratory drilling in block 9, south of Beirut, though it never saw the light of day because of the spread of Covid-19. For the time being, Total has not yet set any timeline for activities in its blocks. In addition, the Lebanese minister of energy announced Total has no intention of relaunching activities as long as the maritime border negotiation between Lebanon and Israel — which includes parts of block 9 — is not settled. Indirect negotiations between Lebanon and Israel were launched in October 2020: the US was designated as the mediator, but after five technical rounds the outcome was still a deadlock. In August 2021, Amos Hochstein was appointed as the new mediator and relaunched the negotiations, opting for a shuttle diplomacy approach rather than the technical meetings that were taking place in Naquoura – south of Lebanon along the border with Israel. In February 2022, he proposed a deal, which was refused by Lebanese authorities. Hochstein repeatedly stated that without a solution to the border’s issue there would be no investments in the area. Therefore, given the current status quo, it is difficult to envisage any activities in block 9. Nevertheless, Lebanon launched a second licensing round in January 2022 and companies have until the 15th of June 2022 to apply. Nonetheless, because the country is going through its worst economic and financial crisis to date, it is unlikely that companies will apply for a license. With the war in Ukraine and the urgency to find alternatives to Russian gas, one would think that might encourage companies to apply. However, the sector’s history and continuous delays caused by political deadlock play against this, particularly considering that any new project is currently under serious time pressure because of the European market’s needs. As such, not even the war in Ukraine represents an opportunity for Lebanon’s oil and gas sector. Companies might instead be more interested in investing in Egypt, Israel, or Cyprus.
Conclusion
In conclusion, Lebanon won’t be able to produce its own oil and gas – nor see the light at the end of the tunnel – any time soon. All the projects currently on the table face unsurmountable challenges and, even if they were finalized at the same time, they would provide 10 hours’ worth of electricity to the population. That means people will be left on their own in finding solutions for the remaining 14 hours: either by choosing to stay without electricity or relying on expensive generators or by going solar. It has become very clear to all that a long-term solution requires an IMF deal as soon as possible, which entails financial discipline and reforms- something that the past governments were unable to do. And all the new projects on the table face political challenges related especially to energy security since the government will be relying on Syria for both electricity passage and swap. It is worth noting that for years, relations between Lebanon and Syria have been complicated- to say the least. However, one positive aspect of this energy crisis has been the spread of solar energy: people all over the country are installing solar panels for electricity to avoid blackouts and expensive generator bills, but even that solution is not sustainable and will require a legislation to regulate this new trend at some point. After the 15th of May parliamentary elections, the new government that will be formed will not be able to continue doing business as usual in the energy sector. There is no escape from reforms and a new vision.
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