All are aware by now that the October 17th Uprising in Lebanon came about as a civilian response to our country reaching rock bottom on several levels due to mismanagement and corruption.
Today, Lebanon ranks fifth in the world in its debt-to-GDP ratio, the main contributor to which is the ailing electricity sector. Almost 50 percent of the public debt comes from the government covering the yearly deficit of Electricité du Liban (EDL), the public establishment assigned as the main electricity producer in Lebanon. Even with this high cost, Lebanon has the world’s fourth worst electrical supply out of a study of 137 nations, despite the fact that the Lebanese pay a significantly higher average tariff for electricity than the global mean. The electricity sector has been the major contributor to making Lebanon one of the most indebted countries in the world, as citizens continue to suffer from an expensive and unreliable supply of power.
Reforms to the electricity sector must be preceded by citizen engagement and can be accelerated by citizen lobbying. Once we understand the issues and their contributing factors, knowledgeable experts can suggest solutions. Investigating the opinions of technical and legal experts’ is also crucial to understanding whether or not those solutions will work. Perhaps most importantly, we must hold accountable those whom we elect to implement the law and maintain public pressure on them.
EDL Power Rationing and the Parallel Network of Micro Monopolies
The Lebanese Civil War (1975-1990) was a major turning point which presented severe consequences on the local electricity infrastructure. During the war, EDL was unable to keep up with the rapid urban and demographic redistribution caused by the conflict and failed to adapt its network to the power demand in developing regions. Of course, the ongoing chaos was also the perfect incubator for massive fraud and illegal connections to the network, which allowed militias to resort to power cutting as an instrument of pressure.
In summary, the Civil War put an end to the integration of the national power network, leaving it to post-war governments to pick up the pieces. By 1996, the power supply had seen significant improvements in most Lebanese regions. Then came the Israeli warplanes in April of 1996 during “Operation Grapes of Wrath”, bombarding three power stations in Beirut. This essentially crippled the effort to rebuild the vital electricity infrastructure of Lebanon.
EDL’s power generation capacity has been unable to meet the ever-increasing power demand (fig. 1) of the population, especially with the influx of hundreds of thousands of Syrian refugees into Lebanese regions. In the absence of any decision to expand capacity, EDL resorted to power rationing, leaving the Lebanese without electricity for several hours a day. This resulted in the gradual establishment of a parallel infrastructural layer of neighborhood-based electric generators to fill the gaps. The owners of these generators followed a subscription-based model, restricting amperage in exchange for high subscription fees. Despite their high fees, generator owners now have their own layer of micro-monopolies regulated by municipalities, which lack the human capital or competence to hold such a regulatory authority in most cases.
Cost of Failure of the Lebanese Electricity Sector
The macroeconomic impact of the war and the accumulated mistakes in its management over the years has been massive. The EDL deficit, financed by public debt from 1993 to 2020 (including the cost of interest assumed at 6.7 percent), has contributed to 46 percent of Lebanese public debt. $43 billion US Dollars (soon to account for 50 percent of the public debt of Lebanon, presented in fig. 2) is merely the monetary cost of the distributed electricity. The cumulative impact to life and business is multifold. The cost of unserved energy could potentially be up to 100 times the actual cost of electricity, with dire consequences to healthcare, education, retail, and manufacturing.
The EDL tariff set at 9 cents/kWh (see table 1) has not been raised since 1994, despite the surge in oil prices starting in 2000. Consequently, the Lebanese electricity supply from EDL has been significantly underpriced for many years, with the difference covered every year by advances from the treasury to EDL.
It is important to highlight that while the Lebanese pay a low tariff to EDL, they pay a high average tariff for electricity from private generators. Thus, the typical Lebanese household pays a combined average of 23 cents/kWh for electricity (see fig. 3), which is significantly higher than the world average of 14 cents/kWh.
Technical losses in the power infrastructure are naturally occurring characteristics, as no system is fully efficient. However, the reported technical losses in Lebanon are significantly high in percentage (14 percent in 2018 per table 1) due to poor maintenance, old equipment, and non-optimal network configurations.
One form of nontechnical loss of EDL is that of illegal connections, which take the form of piracy via the illegal tapping of power lines. This has reached unacceptable levels due to the virtual disappearance and geographically uneven state authority when it comes to law enforcement. Another form of nontechnical loss is the non-payment or non-collection of 55 percent of EDL’s bills, while 45 percent of the electricity generated by EDL is not even billed. It is reported that 20 percent of the generated electricity is wasted as nontechnical losses.
How Can the Sector’s Current Cost Trajectory Change?
A government plan to stop the collapse of the country should have the electricity sector at the top of its list of priorities, potentially by way of a reform package to deflect the sector’s current cost trajectory.
Implementing Law No.462
To start with, Law No. 462, issued in 2002, should be fully implemented after passing any necessary amendments or updates based on evidence. Law No. 462 sets forth the rules, principles, and framework to govern the electricity sector, including the government’s role, the principles and bases regulating it, and the rules governing the total or partial transfer of this sector (or of its management) to the private sector. This law also calls for the appointment of an Electricity Regulatory Authority (ERA), which is expected to play a leading role in regulating the sector.
Under this law, licenses and permits can be granted to those who satisfy the prerequisite conditions specified by the ERA. The license is “an official document issued by the ERA to joint-stock companies that are granted a concession for a maximum duration of 50 years to (first) establish, equip, develop, appropriate, operate, manage, or market equipment within the scope of public services in the fields of production, transportation, and distribution of power exceeding 10 MW, or (second) use the aforementioned equipment by virtue of a financing leasing contract.”
The formation of the ERA and the privatization process have not yet been implemented for political reasons. The anticipated government should have this as a top priority when dealing with the electricity sector for two reasons. First, the ERA is expected to bring long-sought regulation into the sector, gradually decreasing EDL’s deficit. Second, international institutions have communicated a clear position on this: If an independent ERA of Law No. 462/2002 is not appointed, it is unlikely that they will issue any grants to support Lebanon’s electricity sector.
Bringing the National Control Center Back Online
The headquarters of EDL was destroyed during the catastrophic August 4th explosion in Beirut last year. It damaged the National Control Center, which is considered the most critical facility within EDL. Bringing the control center back online as soon as possible is of utmost urgency. Not only is it important for resuming its role in controlling the nation’s power system operations, but also for ensuring that we have the needed facilities to handle the expansion of the network, once the privatization process is implemented.
Following the ERA appointment, the power generation capacity is expected to increase via the construction of new power plants under contracts with the private sector. These new contracts should be less costly and more efficient sources of generation, and should include liquefied natural gas and renewable energy.
Prioritizing Loss Reduction and Correcting the EDL Tariff
While the EDL tariff needs to be corrected, it cannot be increased overnight. In order for citizens who are already paying a high combined electricity bill (public and private) to start decreasing or eliminating their subscription to private generators, they first need to see an improvement in the public power supply. For this to happen, the minimization of the heavy technical and nontechnical losses should be prioritized.
Logically, once all those reforms are underway, the path will become easier for implementing a strategy for building a reliable, clean, and smart power grid for Lebanon.
Citizen Engagement and Lobbying
Reflecting on the October 17th Uprising and the current state of the country, there is an urgent need for more specificity on the themes of reforms demanded by the people.
A successful example that emerged during the Uprising is that of the civil society’s campaigners and activists who objected to the Bisri Dam project. With no clear coordination, different groups organized events to stop the construction of the Bisri Dam, including sit-ins at the site of construction. Unified by one goal, they succeeded. This example tells us that groups of informed citizen lobbyists with clear, specific, and unified goals can succeed at realigning drifting projects or even complete sectors.
There is no question that we have the ability and obligation to become successful citizen lobbyists, intent on curing our ailing electricity sector. In the last three decades, the Lebanese people proved that they had the power to end two occupations, compel governments to resign, and fight for the adoption of important laws.
Now is the time to hold those responsible for managing our electricity sector accountable.
We should insist that the incoming government’s ministerial statement includes the urgent appointment of an independent Electricity Regulatory Authority based on Law No. 462/2002. This step will unlock international support to Lebanon that could help resolve its electricity crisis.
Yet, this call to action is not fulfilled merely by its inclusion as a clause in the next government’s ministerial statement or plans. Following the Lebanese parliament’s approval of the statement, we need to protest against any delays in the appointment of the ERA. Achieving such a specific and important objective will require many forms of protest: events, sit-ins, meetings with technical and legal experts, etc. The policies of previous governments have been to oppose its appointment for political reasons, possibly related to preserving the ministers’ extent of power. Let us ask the question: What has been stopping ministers and governments from forming the ERA all these years?
We must have discussions with technical and legal experts to develop and achieve a consensus on an action plan, then form a pressure group that will actively pursue its implementation.
Serious reforms in governance need to start with the electric power sector. Citizen participation is necessary to ensure the establishment of the ERA, but that is just the beginning. It’s a long journey to deflect the trajectory and change the narrative in this sector. Technical solutions are on the table and have been assessed extensively by experts. What is required now is the political intention driven by citizen engagement and pressure to ensure that we pivot to the right direction.
1 Figure 2, taken from Bank Audi’s head of Energy Finance Carol Ayat’s participation in the LBC show Vision 2030 on March 8th, 2021.
2 The current dollar value of this tariff is approximately 1 cent/kWh due to rapid inflation of the Lebanese Lira. kWh stands for Kilowatt-hour, the billing unit of energy.
3 Taken from Bank Audi’s head of Energy Finance Carol Ayat’s participation in the LBC show Vision 2030 on March 8th, 2021