BEIRUT (Reuters) – Lebanon’s electricity crisis has pushed it to the brink of financial ruin, as power cuts hobble the economy and subsidies have racked up one of the world’s largest public debt burdens.
A man passes by private generators, which provide electricity, in Beirut, Lebanon March 27, 2019. Picture taken March 27, 2019. REUTERS/Mohamed Azakir
Lebanon has not had capacity to supply 24-hour electricity since its 1975-1990 civil war, leaving many households reliant on their own generators or private neighbourhood suppliers who charge hefty fees to keep a few lights on or other appliances running during regular daily cuts that can last several hours.
The largely unregulated neighbourhood suppliers, responsible for a web of power cables slung across city streets, are popularly called the “generator mafia” for their supposed political clout. The owners say they simply offer a service that the state can’t.
Ageing power plants run by the state use expensive fuel oil that, along with exhaust from diesel generators, adds to the smog lingering over cities in the nation of 6 million people.
The government has promised change, including improving bill collection to help pay for cleaner, more efficient plants. But it also needs foreign funds, which will mean raising power prices and other reforms that the government has struggled to deliver.
HOW BIG IS THE PROBLEM?
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 (GDP).
The government says net transfers to state power firm Electricite du Liban (EdL) 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.
The accumulated cost of subsidising EdL amounts to about 40 percent of Lebanon’s entire debt, the IMF said in 2016.
The World Bank says electricity shortages rank second only to political instability in hindering business. The economy has expanded by an annual rate of just 1-2 percent in recent years.
Relying on fuel oil power plants and diesel generators also comes with a health cost: air pollution that can cause respiratory disease. Air pollution in Beirut was three times levels deemed a hazard by the World Health Organization, according to 2014 data.
WHY IS IT SO DIFFICULT TO FIX?
Consumer power prices have not changed since 1996, when oil cost only $23 a barrel. Crude now trades nearer $70. But asking people to pay more when the service is so poor is a tall order.
The main power plants have an average capacity of just over 2,000 megawatts (MW), compared to peak demand of 3,400 MW. For Beirut, the best supplied city, that means daily cuts of three hours a day. Elsewhere, it can mean outages for much of the day.
Lebanon plans new, privately financed, gas-fuelled plants. But it does not yet have a regulator that can set prices or arbitrate disputes between government and power producers.
Distribution and revenue collection are also big problems. EdL collects payments for only half the power it produces, with some power lost through creaking transmission network and other supplies siphoned off the system through unauthorised cables.
In 2012, the government appointed private companies to run metering, billing and payment collection for EdL, but it gave them little power to enforce payment.
WHY HASN’T THE GOVERNMENT ACTED BEFORE?
Lebanon has made sporadic attempts to end power shortages for decades, but its efforts have been thwarted by conflict, political instability and the challenge of policy-making in a system of government that depends on a delicate balance of interests across that nation’s fractious sectarian groupings.
Lebanon had no president for two years from 2014-16 and had a caretaker government for nine months until February this year because of political squabbling over cabinet appointments.
Even with a government in place, it has few resources to spend on power infrastructure when nearly half of state revenue is needed to service public debt.
This has led to quick fixes rather than long terms solutions, such as renting floating fuel oil power stations on barges paid for through deficit spending.
Jessica Obeid, a power specialist with the Organisation for Petroleum and Energy Sustainability in Lebanon, said private generator companies did play a role in hindering reform, but manoeuvring among rival political parties was also to blame.
IS THERE NEW IMPETUS FOR REFORMS?
The World Bank and other investors have pledged $11 billion to invest in Lebanon’s infrastructure, including electricity. But that money will only come if the government implements reforms, such as laying out a path towards raising power prices.
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Energy Minister Nada Boustani has proposed price increases and outlined plans to set up new power generators. But her plans have already brought opposition from other political parties represented in the cabinet.
Still, this time leaders across Lebanon’s political spectrum have said resolving the energy crisis is urgent and have agreed on a policy statement to review tariffs and achieve 24-hour electricity supplies in “the soonest possible time”.
They have yet to specify a date to achieve this.
Reporting by Angus McDowall; Editing by Edmund Blair/David Evans